I have a few S&P500 earnings posts in the queue, but Bob Bronson’s chart was a good place to start. Bob notes that the S&P has finally updated their 4Q earnings, which (predictably) have collapsed.

If you recall my November Barron’s interview, the collapse of earnings was what prevented me from becoming too bullish then, even though we were expecting.

>

click for ginormous chart


chart via Bob Bronson Capital Management

>

Previously:
The Barron’s Interview: A Leading Bear Turns Bullish, Sort of (December 7th, 2008)

http://www.ritholtz.com/blog/2008/12/the-barrons-interview/

(free version of full interview at Smart Money)

Related:
S&P heads to first quarter ever of negative earnings
Kate Gibson
MarketWatch, 4:29 p.m. EST Feb. 13, 2009

http://tinyurl.com/spxnegativeearns

Category: Earnings, Markets, Valuation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

58 Responses to “S&P500 Q4 Earnings Collapse”

  1. whosonfirst says:

    I’m in the back, so to speak, but I don’t understand why this isn’t Topic A all over the financial blogosphere. Doesn’t it demolish those people who love to say the market is oversold?

    ~~~

    BR: Not precisely.

    Overbought/oversold is a temporary technical condition. It is short term, and used as a trading indicator.

    Earnings are a longer term issue — they are in part a function of the overall economy, combined with how well management operates.

    But to investors, they provide insight into Valuation — how cheap or expensive a stock is relative to its price. Hence, one value of P/E.

  2. Bruce in Tn says:

    I suppose we have heard the end of the mantra “But stocks are a buy now based on projected earnings”..if indeed the S and P 500 p/e will be 58 3 quarters from now as speculated…

  3. Chief Tomahawk says:

    Well, I’d say someone’s favorite “Goldilocks” saying has (or is) getting her head shaved….

  4. Well……I guess it’s time to focus on price to sales ratio

  5. Bob the unemployed says:

    It looks to me as if the uptick rule explains that chart.

    Before the uptick rule was implemented in 1934, growth in earnings was 2.3%.

    After the uptick rule was implemented in 1934, and through its lifespan to 2007, the growth increased to 6.5%.

    Now, since the uptick rule was abolished, we are returning to the lower 2.x% growth rate.

    ~~~

    BR: What is the causal relationship between the uptick rule and earnings?

  6. danm says:

    Let’s do some normalizing…

    In 1940 earnings = 1$.

    In 2009, normalized earnings assuming 6% growth (3.5% inflation, 2% real return) would give us 42$. Using 10X multiple, which is the thro- in-the-towel assumption, gives you 10X42$ = 422.

    If you assume average, then 15X42$ = 630.

  7. danm says:

    Maybe I was too conservative, before we started getting inflation, the return was closer to 2.5 or 3% (but then again the US was still an emerging market so maybe I should keep the 2%).

    Anyway, let’s say inflation 4% and growth 2.5%, then:

    10X 82$ = 820
    15X82$ = 1230

    The market protects against inflation but not in the intial stages of it. The market only starts reflecting it when inflation gets into the corporate forecasts. When inflation picks up, margins always collapse because corporations have trouble increasing their pricing while costs are quickly creeping up. And in today’s world, where companies have been built on M&A, the main strategy being market share, inflation will be a real killer as this philosophy will make it even tougher to increase prices.

    Furthermore, there is actually zero prospect of inflation currently priced into the market. If we get inflation, the market will tank.

  8. danm says:

    Multiple at 3% yield = 33X

    Multiple at 6% yield = 16.6X

  9. krice2001 says:

    Seems to me that one of the methods being used to determine that the market is “fairly valued” is a normalization of earnings. The issue I have is how to accurately do that. With the lowered expectations for home price appreciation and significant 401k i nvestment declines, individuals and families will have to save more to make up the gap. And credit availability has to be lower going forward than it was the last 15 years or so as will be the ability or willingness to take on debt. Whatever that adds up to will surely have to be subtracted from the economy (or what it would have been). So, I find it hard to figure out how to normalize earnings and where the S&P 500 “should” be.

  10. Mr.Sparkle says:

    There were a lot of good comments in the last post on S&P earnings. For those interested in how S&P’s earnings estimates have changed over time, see these two charts:

    Oper. EPS ests over time
    Reported EPS ests over time

  11. danm says:

    , I find it hard to figure out how to normalize earnings and where the S&P 500 “should” be.
    ———
    I would use population growth (or real GDP growth but I don’t trust government GDP and inflation measures) + inflation and play around with different time periods.

  12. Bruce in Tn says:

    http://www.btimes.com.my/Current_News/BTIMES/articles/eurinks/Article/

    Eurozone growth shrinks sharply in Q4

    But here is the money quote:

    “This is really Friday the 13th,” said Carsten Brzeski at ING Financial Markets of the German figures. “The only positive note … is that a horrible fourth quarter can now finally be filed away. It can hardly get worse.” – Reuters

    Of all the sad words of tongue or pen, the saddest of these,”It can hardly get worse”…..

  13. Mr.Sparkle says:

    I had put up some charts that showed the S&P’s earnings estimates over time.

    See here

  14. danm says:

    Of all the sad words of tongue or pen, the saddest of these,”It can hardly get worse”…..
    ———
    Today’s equity valuations are based on 3% yields.

    Most of the growth in market returns of the last 2 decades were due to inflation. Everyone will say that inflation was dead. They might be right in the consumption side. But the inflation of the 70s and 80s truly got refelcted in securities in the last 2 decades. Rates went from 18.5% to 2.5%. This drop in yields made your multiple go from 5 to 40! Basically, this drop in rates with the multiple going up was the lagging inflation of the 70s and 80s.

    This multiple effect is finished. Now if you want the market to go up, you need earnings to growth, more inflation or complete idiots. And if inflation rears its ugly nose, equities will do the same as they did in the 70s.

  15. Todd says:

    Most of it is due to the accelerated growth of debt since the 80′s 6-7% as opposed to 2-3% from the 50′s-70′s.

    I’m still working on credit and debt growth rates, but things definitely started changing in 2005.

  16. As a simple mathematical proposition, the earnings on the overall stock markets (not just S & P) must grow at about the same rate as the overall economy (whose growth rate is also intimately tied to the population growth rate). If it appears that they aren’t growing at about the same rate, then something else is going on, like for instance, GE transforming itself from an industrial conglomerate to a highly leveraged investment bank, as we now know is how they so consistently “outgrew” their peers.

    The recent several years of continual double-digit growth in S&P earnings when the economy was barely moving should have rung bells amongst financial/economic minds. It could not last. Somebody was monkeying with something. In this case, it appears it was monetary mischief more than anything.

  17. danm says:

    Curmudgeon:

    I agree. In the long run mathematics and Mother Nature rule. But the thing is these circumstances can last for decades (as we have seen) and can truly make you pariah if you don’t play the game.

  18. Todd says:

    Not monetary mischief, more like credit creation mischief, the fed only plays try and catch up with the needed cash to support the credit sloshing around. The big players were gaming the system, and now they have been caught.

  19. York says:

    I saw an article over at Marketwatch that this is expected to be the first quarter of negative earnings for the S&P 500. To date, 400 companies have reported about $(10) / share. Even excluding financials the number is $(2). Interesting times…

  20. johnbougearel says:

    Thank you Barry,

    This is particularly worrisome, scary is a better word. According to the chart, trailing four quarter earnings will be around where they were in 1990. The dow bottomed at roughly 2400 in 1990 and the SP500 at roughly 300. That would still be a ttm p/e of 20 for the SP500.

  21. JohnnyVee says:

    johnbougearel “The dow bottomed at roughly 2400 in 1990 and the SP500 at roughly 300. ”

    Iit may be closer to 1985 than 1990…s/p 180. Are equities dead? Me thinks so.

  22. whosonfirst says:

    @danm,

    …”or complete idiots”. I wouldn’t go quite that far but I would say the market is loaded with sophomores. Cinefoz, who used to post here, comes to mind.

  23. Andy Tabbo says:

    Now, That Is the scariest chart I’ve seen in awhile. I don’t normally look at P/E or Earnings charts because the stock charts themselves will tell you all you need to know, but it’s pretty clear there was a nice upward trend channel on those earnings that was snapped pretty hard.

    Maybe all the “cash on the sidelines” is there to make up for shortfalls in corporate/individual earnings? As a firm, it’s pretty difficult to think about “investing” when you’re actually thinking about how to make payrolls, rents, utility bills. As an individual, it’s difficult to think about buying stocks when all you’re really considering is food, shelter, medical bills.

  24. BG says:

    collapse in earnings,
    the massive buildup of debt (which ultimately has to be financed by somebody besides the Fed),
    collapsing real estate,
    continuing prop up of the US financial system for years,
    Social Security,
    Medicare,
    increase in the social programs,
    Interest rates being set by the results of Treasury auctions instead of being manipulated by the Federal Reserve,
    financing the Federal debt on an annual basis,
    fading/retiring Baby-Boomers,
    no retail participation in securities markets,
    low availability of good-paying jobs in the US,
    no trust in anything or anybody in the financial industry.

    The Wall of Worry has never been steeper. It will take decades to work our way out of this. (Let’s face it. A lot of us will already be dead when it happens.)

    Clean up your life and hunker down. You are on your own.

  25. @The Curmudgeon Says: February 14th, 2009 at 11:14 am

    As a simple mathematical proposition, the earnings on the overall stock markets (not just S & P) must grow at about the same rate as the overall economy (whose growth rate is also intimately tied to the population growth rate). If it appears that they aren’t growing at about the same rate, then something else is going on, like for instance, GE transforming itself from an industrial conglomerate to a highly leveraged investment bank, as we now know is how they so consistently “outgrew” their peers.

    I can see that for the market in general but I thought it was the job of companies to create value, innovate and produce productivity enhancements that they could then sell to the general public. Doing that is supposed to make them grow at a faster rate than the economy and that is why we invest in them

  26. Bruce in Tn says:

    @whoson:

    “complete idiots”…hmmmm…

    http://www.bloggingstocks.com/2007/03/08/cramer-plays-down-sub-prime-risks/

    Cramer plays down sub-prime risks

    The “anti-Roubini”….

    I haven’t watched him in a while, I wonder what he will think of coming earnings…

  27. gorobei says:

    Curmudgeon,

    Actually, we should expect S&P to grow a little less than the overall economy (e.g. Microsoft doesn’t get to be in the S&P until it has outperformed the S&P for a number of years.)

    The scary quote on the graph is the “kitchen sink” one: once you know you just can’t hit the number, you dump all your crap into a big “one-time” write-off, and hope the market buys it.

    Being a bit of a grey-hair, I don’t see this as an extraordinary event – it’s just a global admission that the last decade’s “growth” was largely rubbish.

  28. RW says:

    “…it was the job of companies to create value, innovate and produce productivity enhancements that they could then sell to the general public. Doing that is supposed to make them grow at a faster rate than the economy…”

    This is a useful way to look at present value I think and Cassandra has an answer at http://tinyurl.com/au7z74 that matches, running somewhat counter to the way the problem is usually presented in consequence. The inimitable Steve Waldman at http://tinyurl.com/bz6at2 succinctly restates Cassandra’s insight (and much more) thus:

    “Ultimately, a financial system has to find productive projects for the private parties to invest in. The government can invest directly, can delegate investment to the best and the brightest, can saturate the public’s demand for money until private parties try to find other means of storing wealth. But it’s what real human beings do with real resources that ultimately matters. Our financial system didn’t fail because it was overlevered. It failed because it was uncreative: It could not conjure up worthwhile things to do with the capital it was asked to invest, and instead of owning up to that, it pretended that poor projects were good. Financial markets are ultimately information systems. The only way out of this is to discover worthwhile things to do, or more importantly, to develop better means of generating a diverse menu of worthwhile things to do going forward. Right now, the government is being asked to do what the semi-private financial system could not: generate a positive real return on trillions of dollars of undifferentiated future claims.”

    Those who complain that we’re taking a “shotgun approach” to solving the financial crisis may not have thought the problem through: Some of those complaining are clearly suffering under the delusion they know what is going on and some appear to want to fall back on a time when things seemed more clear but if the private sector has indeed run out of useful ideas, as the financial sector at least certainly did, then it’s probably time to begin blasting away.

  29. John Clarke says:

    Carl Swenlin at DecisionPoint.com, posting on FinancialSense, has a similar analysis here:

  30. John Clarke says:

    Sorry. Lets try that again. Carl Swenlin at DecisionPoint.com, posting on Financial Sense, has a similar analysis of S&P 500 earnings here:

    http://www.financialsense.com/editorials/swenlin/2009/0213.html

    In Bull markets P/E ratios tend to matter a lot less than they do in Bear Markets. In Bear Markets they can act as a ‘guide’ as to where fair value should be, particularly for a Big Index like the S&P 500, — as compared to Historical valuations during other Bear Markets. I think single digits are certainly in the cards…for this Bear Market.

  31. RW says:

    Single digit PE’s in what is essentially a ZIRP environment would really surprise me a lot; shocking in fact. In 1980 bear when bond interest rates were something north of 17%, sure, stocks had to yield more in order to compete and single-digit multiples were common …but now? If we get there I’d rather not be here (if you get my meaning).

  32. BR: What is the causal relationship between the uptick rule and earnings?

    BR,

    I think it was a tongue-in-cheek, and hiliarous, extension of the correlation=causation fallacy..

    tho, as per usual, I may be wrong (;

  33. AmenRa says:

    @John Clarke

    I was about to post a link to the same article. Why doesn’t the MSM use GAAP in their reports instead of operating earnings?

  34. AnotherGuy says:

    I would expect revenue to grow with the economy. Not necessarily earnings.

    I’m starting to question the value of P/E – it seems to all depend on the reason why the earnings are low, not necessarily the number itself. A company with no earnings could be a on rapid growth and an excellent investment. On the flip side, take this same company, lay off 80% of the people, and you can get great earnings for at least a couple of quarters before it drops over dead.

    It’s looking more and more to me like a useless metric. It seems what one should really ask how effectively is a company in deploying its revenue.

  35. Mr.Sparkle says:

    @John Clarke – single-digit multiples are by no means a guarantee. Look at the last bubble: when the market bottomed, PEs were still well above levels considered to be “value” territory. (I’ll immediately state that I do *not* believe this is a repeat of 2001 for lots of reasons.)

    Take a look at Shiller’s data from his website – yes, there are several periods of market correction during which PE dropped to that level but it isn’t a necessary element for recovery. Multiples seem to correct more to a recent average, rather than relative to a historic average. And recent (meaning maybe last 10-15 years) have seen multiples higher than the entire series.

    I don’t disagree with your premise and expectation of more pain ahead, just warning that assigning a “fair” multiple is as arbitrary as bulls wanting to claim the market is cheap by valuations or the Fed model or whatever fits their bias. The period of 1974 – 1982 was pretty nasty and it doesn’t take a great leap to see a return to the conditions of that era.

  36. AnotherGuy Says: February 14th, 2009 at 2:38 pm

    following along AG’s nascent Thesis, I find it interesting that peep like to compare Historical *Earnings, yet, make no adjustment for the differing Tax, at the minimum, environments that engendered them..

  37. @RW Says: February 14th, 2009 at 2:09 pm

    I was wondering where to invest as my wealth grew. My first solution was nanotech. I think that will be the next internet boom. I came across another one the other day that I had not thought of before. That is food tech. Companies that are looking to improve the nutrient value of food. This is not new but I think it is going to take a huge leap forward in the next few years. I’m not talking the frankenfood genetically modified stuff. I’m thinking more along the lines of better organics and growing processes along with the study of food and nutrition in relation to the body and diet.

  38. ….and to expand a little on what I was talking about. Take sprouts for an example. If you do a search on sprouts or wiki it you’ll see that they have incredible nutritious value for mankind. The only problem is that if they aren’t handled right you are going to be dealing with E. coli problems. That is a gap that can be bridged by a food tech solution

    One place the cash is beginning to pile up is on tech balance sheets:

    Technology firms sitting on mountains of cash

    http://tinyurl.com/bbhevo

  39. How the Common Man Sees It Says: February 14th, 2009 at 3:08 pm

    CM,

    your ‘Food Tech’ take is a good one–to expand your research view, you should be thinking ‘Hydroponics’–especially with things like ‘sprouts’..LSS: the less sh*t you deal with in your Business Process, the less likely you are to invite disease vectors–as a +…something has to soak up all of the CRE that is being abandoned by Retailers adjusting to their, now, overcapacity.

    as an aside, mind over-usage of tinyurl, it impedes quick reference to source..

  40. RW says:

    Common Man, the problem I have always had with attempting to capitalize on the monetization of tech innovation is the extreme difficulty in calling the shot; e.g., even if it’s a great idea and I learn about it in time the chances of making it to market are usually small. Take those sprouts of yours, what if the relevant innovation turned out to be a kitchen appliance that could nuke food w/o heat or radiation danger? Given increasing complexity in the food chain and concomitant risks to food supply from all sources there would probably be a pretty good market for that if I could figure out a way to even get out in front much less avoid going broke investing in it.

    I’ve only known a few people who really made something like that work and, with only one exception, they were all special cases; e.g., one was in VC with a lot of inside information to work with, another was a former student who went to work for a biotech company as a lab tech and took a hunk of pay in stock options which turned golden when the company went public (she retired at 29 with a piece of island in Puget Sound and I have a note reminding me not to take sharp objects if I visit).

    The only exception was a colleague who was not only a voracious reader and very well educated in the field(s) of interest but had something close to eidetic memory; e.g., he could link two ideas or whole diagrams in his head from separate technical articles published at different times. Even he does not get it right every time but his odds (and his record) are better than anyone else I know.

  41. RW,

    no offence, but maybe your problem is that your Zeitgeist is without Love..

    and, this: “what if the relevant innovation turned out to be a kitchen appliance that could nuke food w/o heat or radiation danger?” betrays a lack of knowledge of Biology..

    or, differently: Bitterness attracts, not, the Sweet..

  42. RW says:

    Mark, no offense taken and I hope you’ll take none when I point out that zeitgeist refers to characteristics of historical eras or generational tastes rather than individual persons so I have to assume you mean I somehow reflect the lack of love you view as indicative of this period of time, an observation with which it is not possible to agree or disagree.

    As to my ignorance of biology, one of my degrees is in that field so I must really be slipping; thanks for the heads up. As far as food irradiation goes though, the subject may be controversial but the process and its efficacy in disease control is reasonably well understood, just not counter-top material; e.g., CDC overview at http://tinyurl.com/cbr9uj

    Returning to the topic of our host’s post, I suspect it will take more than innovation to cure what ails us now (although it certainly won’t hurt), but what I am most curious about now is whether it is true that write-offs were accelerated by corporations to get as much bad earnings news off the books as possible while the getting was good. That could lead to some more positive news in the next quarter or two and the possibility of a trade.

    Now what would be some good indicators that a corporation was doing or had done that?

  43. danm says:

    Single digit PE’s in what is essentially a ZIRP environment would really surprise me a lot; shocking in fact. In
    ———
    At 3% yield, that’s probably why we currently have over 30X multiple.

    But do you think yields will go lower or higher?

    If they go lower, you’ll have worsening deflation and I doubt your sock market will go higher uless governement somwhow props it up?!

    I doubt they’ll stay flat but even then, you’ll need eps growth to get some returns because your multiple expansion won’t be giving you a boost as there won’t be any.

    If rates go up, your multiple will shrink and you’ll need one heck of a eps boost to compensate.

    All in all, nor much upside unless the market becomes even more irrational.

  44. Steve Barry says:

    It may just be that the Fed, while thinking they were smoothing out the boom-bust cycle, has inadvertantly created a new, much longer duration bubble-cataclysm cycle.

  45. AGG says:

    Barry,
    Do you think the chart’s jolt downward was exacerbated by the temporary rise in the dollar’s exchange rate. How would it look in gold or euros? Not that I disagree. It’s just that when the dollar starts its’ ZIMBABWE DANCE, this chart will appear to be level or rising; which, of course, would be inaccurate.

  46. AGG says:

    Few people are capable of expressing with equanimity opinions which differ from the prejudices of their social environment. Most people are even incapable of forming such opinions.
    Albert Einstein

    RW,
    I’m no exception to the above but I’ll give it the old college try:
    1) US patent law specifically states that the government can take over any patent for national security. The inventor has no recourse. Period.
    2) There are people (yes, lawyers are people) who do nothing but scout for innovation which would hurt corporate profit margins for the sole purpose of squelching said innovation.
    3) Innovation has not stopped; it has gone underground. I can show you a power generator that is cheaper to manufacture and maintain than any powerplant in commercial production and uses no hydrocarbon fuel. It can be produced small or huge and it’s only limitation is that it must be on a stationary platform (no moving vehicles). It costs $7,000 to $11,000 to patent it according to a patent attorney I contacted who is also an industrial engineer. I won’t do it.
    Am I stupid? No, I just know that the thing is more trouble than it’s worth because of all the elite toes it would step on. Perhaps I’m just a coward.
    Do you want it? How about you, Hoffer? I’ll sell it to you for 10% of the profit in retail sales for 10 years.

    You deal with the powers that be since you think I’m parranoid. I’ll settle for 10%. I will, of course, provide a working prototype in for $1,000 and a suitable nondisclosure agreement.

  47. constantnormal says:

    I suppose the delay in the rise of things like SDS and QID must be a phenomenon akin to that observed in the film Force 10 from Navarone, when Miller is explaining to Mallory, et al why the explosion of his bomb has not resulted in the immediate destruction of the dam … I would post that explanation here, but I don’t trust my memory to quote it perfectly.

  48. RW,

    with this: Zeit·geist (tstgst, zt-)
    n.
    The spirit of the time; the taste and outlook characteristic of a period or generation: “It’s easy to see how a student . . . in the 1940′s could imbibe such notions. The Zeitgeist encouraged Philosopher-Kings” James Atlas.
    http://www.thefreedictionary.com/Zeitgeist

    correct you are. as I was intending, though, I meant, inaccurately stated, it in the singular/personal sense. again, w/o offence meant. IOW, get over the, rather obviously portrayed, ~Envy that you have for the few that you singled out as *Successful…you may find that, if you open your Heart, other vistas will come, more clearly, into sight..

    though to your rejoinder concerning irradiation–LSS: any such process that has the capacity to sufficiently injure, thereby disarming, the, potentially, offending cells, has Power, enough, to degrade some, if not many, of the positive effects of the remaining ones..

  49. AGG Says: February 14th, 2009 at 7:45 pm

    your points abouts Patents, are, indeed, correct, many innovations are never published thusly–via the Patent Office. Though many are employed, kept *out-of-sight by NDAs and Trade Secret, as an example, terms of Art.

    about your offer, feel free to send me an e|mail, that type of bleeding stuff is my racket.

  50. AGG says:

    Hoffer,
    Very well. You have a lot more confidence in the system than I do. For that I envy you.
    I’ll e-mail you my terms within a week.
    Thank you for your interest.

  51. RW says:

    danm, I don’t disagree: Just saying that a drop to single digit multiples in a low interest rate environment would probably be signaling something a lot worse than recession.

    AGG, you’re singing to the choir. My uncle invented the power toothbrush in the ’50s — no kidding, I saw copies of his patent submissions — the first model used a wall-mounted motor with a flexible cable to the brush and the second model a couple years later was self-contained. He couldn’t afford a good patent attorney for either and submitted the applications himself so it was child’s play for a well-healed corporation to create the necessary minor variations and cut him out entirely (I have to say it continues to surprise me that those who understand governments can expropriate goods and rights don’t seem to understand that corporations can do the same). Einstein correctly identifies the power of environment and Bertrand Russell intrudes on his turf a bit in generalizing the principle: “The fundamental concept in social science is Power, in the same sense in which Energy is the fundamental concept in physics.”

    Mark, I figured as much: My comments were intended to be wry and ironic rather than envious, a commentary on the nature of fortune if you will, and I remain on very warm terms with all concerned.

  52. RW,

    that’s good to hear, this two-dimensional means of communication, certainly, has its Limits.

    w/this: ““The fundamental concept in social science is Power, in the same sense in which Energy is the fundamental concept in physics.”–we should remember that Economics first, and foremost, is ‘Social Science’, and with that, all the Flap we hear about “fixin’ the Economy”, should be understood, in the current context, as “Further Consolidating Power(away from the Individual)..

    AGG,

    no Thanks necessary, I look forward to your proposal. I’m not much, if any, more confident in ‘la sistema’ than you are, but, there’s only one destination, in my mind, a better tomorrow..

  53. AGG says:

    RW,
    About corporate power: Of course it is what’s behind the laws that government enforces. Government is just the face of corporate power. It wouldn’t look good to have a Coca Cola jail or a Pfizer lethal injection service. No, the government has to “serve” as policeman.
    I agree with you. We both know the score. I think this knowledge has bred misanthropy in many. It has in me, anyway.

  54. Fantastic point/counterpoint tonight folks and if the only thing that comes out of this is that new power source then we really have won a big one tonight

  55. How the Comman Man Sees It:

    I can see that for the market in general but I thought it was the job of companies to create value, innovate and produce productivity enhancements that they could then sell to the general public. Doing that is supposed to make them grow at a faster rate than the economy and that is why we invest in them

    Reply: You are correct, but miss my point. Some will grow faster and some slower, but overall, the value of earnings in the stock markets (again, not just the S&P) must necessarily grow at roughly the same rate as the economy because stock market earnings growth plays directly into the calculations of GDP, ie., the total growth in the economy.

    If the S&P, a small sample of all stocks, representing only very big companies, grows faster than the overall economy, it could be that large companies are growing at the expense of smaller ones–which is just one possibility that would require more investigation to conclusively determine.

    Hope I didn’t completely miss the thread. It’s been a busy weekend. And I agree, fantastic, insightful stuff can be found here. Thanks Barry and the rest.

  56. Flybeug says:

    Hey AGG,

    Not exactly sure what you’re pointing at, haven’t been underground for a while, but I live in a country where the media and politics still can be played somewhat. We also have a fairly large and powerfull green movement so I would be willing to give it a shot. Send me an NDA at flybeug-at-hetnet.nl and I’ll see what I can do to take this mainstream. Also have access to testing and production facilities. I also get to go Stateside sometimes, so invite me over sometime.

    Just lemme know, kinda tired of big oil as well, so give us change…..

    Regards,

    Bas.

    Bas.

  57. Binggan says:

    Very interesting posts. Following up on this I built a long term PE chart based on 10 year rolling earnings based on S&P data. You can find it here:

    http://great2cents.blogspot.com/2009/02/earnings-and-valuation.html

  58. Jim Dandy says:

    I wish I knew what the S & P 500 companies earned nearly 100 years before the index existed. I am skeptical of the unmentioned constructed index that magically has alower growth rate than you know the actual index.