CNBC Two-Way Street

There is a bit of a dance that goes on into the early days of earnings season. This year the dance more tense than usual.

Image Source | Getty Images

That’s because earnings season is seen as the economic-driver of last resort these days. Housing isn’t bouncing back. The jobs picture is still pretty bleak. And the consumer remains fickle. Throw in Europe’s debt problems and ongoing oil worries and, well, you just want to crawl under a bed and suck your thumb. What else is there to do but to hope for a robust set of quarterly profits from the business world?

Except Corporate America has been talking expectations down. About three times as many companies in the S&P have warned about earnings misses versus gains.

By the way…that’s the first dance step. And like a good partner, Wall Street is following the dancer’s lead. Analysts are guessing the average return for the S&P will be around 7 percent, versus nearly 20 percent in prior quarters.

The wallflowers…that’d be us in the business news media…have been watching the moves and trying to prognosticate the outcome. We have a couple of good takes on the Web site from Fast Money’s John Melloy, who notes expectations are so low that they can only go up, and Jeff Cox, who points out some positive surprise tonic may be just what the market needs.

Allen Wastler
Managing Editor, CNBC.com

Indeed this may be the case. Few of the “big boys” of the S&P have come out with warnings. Some bearish market mavens are showing some bull streaks. And the highly regarded JP Morgan Bank chief Jamie Dimon recently waved the bull cape too. So maybe, like a slick dancer, Corporate America is just “dipping” Wall Street before it raises the dance partner up for a twirl, eliciting ohs and ahs from us wallflowers.

Or maybe things are just going to be bad. Alcoa, the earnings season kick-off, did lose money despite getting a little stock pop for meeting expectations. We might end up under the bed sucking our thumbs after all.

What was the biggest business story of the year?

Hard to be definitive, no? Especially with a year full of as many ups and downs as 2011. We've combed through our data to find out what stories and subjects drew our readers' attention. We've listed them below.

So you tell us.

US credit downgrade? European meltdown? Job malaise?

There is plenty to worry about these days. But a couple of guests this morning reminded us that, at the end of the day, health is the critical thing. And yet we seem to be ignoring it.

"I think the biggest single epidemic coming down the road is going to be diabetes and the complications of diabetes over the years," said Ken Langone, the founder of Home Depot and a familiar face in Wall St. investment circles.

"Sixty-two percent of Americans overweight; 35 percent are obese," Mark Bertolini, Aetna chairman & CEO, pointed out. "And in our company, almost 40 percent of our costs, $64 billion a year we pay for health care, are related to people that are overweight and the diseases associated with it. So we just spent millions of dollars two years ago to inoculate Americans to save 10,000 people from the swine flu. And, yet, we lose that many a week due to obesity. We're not addressing that problem effectively as a nation."

Many say that our current financial crisis problems are the result ignoring looming dangers years ago. Are we repeating the error with life and death? Watch the full discussion in the video.

There's a mystery a lot of business journalists would like to solve these days: Who is the bookie taking all the bets against Europe?

Why is the mystery so important? Because some fear the answer will be "another AIG." That could mean big trouble.

The bets come in the form of an ugly name, "credit default swaps," that covers a simple idea: Insurance against a certain country not paying off its debts. So if you own $10 million worth of Italian bonds and you are worried that Italy won't pay it off, you buy a credit default swap (right now it'd cost you a little more than half-a-million dollars). If it Italy doesn't pay, whoever sold you the CDS will pay off the $10 million.

So you see why many institutions that bought different types of European bonds over the years—various pension and mutual funds for example, as well as banks—might be interested in buying credit default swaps these days.

Of course, you don't have to own the debt at issue to buy a CDS. You can just buy one because you think a particular country is going down. That's when a CDS really goes from being insurance to being a flat out bet. And with Europe in the state it's in, many outfits (read: hedge funds) want to take the gamble.

But who is on the other side of these bets? Who is saying: "Sure, I'll take your half-a-million now. And if Italy defaults, I'll pay you $10 million"? That's worrisome.

"It's not a good situation," said St. Louis Fed President James Bullard on CNBC this morning. "The CDS markets are hard to trace. It's hard to figure out who is really holding the bag at the end of the day...that troubles me."

Allen Wastler
Managing Editor, CNBC.com

Sure, there's information about CDS prices on country debt. Heck we have a whole CDS page. But that comes from the buy side. The sell side remains elusive.

Leading up to the financial crisis of 2008 there was a spate of CDS buying against mortgage debt. It turned out the major bookie taking the bet was the insurance giant AIG. That led to a government bailout and a whole lot of "too big too fail" discussion.

Now some are wondering if another large company is selling all these sovereign debt default bets now, which may lead to another major bailout headache. Or are the CDS bets being sold by a collection of smaller outfits, like hedge funds. And if the bets get called in, will they just fold up and run leaving various investment funds and banks without the insurance they were counting on. (There is a ripple effect discussion here...did those outfits use the CDS insurance as justification for borrowing and investing even more money?)

Or is the answer somewhere in-between: A few major banks are selling the CDS contracts now, getting the short-term cash to bolster their books and hoping the Euro zone will sidestep defaults in the future?

The mystery was almost solved when Greece reached its "haircut" agreement with private investors in early November. Many thought taking a 50 percent loss on Greek bonds would be the "credit event" that called in all CDS bets. Then we'd get to see who was paying up...or running away. But the body in charge of making the call, the International Swaps and Derivatives Association, demurred.

So the mystery remains. It'd be major chest-thumping for the biz journo that answers the question. But as the Fed prez said, it's an opaque market. Probably the luckiest thing will be we never find out.

We had a poll up from our Republican Presidential Debate asking readers who they thought won. One candidate was leading by such a margin that it became obvious the polling wasn't so much a reading of our audience, but of the Internet prowess of this particular candidate's political organization. We have therefore taken the poll down.

Yes, we've gone through this exercise before.

CNBC is going to be hosting a debate among the Republican candidates for president this Wednesday and we're going to be doing some neat stuff here on the Web site to let readers get deep into the issues.

Go to debate.cnbc.com and find our page dedicated to social chatter – pulling in #cnbcdebate tweets and giving viewers a place to discuss the candidates' performance and arguments and simultaneously post to their Facebook and Twitter accounts as the event is going on. We’ll be including tweets from some of our CNBC journalists, notably Carl Quintanilla and Eamon Javers as well as other CNBC contributors.

Readers can also follow our live blog of the event, which will relay behind-the-scenes moves and nuances that the camera may miss.

Before and after the debate itself, we'll be hosting one of our "Speakers' Corner" web streams from the Oakland University campus. This will allow anyone willing to step up and tell the world what they want to hear from the candidates and, later, what they thought of the discussion.

All of this, of course, will take place amid our usual wall-to-wall coverage of the action. So we hope you'll drop in and make your voice heard.

Trading in CNBC's Million Dollar Portfolio Challenge was suspended as of close of trading today at 4:00 p.m. ET for one week.

It came to our attention that there was a technical glitch in the current equity-trading system, which a handful of players found and exploited to jump to the top of the leaderboard. The contest accidentally allowed what our rules specifically prohibited.

Out of fairness to all registered contestants and as is our right, according to the rules of the contest, we are suspending the contest and will restart it Sunday, October 30 at 5:00 p.m. ET. Upon relaunch, all player accounts will be reset to their opening balance. Play will begin anew for the final five weeks of the contest. All winners from the first five weeks, including this week, will retain their prizes.

We apologize for any inconvenience, but fundamental fairness compels us to take this action.

For those of you wondering about it, yes, we will be doing our Speaker's Corner from the Occupy Wall Street protest once again this Monday.

If you are unfamiliar with it, the CNBC Speaker's Corner is essentially a virtual podium where we invite folks down at the protest to speak their peace about who they are and what they want. We stream their comments live on our site.

It's a neat example of the kind of engagement you can drive with Internet journalism. In the olden days you'd send a reporter down there to do some interviews and report back on the general sentiment of the crowd. (Hey, we STILL do that, don't we?). This allows our readers to see the sentiment in the raw, so to speak.

The feed is pretty engaging and many have a poignant and relevant points of view. Even if you don't agree, it's worth taking a gander. You can take a look at some of the hits from last week's Speaker's Corner here.

So Mondays will likely be Speaker's Corner day as long as the Occupy Wall Street movement is going strong and weather/other events permit . We hope you enjoy.