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.

via FAZ Germany Analystenprognosen sind mit Vorsicht zu genießen

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.”

Double counting / Hussman

this is only a fraction from the excellent hussman piece. please click on the headline to read the rest.

dieses hier ist nur ein kleiner ausschnitt von dem wie immer hervorragenden kommetar von hussman . bitte auf die überschrift für den rest klicken.

Unfortunately, investors are currently engaged in wild-eyed double counting, imagining that higher per-share earnings figures and higher repurchases are separate effects, when they are one in the same. The truth is that a significant portion of the higher per-share figures is the result of repurchases, and the higher repurchases are the result of a paucity of alternative uses for the cash.

To put some numbers on this, Bill Hester notes that according to Bloomberg, among S&P 500 companies reporting to-date, the average surprise on operating earnings (cough) per-share has been 9.66%, while the average surprise on operating earnings on a total dollar basis has been 5.85%. Of course, the average is skewed by a few extreme outliers (for example, Hasbro reported operating EPS of 19 cents, versus an estimate of just 1 cent). The median surprise, which is a more robust measure, has been 2.94% in operating earnings per share, and just 1.93% in operating earnings themselves

It is wrong to hail an increase in per-share earnings as if it is an “earnings surprise” – as if it reflects an improvement in corporate operating conditions, when it is in fact an expenditure of existing earnings on shares instead of on business investments. When such repurchases are done at rich valuations, they are a signal that the company lacks other productive business opportunities and is instead propping up per-share earnings by disposing of what it does earn.

Why haven't investors figured this out? The story constantly repeated on CNBC is that companies low-balled their earnings guidance in order to surprise investors with better than expected earnings (with the implication that the market will rise forever because companies can continue to do this indefinitely). A good part of the true story is that analysts made their forecasts of per-share earnings based on old, higher share counts, so the juiced per-share figures resulting from repurchases are now showing up as “earnings surprises.”

As Standard & Poors itself warned last year,
“S&P has concern as to the extent that some equity analysts incorporate share changes into their analysis. If a higher share count is used in the calculation of an estimate, the result would be an under estimation of the EPS. This could lead to an initial assumption of a positive earnings surprise when the actual EPS is announced, since the announced value is higher than the estimated value. The discovery that the variance is due to share change, however, would not take long, resulting in any initial upward price movement being negated.”

Earnings Season Conclusion / ticker sense

close to the lowest level since oktober 2002! / nahe dem tief seit oktober 2002!

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