Analysts expect huge increase in earnings next year

Wall Street analysts are known for being too optimistic about earnings at the companies that they cover, but the problem may be getting out of control.

According to The Wall Street Journal, "Collectively, analysts expect S&P 500 earnings to expand by 23.9% in 2009, according to Thomson Reuters. The index does include a number of banks."

The prediction may be why analysts do not have a very good reputation with many investors. Well-regarded experts from Warren Buffett to Jack Welch believe next year could be one of the worst economic periods in decades.

Part of the thinking among analysts is that spending for consumer durables will be good. Since gas and food prices are still fairly high and consumer spending is on life support, it is very difficult to see how that point of view could be justified.

Analysts cost big banks and brokerage firms a lot of money. If the financial trouble on Wall Street gets worse, they may be among the next wave of employees fired. If their forecasts are so ridiculous, that will make a lot of sense.

Douglas A. McIntyre is an editor at 24/7 Wall St.