Despite what CNBC says all day earnings season does not really start until next week. The names reporting this week are almost entirely meaningless. So let’s take a look at what we can expect over the coming 8 weeks as corporate earnings actually begin.

M2M throws a wrench in estimates for this quarter. The revisions upward across the board have been substantial.  Do not be fooled when the banks report better than expected numbers. The EPS figures will be almost entirely fake. Thanks FASB. You just made the black box balance sheets even blacker. The FASB rule change will add about $3B to Q1 earnings, but don’t expect those earnings to stick thru year-end. This impacts the total S&P 500 earnings substantially. As of now analysts are expecting net income to decline 28%. That translates to $60 in EPS this year and $75 next year. I am still sitting on $50 and $60 for 2009 and 2010. That means estimates are still far too high in my opinion.

The expectation ratio confirms this. Although we are seeing improvement in the ratio it is still far below (1.0 is neutral) the range where corporations can under promise and over deliver. The ER led me to become cautious on the long-term trend of the market in 2007 and I expect it to be a leading indicator again coming out of this recession.  So far, this is bad news for the overall long-term trend of the stock market. As I often say, a sustainable bull market needs two major ingredients: 1) Low expectations and 2) Accelerating cash flows. So far, we have neither, therefore, I am still working within the macro view that we are in a bear market and that the long-term trend of the market is down.

Corporations are practically guaranteed to provide very tepid guidance this quarter and for the full year. You will certainly have your RIMM‘s who sand bag the living hell out of analysts, but on the margin corporations will guide lower because expectations remain too high. The banks could throw a bit of a wrench in the first few weeks of earnings because their figures will appear strong, however, those figures are a bold faced lie and should not be trusted.  The addition of the AIG profits will also give the banks the appearance of strength.  Do not buy them unless it is for a trade.  Personally, I don’t touch anything I can’t completely understand and I can’t understand their balance sheets.   Rather, I don’t believe their balance sheets.

The risks in this market heading into earnings remain substantial.

Update (5:35 PM EST) – Nice chart here from Bloomberg on the impact of company removals on the S&P 500 earnings.