Sunday, April 27, 2008

Earnings Risk / Hussman

This should come as no surprise..... Here are more examples of how smart "Wall Street Finest" have acted in the past.... Keep this in mind when you here "the market is cheap based on our 2009 earnings estimates".....

Sollte keinen wirklich überraschen..... Hier ein paar weitere Beispiele für den Scharfsinn von "Wall Street Finest" . Kann nicht schaden sich diese Prognosesicherheit in sGedächnis zu rufen wenn es wie so oft zu hören mal wieder heißt " Auf Basis unserer Gewinnschätziungen für 2009 sind Aktien billig"......

Earnings Risk / Hussman
On the earnings front, we continue to expect significant pressure on profit margins and resulting cost-cutting pressures to weigh on employment. Given that Wall Street analysts continue to build a major second half recovery into earnings projections, it is important to ask whether those earnings estimates are likely to be reliable.

Since analyst estimates of earnings are almost invariably higher than current operating earnings, and earnings tend to grow over time, it is easy to assume that analyst estimates usefully “lead” earnings. Unfortunately, this isn't true, particularly at turning points when earnings trends are slowing or improving.
In q4 more than 1800 Analystst had predicted a 7.9 percent increase in earnings. In reality the earnings crashed 22.6 percent. This large divergence marked a new record.....
Was im vierten Quartal 2007 passiert ist, war kein Ruhmesblatt für die Branche. Denn mit ihren Prognosen für die amerikanischen Unternehmen in diesem Berichtszeitraum haben die 1800 Analysten der Wall Street um mehr als 30 Prozentpunkte zu hoch gegriffen. Konkret wurde mit Gewinnsteigerungen von 7,9 Prozent gerechnet, letztlich sanken sie aber um 22,6 Prozent. Damit lagen sie so weit daneben wie noch nie.
James Montier at Societe Generale demonstrates this nicely by subtracting the upward linear trend from both operating earnings and analyst estimates. What remains are the deviations of earnings and estimates from their long-term trends.

If analyst estimates anticipate subsequent earnings, the “forecasts” line (black) should turn upward or downward before the “earnings” line (red) turns. But as James notes, “The chart makes it transparently obvious that analysts lag reality. They only change their minds when there is irrefutable proof they were wrong, and then only change their minds very slowly.”

Moreover, as Tim Hayes of Ned Davis Research points out, the difference between GAAP earnings (based on generally accepted accounting principles) and operating earnings “has reached its second widest level on record. What all this means is that the greater the focus on operating earnings, and especially forecasted operating earnings, the greater the vulnerability to disappointment on the GAAP earnings reality. And it supports giving the cyclical bear market downtrend the benefit of the doubt.”
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