… that’s the exact opposite of what I determined from the 2008 data presented in Barry’s post.

reply:
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First, let me say I like your channel. There’s something relaxing about watching fatuous self absorption.

Second: It doesn’t matter where earnings are headed, up OR down. Analyst will always underestimate them, providing commentators, pundits, and the like with material to to say “It looks like earnings estimates are being beat once again”. It’s just a form of soft corruption, plus it’s an easy way to fill air time.

Don’t get me wrong. I think a little corruption is ok, providing I am on the beneficial side of it and I can’t get in trouble. I know how to work with this, and the rubes fall for it every quarter.

I do have one quibble with Barry’s comments here and that is with use of the forward PE. From what I’ve gathered historical forward PE estimates (relying on Cliff Asness via Hussman) is around 11. This is for operating earnings since the historical data doesn’t really provide “as reported” values. Right now, SPX is sitting with a forward PE(oper. earnings) of 11.36. Still not a bargain, more like average.

(Much) shorter version: For the first time in over a decade the S&P is not overvalued but that doesn’t mean it is now super cheap nor incapable of going lower, only that the probability of being rewarded rather than punished over the next decade is better than it has been in a long time.

cinefoz said “Analysts appear to always underestimate earnings”

Is DEAD HOBO really CINEFOZ?

This one really amazes me. If you have a large portion of your net worth with a single money manager, any money manager, why would you leave it there right now? Particularly if said money manager didn’t even really perform for you last year.

The biggest story out of the Madoff situation for me is that so many people appeared to do due diligence before investing, cross referenced statements, etc and still didn’t find it. It brings into question the trust of the entire system. I just flat out don’t understand why anyone with their money managed by someone else would leave it there right now. Chances are 99%+ of them are legit and your money is safe (other than standard market losses), but right now, why take the risk? Add to that the hedge funds that closed their doors for redemptions – sooner or later they have to open them again. Who would leave their money with a fund that arbitrarily told them they couldn’t have it?

I don’t think redemptions are done yet.

In the meantime, I didn’t get out fully on the first temporary Obama rally, it’s nice to get a second chance.

Oh, and add another 13,500 employees, 1,700 contractors + a hiring and salary freeze to the tally – that just out from Alcoa.

And that’s what gives this game of investing a little spice, pitting feeble-minded humans and their puny inadequate models against the unbounded, unpredictable nature of a Changing Reality. That’s what Black Swans are all about.

It’s pretty clear that we have not begun to resolve the structural problems in the global and our American economy (principally too much debt, we are ‘way over-leveraged, with no perceptible relief in sight), total debt-to-GDP has not yet begun to plummet. Yet such a resolution might not occur at all in this business cycle, presidential cycle, or even generation. We could shuffle along as the Japanese have (and it’s looking more like that every day) for several decades, or we could see something crack and have the whole house of cards thrown into disarray tomorrow.

You could have some whacko attempt to assassinate Obama (Lord knows there are plenty of nutjobs out there who would do so), you could have the Yellowstone caldera explode and bury half the nation in several feet of ash, or some sneaky comet or asteroid could plop down in the Pacific, coming at us from out of the sun, undetectable visually, and wipe out all the cities on the Pacific rim, from Seattle to Melbourne. All of these things are highly improbably, and would have catastrophic consequences on the tiny microcosm of the markets.

As stressed as investors are, it wouldn’t take many more Black Swans to spook them and have the Fed’s attempts to glide (smash?) us in for the proverbial “soft landing” go straight into the dumpster, and have all that unsustainable debt resolve itself. I am frankly surprised that the Madoff business has not had a larger impact. I guess all the talk of trillions has made a mere $50B not worth fretting over.

So it’s not terribly surprising that we get lesser unpredictable events which blow all the analysts’ projections into the weeds. Of course, it makes it easier that they do such a lousy job of predicting, and always go for the last decimal place rather than identifying trends in a company’s performance.

…and one of the great economists of our day agrees. The late John Kenneth Galbraith wrote, “The only function of economic forecasting is to make astrology look respectable.”

http://mast-economy.blogspot.com/2009/01/making-astrology-look-respectable.html