The glass half-empty view of the June 30 profit season that is about to begin is that our 200 biggest companies will report combined earnings below those posted five years ago, before the financial crisis erupted.
The glass half-full view is that the markets know what is coming. Analyst estimates of earnings for the companies in the S&P/ASX 200 index have been wound back steadily for nine months, to a point where a merely lousy profit season should be a non-event.
A year ago, the consensus view was that the companies that make up the index would collectively earn $391 a share in the financial year that is now drawing to a close. That outlook held for a couple of more months - company analysts are notoriously optimistic - but then Europe's sovereign debt crisis flared, and signs of a bigger than expected slowdown in China began to appear.
Beijing had induced an economic slowdown to tame inflation at the same time as Europe's mess, and lethargic growth in the US was undermining exports to the West.
Global growth estimates and commodity prices fell as awareness of this spread, and in this country fears that the Eastern states were hitting the wall grew as the Reserve Bank held rates up: it held its cash rate at 4.75 per cent for a year until it cut by a quarter of a percentage point in November last year, on its way down to 3.5 per cent.
The expected aggregate earnings for the ASX 200 index had been cut by 7.5 per cent by the end of last year, and they have been lowered by another 7.5 per since then. The ASX 200 index is also down, by about 10 per cent for the year, but the erosion of confidence in earnings is another facet.
One of the key measures of the value the market offers investors is the price-earnings ratio. It measures how much investors are prepared to pay for earnings, and it has actually risen in the June half, from 10.3 times expected earnings over the next one year to 10.7 times.
This increase is a product of weaker earnings estimates, however, not a sign of rising core values or improving confidence. The measure is based on expected earnings, and they have also been wound back, by 7.5 per cent in the December half, and by another 6.5 per cent in the June half.
Analysts are, as I said, optimists. Economists in the same companies are invariably more cautious.
For that reason alone we have to see the profits before deciding whether the current forecasts are correct. They are closer to the mark than they were six months ago, however, and well below average, here and overseas.
Wall Street's S&P 500 index is trading above Australia's 10.7 times earnings multiple at 12.1 times expected earnings in the next year, compared with 12.4 times a year ago.
The MSCI global index of stocks, a reasonable proxy for markets as a whole, is trading closer to Australia, at 10.4 times expected earnings, down from 11 times earnings a year ago. All are nominally cheap: here in Australia for example, the long-term average is about 14 times expected earnings. The average since the global crisis erupted is about 13 times.
Profit downgrades have been uneven in the Australian sharemarket. Estimates of bank earnings have only been nibbled in the last three months, and downgrades of consumer-facing companies, including retailers, have slowed. In both cases, the medicine had already been taken.
The big cuts in the June quarter have been in the resources sector, where commodity price falls are being magnified in Australian dollar terms by the currency's failure to follow commodity prices down.
Gold is almost 11 per cent below its high for the year, oil is down 11 per cent, aluminium almost 13 per cent, copper is 7.7 per cent lower, nickel is 20 per cent below its year high, iron ore is down 9.4 per cent and thermal coal has fallen 25 per cent.
The Aussie began the year at $US1.02 and is less than one US cent lower today, as global investors chase AAA-rated Australian government bonds, and lock in still-attractive fixed-interest yields.
I do not think there is any relief in sight. The dollar will continue to be propped because it's a safe place in a troubled world, and because Australian yields are still relatively high by global standards.
Commodity prices will be weakish until Europe and China's trajectories are known, at least, and consumer demand and corporate activity will be subdued until we know where Europe and China are headed.
Companies will say conditions are tough, and they will be loathe to give guidance. They will be talking a lot about cutting costs, and reconstructions, including the one Rupert Murdoch's News Corp is announcing today, will be in vogue.
The analysts do, however, seem to better prepared than usual: the June-year profit season will be a shocker, but it really shouldn't be a surprise.