Just why is Marge so high risk for you Well good morning John yeah I mean Normally March can be both seasonally Positive or negative but what we're Seeing is this pattern over the last Year where you know we're in an earnings Downtrend and there's a presumption now I think by the market that because the Economic data has been a little bit Better than expected including what we Were expecting that the earnings Declines are now over and that's not What we think and the way the Market's Been training over the last three or Four quarters is you know the market Figures it out the month before earnings Because the you know the word kind of Gets out that maybe things aren't so Great and that last calendar month and Then of course when the company's report And the numbers actually come down the Stocks have kind of relief rally Thinking okay the worst is behind us but It's been kind of this you know Repetitive pattern so if that pattern Holds then March should be the month Where the first quarter earnings get Digested even though the revisions Aren't coming down yet the market gets Ahead of it by about a month Mike there Is a concept that I hear you use and Seeing your research repeatedly it's Negative operating leverage now my for People who aren't in the equity market
Like you are don't follow this stuff Like maybe other people do what does That concept mean and why is it so Important right now I mean it's a very simple concept Anybody who's been doing this you know For any period of time understands it Which is that you know when you get Positive well operating Leverage is Basically The Leverage uh or the Company's earnings have to revenue Growth and so in the pandemic of course We had incredible positive operating Leverage because costs were slow to come Back as people were stuck at home but The revenues came roaring back as we Digitized the economy and we were able To operate so we had this windfall Profit and we think that that you know Windfall profit was very broad it wasn't Just a few companies benefiting from Code it was all over the economy and as You know uh John we've been talking About this for a while and and now of Course we have evidence that that Negative that operating Leverage is Going negative meaning we're seeing a Deterioration and earnings growth I'm Sorry Revenue growth but then we're Getting a much more severe decline in The earnings and we just saw a couple Companies you mentioned in the retail Space where that is being played out in Spades and that is going to happen
Across the economy the evidence is Already overwhelming it's been most Apparent in the tech space because That's where the over investment was the Most egregious and now we're seeing Companies deal with that but we think They're going to be woefully slow to get Those costs down to a level where you Think they need to to get the margins to Stabilize that's a thesis um it's Playing out I think some people think The worst is behind us we think the Worst is still probably ahead for most Companies
