Tony Dwyer Is Not Alone..........Of Course It Is Still A Good Time To Buy, Buy, Buy.....

What a "surprise"......Keep the following stats in mind when the daily spin "stocks are cheap on forward pe´s" is hitting the MSM... If you want to hear the "rationale" for a 2000 S&P target in 2013 visit Tony Dwyer & his "brilliant playbook" UPDATE: A guy named Altucher is almost as good It's Not a 'V', It's Even Better, Look for New Highs by 2012 .... There maybe are legitimate reasons to buy stocks, but a favourable opinion from "Wall Street Finest" should definitely not play any role among your screening process .... Except you use them as a "contrary indicator".... ;-)

Welch "Überraschung"......Behaltet die nachfolgenden Daten im Hinterkopf wenn es wie tagtäglich in den Medien und auch der Fachpresse gebehtsmühlenartig wieder heißt "das Aktien auf Bewertung der 2011er Gewinne günstig sind"..... Ein eindrucksvolles "Schauspiel" in dieser Disziplin bietet Tony Dwyer mitsamt seinem "brillianten Playbook" für sein 2000 S&P Ziel im Jahr 2013 UPDATE: Dieser Typ ist mindestens ebenbürtig It's Not a 'V', It's Even Better, Look for New Highs by 2012..... Grundsätzlich mag es ja durchaus gute Gründe die für Aktien sprechen geben, man sollte aber sicherstellen das die Einschätzungen der "Experten" beim Auswahlprozess keinerlei Rolle spielen....Es sei denn man nutzt sie als Kontraindikator.... ;-)



Bespoke

Bloomberg surveys sell-side Wall Street strategists on a weekly basis for their year-end S&P 500 price targets. At the start of 2010, the average year-end S&P 500 price target was 1,225, which would have been a gain of just about 10%. As markets moved higher in the first quarter, strategists upped their year-end targets, and the current average target stands at 1,268. (In the table below, green shaded price targets are ones that have been increased so far this year. No strategists have lowered their targets since the start of the year.) A target of 1,268 translates into a gain of 13.68% for the year and 16.48% from current S&P 500 levels.

There are no strategists with year-end targets that are lower than the index's current levels.

Analysts Projecting 27% Gain in S&P 500 Defy El-Erian Bloomberg

Combined price estimates from more than 2,000 forecasters tracked by Bloomberg show the S&P 500 will rise 27 percent in the next year, the fastest projected rate since February 2009, data compiled by Bloomberg show.

The rally above 1,350 will be led by industries most tied to the economy, according to analysts who boosted individual share projections by an average of 0.9 percent in May, the 14th straight monthly increase.

Should analysts’ forecasts for a 27 percent gain in the S&P 500 come true, the gauge would climb to 1,360 by next May, the highest level since June 2008.

The real story here are not the S&P 500 targets from the "strategist" but that they have managed to increase the target since the beginning of the year.... Despite events like the Flash Crash ( "Cancel All Orders, Cancel All Orders....." ), "minor headwinds" when it comes to Sovereign Debt,China , for US companies an unfavourable strong $ , impact from the "Oil Spill" on drillers & still insolvent Banks it´s fair to say that ROSE COLORED GLASSES are still a must have item among way too many among "Wall Street Finest"... ;-)

Die eigentliche Botschaft sind nicht die angegebenen Kursziele, sondern vielmehr die Tatsache das diese trotz einiger unschöner Ereignisse die vermehrt seit Jahresbeginn aufgetaucht sind wie dem sog. Flash Crash ( "Cancel All Orders, Cancel All Orders....." ), "minimalen" Problemen wenn es um Sovereign Debt,China den für US Firmen ungünstigen "starken $" , seit dem BP GAU die Probleme der Ölförderer & die immer noch bemerkenswert schwachen Banken geht, munter fleissig angehoben worden sind..... Denke es ist keine Übertreibung zu sagen das eine ROSAROTE BRILLE unter etlichen von "Wall Street Finest" noch immer zur "Standartausrüstung" gehört.... ;-)

I´ll let "Mr. Anti Spin" David Rosenberg du some further "bashing"..... Do yourself a favour & subscribe to his free DAILY REALITY CHECK... SUPERB!

Überlasse es "Mr. Anti Spin" David Rosenberg noch mehr Wasser in den Wein zu gießen....Empfehle allen sich frei Haus die tägliche Dosis Rosenberg zu genehmigen....

"It’s also fascinating to read the “Ahead of the Tape” column in the WSJ today and to read about the fabulous earnings performance of U.S. companies — a revival built on a weak U.S. dollar, accelerating global growth, fiscal stimulus and a steep yield curve.

Meanwhile, the consensus has just now gone ahead and projected peak earnings for 2011 just as each of these main crutches are reversing course."

AMEN....

McKinsey: Equity Analysts Are Still Too Bullish via Barry

Moreover, analysts have been persistently overoptimistic for the past 25 years, with estimates ranging from 10 to 12 percent a year, compared with actual earnings growth of 6 percent.

Over this time frame, actual earnings growth surpassed forecasts in only two instances, both during the earnings recovery following a recession. On average, analysts’ forecasts have been almost 100 percent too high.”

This chart completes the not so glory picture when is comes to the credibility & reputation from "Wall Street Finest".... If you have the "guts" to read the "rationale" behind Goldmans bullsih call you should read Goldman: "We Raised S&P 500 EPS Estimates Despite Worst May Performance In Almost 50 Years"

Dieser Chart paßt hervorragend ins Bild unm das das wenig glorreiche Bild abrunden....Für alle die die Nerven haben und wissen möchten auf welchen "Modellen" die Schätzungen von Goldman basieren Goldman sollte Goldman: "We Raised S&P 500 EPS Estimates Despite Worst May Performance In Almost 50 Years" lesen....

UPDATE:

Profit-Margin Outlook for U.S. Is ‘Extremely Bad’: Chart of Day Bloomberg

Best Stocks Liked Least by Analysts Missing U.S. Gain Bloomberg

Abby Joseph Cohen 2009 vs Abby Joseph Cohen 2001.....Which Call Is Worse?

What´s a year without a "brilliant" call ( even more important the rationale behind the call ) from Abby Josef Cohen.....Just in time after a 30% plus (technical ) rally in the major indices worlwide.....In the past especially the calls from permabull Cohen were close to near and often long term market tops...... To my knowledge one of the better "contrary" indicators......

Was wäre ein Börsenjahr ohne Weisheiten von Abby Joseph Cohen.....Man beachte das brilliante Timing.... Rechtzeitig nachdem alle bedeutenden Indizes 30% und mehr gewonnen ( technisch bedingt ) haben..... Ein prima Kontraindikator. Die "Prognosen" vom Permabullen Cohen haben in der Vergangenheit zeitlich oft ein längfristiges Markthoch markiert...... Besonders wenn die Begründung für die avisierten Kursziele schon fast tragischkomischen Charakter haben bzw. man befürchten das die Schweinegrippe auch Wall Street erreicht hat...

Call 2001 just bevor the collapse:

bigger/größer

Hat tip Wall Street Follies

Call 2009 S&P 500 at 880:

Goldman Sachs’s Cohen Says S&P 500 May Surge to 1,050

May 1 (Bloomberg) -- The Standard & Poor’s 500 Index may jump 20 percent to 1,050 over the next six to 12 months as investors buy stocks trading at low valuations, said Abby Joseph Cohen, Goldman Sachs Group Inc.’s senior investment strategist.

> Low valuations....? "Fair value based on recession earnings" ( Quote Cohen ) ? She is probably using the following model showing the "high" quality of earnings ( backing out large parts of costs doing business like write downs, restructoring charges etc / see also the update at the end of the posting) or she is the only one thinking the Fed Model ( see "Fed Model" Knowing What Ain't True ) is usefull.....

> Niedrige Bewertungen.....? "Faire Bewertung die auf rezessionsgestählten Ergebnisprognosen basieren" ( Zitat Cohen )? Mag ja sein das sie Ihre Bewertungsmodelle auf der nachfolgenden Rechnungsmodellen basiert die an Kreativität ( "Sonderfaktoren wie Abschreibungen, Restrulturierungskosten usw werden ausgeklammert ) kaum zu überbieten sind ( siehe auch Update am Ende ). Denkbar auch das Sie als einzige dem Fed Modell ( siehe "Fed Model" Knowing What Ain't True ) glauben schenkt...........

“You could see the market sustain at these levels,” Cohen, 57, said in a Bloomberg Radio interview. “We’re going to set a new trading range much higher than the trading range in February and March.”

Cohen was replaced as Goldman Sachs’s chief forecaster for the U.S. stock market a year ago. She had been the second-most bullish Wall Street strategist at the start of 2008, a year when the S&P 500 tumbled 38 percent to 903.25 for the steepest annual loss in seven decades. Cohen predicted in December 2007 that the index would end last year at 1,675. David Kostin took her job.

At least i think her 2009/2010 call will be closer to the target than her over 40 percent miss for the 2008 December estimate...... :-)

Immerhin wird sie wohl Ihre 40% Zielverfehlung Ihrer letztjährigen Prognose verbessern können...... :-)

UPDATE:

This just in from David Rosenberg via Zero Hedge . I highly recommend to read the entire link. Compare this to the call from Cohen.....

Den nachfolgenden Link via Zero Hedge empfehle ich allen die das Kontrastprogramm zu Cohen lesen wollen. Eine realistische und fundierte Marteinschätzung von einem der auch die bisherigen Probleme vorhergesen hat ( David Rosenberg ).

The market, as a whole, cannot be considered cheap

In the meantime, earnings forecasts are being trimmed steadily for the balance of the year. In fact, forward P/E multiple of 15x operating and 30x on reported EPS are not that compelling. So, we do not have a strong valuation argument. We do not have a strong earnings argument.

Compare the following chart with the former S$P500 1675 target from Cohen......

Vergleicht den nachfolgenden Chart mit dem vorherigen Kursziel ( S&P 500 1675 ) von Cohen.....

via Chart Of The Day

While the stock market is up sharply since early March, the economy as well as corporate earnings continue to suffer. Today's chart helps provide some perspective as to the magnitude of the current economic decline. Today's chart illustrates that 12-month, as-reported S&P 500 earnings have declined over 90% over the past 20 months (with over 90% of S&P 500 companies having reported for Q1 2009), making this by far the largest decline on record (the data goes back to 1936). In fact, real earnings have dropped to a record low and if current estimates hold, Q3 2009 will see the first 12-month period during which S&P 500 earnings are negative.

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.”

Bad-News Bulls / Economist

This piece from the Economist sums it up. It´s always amazing to watch how quick sentiment can turn either way. It will be interesting to see what will be the trigger for the next "minor correction". I´ll bet that it has something to do with the coming CPI numbers....... One more chance for the bulls to "buy the dip"......

Dieser Bericht vom Economist faßt die Lage recht gut zusammen. Ich bin jedesmal wieder erstaunt und fasziniert wie schnell sich die Stimmung drehen kann. Ich bin gespannt welche Meldung der nächste Auslöser für eine erneute "kleine Korrektur" sein wird. Ich denke das es evtl. etwas mit den kommenden CPI Zahlen zu tun haben könnte.... Das wird den Bullen eine erneute Chance geben um nachzuladen. Evtl. mehr als Ihnen lieb sein wird..... ;-)

Bad-News Bulls / Economist
THE news seems to go from bad to worse. In late September figures showed that the American housing market was in free fall, with both sales and prices plunging. On October 1st Citigroup and UBS, two of the world's biggest banks, said they were writing down $9.3 billion of debt between them because of the credit crunch.

Global stockmarkets have reacted not with dismay but with euphoria. Wall Street marked the Citigroup write-downs by driving the Dow Jones Industrial Average to a record high (see chart). The MSCI emerging-markets index has soared to new highs. This summer's turmoil seems to have been completely forgotten.

What explains this apparent insouciance? It seems that investors reckon they cannot lose. “Take your pick,” says Gerard Minack, a strategist at Morgan Stanley: “Equity markets are either behaving as if the worst is over for credit and housing problems or they remain convinced that the [Federal Reserve] can offset whatever bad news may unfold.” In other words, bad economic news means the Fed will cut interest rates and good news means recession will be avoided.

There are some signs to support the idea that the worst might be over in the credit markets. After strenuous effort, banks have managed to find buyers for $9.4 billion of the $24 billion needed to finance the takeover of First Data, a payments processor, by Kohlberg Kravis Roberts, a private-equity firm. According to JPMorgan, even the structured products that caused so much disquiet during the summer are moving again—$6.2 billion of collateralised-debt obligations were issued in the last week of September.

Risk appetite is resurfacing in currency markets, too. The “carry trade”, the borrowing of low-yielding currencies to buy higher-yielders, is back in full swing; the Australian and New Zealand dollars have been surging. Having reached a 27-year high on October 1st, gold (often seen as a safe haven for nervous investors) suddenly lost 2.5% of its value in a day.

The bullish case seems fairly simple. The American economy may be slowing but the rest of the world, particularly emerging markets, can make up for it. As a result, corporate profits can continue to be strong. Profits forecasts are being revised down, but not dramatically so. The dollar's decline has added impetus to the earnings of American exporters and multinationals with overseas subsidiaries.

In this light, the credit crunch seems like old news. Even bank write-downs can be spun in a good light. Much of the panic in August was caused by fear of what banks had on their books; now the bad news is out, investors can relax.

In addition, many investors are looking back to 1998 when the Fed cut rates in response to a previous crisis in the finance industry—the collapse of Long-Term Capital Management, a hedge fund. The markets recovered quickly and the dotcom bubble reached its apogee. This time round, emerging markets (or even alternative energy stocks) might be the big winners.

> Here comes a slightly different view Emerging markets: an exhilarating, but potentially lethal, ride

> Hier eine leicht andere Einschätzung Emerging markets: an exhilarating, but potentially lethal, ride

And in the short term at least, money that was pouring into the credit markets is now being invested in shares.

But not everyone buys the bulls' arguments. Experienced observers of the debt market, such as Tom Jasper of Primus Guaranty, a credit insurer, think the crunch is far from over. According to Moody's, a rating agency, the spread (excess interest rate) of high-yield debt over Treasury bonds has fallen from the crisis peak but is far higher than it was in June.

In the quick-to-rollover money markets, there is still a much wider spread than normal between the rate governments must pay to borrow money and the rate which big banks have to pay. That indicates investors remain nervous about the extent to which banks are exposed to losses from subprime mortgages, or large private-equity borrowers.

Problems in the housing markets are far from over, too. The latest gloomy statistic to emerge was a 21.5% annual fall in pending American home sales, a figure that is a leading indicator for actual sales. House prices will surely fall further and defaults increase, as homeowners struggle to cope with higher mortgage rates from “teaser” loans taken out in 2006.

That may well have a depressing effect on consumer sentiment, something which the Fed's rate cut last month may do little to help. Normally, interest-rate moves take 12-18 months to work their way through the economy. In any case, mortgage rates are barely lower than they were a month ago. The American economy could yet slip into recession, an event on which Goldman Sachs now places a 40% probability.

Even the argument that corporate profits are still strong does not look completely convincing. American profits are close to a 40-year high relative to national output, according to Longview Economics, a financial consultancy. That suggests they should return to the mean, especially as the profit numbers taken from national-accounts data look a lot weaker than those reported by quoted companies. The last time such a gap appeared was in the late 1990s, an era of much creative accounting.

And while the weak dollar may be good news for American exporters, it is bad for European companies. Having been strong in the early part of this year, the latest data on European economies have weakened sharply; Nicolas Sarkozy, the French president, is not the only one concerned by the euro's strength. There is the potential for turmoil in the currency markets, either because Europe takes a stand against the rising euro at the Group of Seven finance ministers' meeting on October 19th, or because international investors, who have to finance the American trade deficit, become alarmed by the weakness of the dollar. Stockmarkets might be able to rise above the problems of the credit markets. But whether they could gain ground in the face of foreign-exchange market turmoil as well seems a lot more doubtful.

Knowing What Ain't True / Hussman

Once again it is good to have a sober guy like Hussman who is the perfect "anti spin" to the crowd that is using false analyse to spin the markets to "cheap" valuation. So everybody that will use the mantra" Fed Model" is obvioulsy clueless, lying, desperate, drunk ....... ;-) And we will hear this a lot down the road when the Fed is cutting during the next years.

Es ist immer wieder beruhigend die nüchterne Analyse von Leuten wie Hussman zu lesen. Er ist so ziemlich das genaue Gegenteil der sonst üblichen Zunft die in allen nur erdenklichen Wegen diesen Markt als "günstig" erscheinen zu lassen. Allen die also das Argument "Fed Model" benützden um den Markt günstig zu rechnen sind entweder ahnungslos, lügen, verzweifelt, betrunken .....;-) Und da die Fed in den nächsten Jahren etliche Zinssenkungen durchführen wird dürfte das ein Hauptargument der Bullen werden.

Have historically reliable valuation methods become meaningless? Has the underlying relationship between valuations and subsequent market returns broken down?
The potential for historical market relationships to change, and for new methods to outperform existing ones, is a question that constantly drives our research. It's why I've done such extensive studies on discounting models, the Fed Model, interest rate relationships, the effect of buybacks, and so forth. Still, my impression is that investors are easily worried by the possibility that “this time it's different,” and by the belief that normalized P/E ratios and the like haven't “worked” in the past few years. On that issue, it's essential to recognize that valuation is not a short-tem timing tool, but has its primary effect on market returns over periods of 7-10 years and beyond.

As Will Rogers once said, “it ain't what people don't know that hurts ‘em – it's what they do know that ain't true.” The fact is that many “new era” arguments have no provable basis even in the data of the past decade, much less in long-term historical data.

Long-Term Return Projections - The Tale of Two Models

This next brief section should be my last Fed Model piece for a while :)

Consider the two alternative models below. The first presents the 7-year annual return for the S&P 500 implied by the Fed Model. The green line is based on a “normal” 10% annual total return, plus the amount of over/undervaluation implied by the Fed Model, amortized over 7 years. The blue line is the actual 7-year total return of the S&P 500.

Note that the relatively low readings in 1987 and the 1998-2000 period were the only times that the Fed Model would ever have been materially negative, and so are the only times the projected 7-year market return dipped materially below 10%.

Fed Model: Projected 7-Year S&P 500 Total Returns vs. Actual

The above chart does not look materially different if one uses, say, the Treasury bond yield + 3% as the “normal” S&P 500 return, so I chose a constant 10% norm so that all the variation in that green line is driven by Fed Model itself.]

Now consider 7-year projections based on the simple S&P 500 price/peak earnings ratio. Note that the fit is remarkably close, even without adjusting for profit margins (which further improves the fit). Indeed, the only material outliers were the 7-year period (starting in late 1967) that ended with the brutal market lows of late 1974, and a set of 7-year periods from about 1990 to 1996 that ended in the heights of the market bubble. Note also that while the 7-year projection in 2000 was more negative than actual returns have been, those actual market returns have still been in the low single digits since 2000, and then only because valuations returned to present, still rich levels.

Price/Peak Earnings Ratio: Projected 7-Year S&P 500 Total Returns vs. Actual

Currently, the 7-year projection for S&P 500 total returns is about 5% annually.

Look at the enormous swing from extreme undervaluation and high projected returns in the early 1980's to extreme overvaluation and low projected returns by 1998. This is the period during which the Fed Model was constructed. The essential error of the Fed Model is that it is based only on this period, and assigns nearly all the corresponding movement in earnings yields to a “fair value” relationship with 10-year Treasury yields. According to the Fed Model, the market was only slightly undervalued in 1982. That's insane. Again, my passion about this particular fallacy is that it has crept into virtually all of Wall Street's current valuation analysis, though under countless guises, such as “capitalized earnings models ” or “bond-equivalent P/Es” or “forward operating multiples.” Investors will be badly hurt by these notions. ....

With that, I think I'm done with Fed Model studies for a while. I've done my best to warn loudly, I've put the data out there, and have analyzed this thing to pieces. The Fed Model has no theoretical validity as a discounting model, is a statistical artifact, would never have been materially negative except in 1987 and the late 1990's (even in 1929 or 1972), yet views the generational 1982 lows as about "fairly valued," is garbage in data prior to 1980, and vastly underperforms proper discounted cash flow models and normalized P/E ratios. If investors still wish to follow the Fed Model, my conscience is clear, and my hands are clean.

Fed to the Rescue?
As I've noted in recent weeks, the Federal Reserve has been doing exactly what it should be doing – acting to maintain the soundness of the banking system. The Fed's intent here is not to absorb private losses. It is to make sure that banks don't have to contract their loan portfolios because of short-term withdrawals of funds. Though the Fed did open itself to slightly more credit-sensitive collateral, these securities are still investment grade and generally short-term in nature. Again, since these securities are collateral only, the creditworthiness of the underlying mortgages only becomes an issue for the Fed if the banks default on repaying their borrowings to the Fed. At that point, we've got far bigger problems.

It's important to distinguish between Fed actions to maintain liquidity in periods of crisis and Fed actions intended to affect the volume of lending more generally. As I've frequently noted, since reserve requirements were eliminated in the early 1990's on all bank deposits other than checking accounts, there is no longer any material connection between the volume of bank reserves and the volume of lending in the banking system. In normal circumstances, the Fed is simply irrelevant. The issue at present is that there is an unusual spike in the demand for reserves in the banking system. This is exactly the situation in which the Fed does have an important role.

Though the Fed will most probably cut the Fed Funds rate by half a percent, possibly all in the September meeting, or perhaps split between September and October, I don't believe that such an easing has much capacity to eliminate the inevitable default problems ahead in the mortgage market. As Nouriel Roubini has pointed out, there is a major difference between illiquidity (which Fed operations have a good potential to offset) and insolvency (which can be offset only by explicit bailouts at taxpayer expense, as we saw during the S&L crisis). My impression is that most of the worst credit risk is held outside of the banking system, so there is little concern that losses will need to be covered by deposit insurance. A greater share is probably held by investment banks and hedge funds, and my impression is that taxpayers will be hard pressed to allow Congress to use their tax money to finance the bailout of Wall Street financiers, when they've got their own mortgage bills to pay.

As a side note, I'm intrigued that investors have been so willing to lower their guard about credit concerns and the potential for continued blowups, based on nothing but the short-term interventions of the Fed. Most likely, the worst credit risks are being held in the hedge fund world, where reporting is monthly and nobody has to say nothin' until the month is over.

And on the subject of what investors know that ain't true, it's not clear that investors should really be cheering for an environment in which the Fed would be prompted to cut rates because of recession risk. Recall that the '98 cuts were largely due to illiquidity problems from the LTCM crisis, not because of more general economic risks. In contrast (with a nod to Michael Belkin), below are a few instances when the FOMC successively cut the Fed Funds rate in attempts to avoid recession: 2000-2002 and 1981-1982. Those cuts certainly didn't prevent deep market losses. Speculators hoping for a "Bernanke put" to save their assets are likely to discover - too late - that the strike price is way out of the money

US Profit Growth Q2 / Thomson Financial

And even the 4.4 percent could be to optimistic. The start with massive warnings from Home Depot, Sears, DR Horton, Ryland, Huntington etc was lousy..... But maybe the oil sector can rescue some of the growth....But i´m not so sure if this is the sector in which you want to see big profits when you are looking for a healthy market......And this at times when you are paying very high multiples with margins and corporate profits to GDP already at record highs.....But maybe the crashing $ will boost earnings...... :-)

So wie es aussieht könnten selbst die 4,4% zu hoch gegriffen sein. Nachdem der Start der Gewinnsaison mal eben gründlich nach hinten los gegangen ist wird es sehr schwer. Ectl. kann aber der Ölsektor die Kohlen aus dem Feuer holen. Wenn man das allerdings als Zeichen eines starken Marktes sehen möchte muß man schon recht nahe der Wall street wohnen oder zumindest Hausmeister von CNBC sein. Und das zu Zieten wenn die Bewertungen, Margen und der Gewinnanteil zum GDP bereits teilweise neue Hochs erreichen..... Aber evtl. wird ja auch der fallende $ den Gewinnen unter die Arme greifen.....

Profit is expected to rise only 4.4 percent!

The estimates have steadily gone down since the start of the year. In January the expectation was for a 7 percent rise.

Despite the recent slowdown Thomson Financial is still expecting profit growth to reach 7.8 percent.

But the quality of this profit growth is worth a closer look. Thomson estimates that almost 23 percent of the grwoth is generated through buybacks


Die großen US-Konzerne starten mit gemischten Aussichten in die zweite Jahreshälfte. Nach goldenen Jahren mit prozentual zweistelligen Gewinnsteigerungen hat sich das Wachstum vor allem im Heimatmarkt spürbar abgeschwächt. Zum Beginn der Bilanzsaison für das zweite Quartal rechnen Wall-Street-Analysten für die im Börsenindex S&P 500 abgebildeten Firmen nur noch mit einem durchschnittlichen Ergebnisplus von 4,4 Prozent. Das geht aus einer Prognose des Finanzdatenanbieters Thomson Financial hervor, der die Schätzungen aller großen Investmenthäuser bündelt

Die Erwartungen an die US-Konzerne sind in den vergangenen Monaten kleiner geworden: Zu Jahresbeginn hatten Analysten noch mit einem Gewinnwachstum von knapp sieben Prozent für die Zeitspanne zwischen April und Juni 2007 gerechnet

Dennoch wird laut Thomson Financial für das Gesamtjahr 2007 ein Plus von 7,8 Prozent erwartet, weitgehend getragen von einem mehr als zwölfprozentigen Plus im Schlussquartal.

Ökonomen geben allerdings zu bedenken, dass viele Firmen ihre relativen Gewinne mit milliardenschweren Aktienrückkäufen aufpolieren. Thomson Financial geht davon aus, dass die Unternehmen inzwischen 23 Prozent ihres Ertragswachstums allein diesen aktionärsfreundlichen Programmen verdanken. Durch den Rückkauf eigener Aktien sinkt die Zahl der außen stehenden Papiere. Dadurch erhöht sich automatisch der Gewinn je Akti.. "Es ist offensichtlich, dass der Einfluss von Rückkaufprogrammen größer wird", sagte Thomson-Direktor Michael Thompson dem Handelsblatt.

New Economy, or Unfinished Cycle? / Hussman

tough times for rational investors like Hussman. to me it more an more obvious that only a major "credit event" in the lbo/takeover mania can shake the markets. to be honest i thought that this event happened in February in subprime........

harte zeiten für rationelle investoren wie Hussman. es sieht immer mehr so aus das eizig und allein ein "unfall" im kreditsegment der lbo/übernahmen etwas ändern kann und die märkte nachhaltig urchschütteln kann. um ehrlich zu sein dachte ich das dieses ereignis bereits im februar im bereich subprime kredite stattgefunden hat......

Presently, the market's valuation on the basis of price/revenue, price/book, and price/dividend is higher than at any prior historical market peak on record except the 2000 peak.

On the basis of normalized profit margins, the current P/E for the S&P 500 would be about 25 times record earnings rather than the (still elevated) multiple of 18.4.

Even if we give only 25% weight to that normalized value, and give 75% weight to the prevailing multiple, the resulting P/E for the S&P 500 is still over 20, and is about the same as what prevailed prior to the 1929, 1973-74, and 1987 market plunges.

This market is only “cheap” if one couples non-GAAP “forward operating earnings” with the Fed Model. As I've detailed in recent weeks, that approach has ridiculous implications even in the data sample (1980-2000) that was used to construct it, and is quickly and easily verified as pure garbage in pre-1980 data, using any proxy remotely close to estimated “forward earnings

An Optimistic Route to a Poor Market Outlook / Hussman

cheap markets........click on the headline to read the full piece

wirklich billige bewertungen....klickt auf die überschrift um den vollen kommentar zu lesen

The latest Investors Intelligence figures are at 53.3% bulls and just 20% bears. At such points, the average return/risk profile of the market has been unfavorable, regardless of apparent market strength.....

Normalized earnings
....As I've frequently noted, market P/E ratios should be (and generally have been) dirt cheap when earnings are unusually elevated. You can run a long-term 6% growth trendline over the cyclical peaks in S&P 500 earnings about as far back as you care to go. Historically when earnings have been anywhere within 10-15% of that trendline, the average P/E on the S&P 500 has been just about 10. At a multiple of over 18 times top-of-channel earnings, present valuations clearly look rich.


So it was not surprising to read Steve's conclusion that, on a normalized basis, the valuations for the largest 3000 U.S. stocks are currently in the 97% percentile of historical experience, noting “A correction back to the historical valuation median implies a 35% decline.”

What did surprise me a bit was his conclusion that as of April 30th , the normalized P/E for the large-cap stocks in the S&P 500 (using a 5-year averaging method) was only in the 81st percentile, implying a 21% decline to the historical median, and that restricting the history to the period from 1957 to-date, the current value was only in the 72nd percentile, implying just an 8% decline to the (higher) median for this period.

If you think about it for a minute though, that result makes perfect sense. Unreliable estimates of overvaluation – but perfect sense. See, people who work with statistics a lot recognize that averages can be skewed by a few extreme values or “outliers.” So a careful analyst will often use medians (the middle point when you sort the data in order from lowest to highest values) to get a better idea of the “central tendency.”


So far, so good. The problem is that if you reduce the number of data points, or include a whole set of extreme and unrepresentative values, even the median will give you skewed results. If you do both – your median will become unreliable.

The case in point here is the late-1990's bubble period. Here we have about 18 quarters of really extreme data in terms of normalized valuations, seen nowhere before in history and already known to have produced very unsatisfactory returns. Even including the recent advance, the total return on the S&P 500 remains below Treasury bill returns for the past 8 years.

Even if we aren't calculating an average, the addition of these points in a median calculation still ends up skewing the median higher because those points are all distributed on one side, and raise the level at which the midpoint is found. Using data since 1926, excluding the bubble, the median normalized P/E is closer to 30% below present levels. ....

Suffice it to say that unless one expects to see late-90's level valuations with regularity in the future, they shouldn't be included in an estimate of central tendency for valuations. ....

A final remark has to do with using a 5-year average of earnings to normalize P/E ratios. When we look historically, we see a clear tendency for earnings growth to be higher from points when earnings were well below their long-term 6% trendline than when they were close to that level. Since trends in earnings have tended to ebb and flow over periods of more than 5 years, using a 5-year average when the general level of earnings is depressed relative to trend will still give you a relatively high P/E. Conversely, using a 5-year average when the general level of earnings is near the peak trendline will produce a lower P/E. If investors don't correct for this, they can still confuse elevated earnings for cheap valuations.

At present, we've got earnings pushing the extreme of that historical trend, and yet the normalized multiple isn't even low. That's doubly problematic

An optimistic route to a poor market outlook
You can imagine that a P/E based on 5-year average trailing earnings will be using “unrepresentative” earnings figures anytime the economy is in recession. Using those depressed earnings will still tend to depress the 5-year average and therefore lift the resulting P/E.

As an alternative, we can take the most optimistic route, which is to base the 5-year average on the highest level of earnings attained up to each year. So for example, the current 5-year average would include the peak earnings as of 2003, the peak as of 2004, as of 2005, as of 2006 and as of 2007. If earnings in any of those years were below their peak to date, you'd use the peak value instead. If you do that, you get the following historical valuation chart, using data since 1871. You can see why one might not want to include the late 90's bubble in one's calculation of “normal valuations.”

You can also see that today's values are at the same level as they were about 8 years ago. Did I mention that the S&P 500 has underperformed Treasury bill yields since then? Ah, yes. I believe I did

The "Money Flow" Myth and the "Liquidity" Trap / HUSSMAN

this only a very small sample of the good and long post with quotes like this.

dieses ist nur ne kleine zusammenfassung. in dem report von hussman verstecken sich zitate wie

" am increasingly losing confidence that Wall Street
operates on a well-defined base of knowledge. Instead, I am struck by the number of platitudes and false constructs that seem to dominate the investment management industry."

click on the headline to read the full piece / bitte auf die überschrift klicken


I've noted for some time that S&P 500 earnings are at the very top of their long-term 6% peak-to-peak growth trendline – a level of earnings that has typically been associated with an average price/earnings multiple of 10 (not the current 17). See last week's market comment for a review of these conditions. Meanwhile, the dividend yield on the S&P 500 is about 1.9%.


In order for the S&P 500 to achieve a “normal” annual return of about 11% over the coming 5 years, we have to assume a maintenance of record margins, sustained top-of-channel earnings growth (which has never before been sustained for such a period), and an expansion of valuations to a multiple of 20 times peak earnings (the same multiple as at the 1929 and 1987 peaks, which is double the average historical multiple on top-of-channel earnings). Investors should think now about whether these assumptions are plausible, because they may find themselves wondering later why they ever did.

My impression is that the probable expectation for total returns on the S&P 500 over the coming 5-years is below 5% annually, in a likely interval that includes zero. It takes implausibly optimistic assumptions to move substantially above that range.

As for 10-year returns, for which the historical evidence has typically allowed tighter confidence intervals, the following chart updates the study that appeared in the February 22, 2005 market comment (“The Likely Range of Market Returns in the Coming Decade”) using the same methodology. Note that actual market returns moved outside of the typical range only during the late 1990's bubble, and that the most recent 10-year return of about 7.6% since 1997 has been at the top of the expected range precisely because current valuations are at the top of historical norms.

Currently, the likely range for S&P 500 returns over the coming decade is between a -3% annual loss and a 5% annual return, centering in the low single digits. That range will seem preposterous to some investors, but remember that it took the late 1990's market bubble to move actual returns even 5% outside of this set of bands. Unless investors anticipate a repeated excursion into similar valuation extremes, it would be a good idea for them to recognize now, rather than later, that stocks are unlikely to produce satisfactory long-term returns from current valuations.

Lessons from Ben Graham / hussman

always good to remember the theory of buffets teacher. especially in these times.
immer gut sich die grundlagen von buffets lehrer und vorbild ins gedächnis zu rufen. gerade in diesen zeiten..

http://www.hussmanfunds.com/wmc/wmc061127.htm
..... Among his (grahams) key measures of investment merit included a market price near or below tangible net asset value, and a wide spread between normalized, fully-diluted earnings yields and high-grade bond yields. That spread between earnings yields and corporate bond yields had originally been enormous in the early part of the 20th century, and gradually eroded to nothing by the mid-1980's. Indeed, at this point, Wall Street analysts hasten to accept any excess earnings yield over-and-above the 10-year Treasury yield, even on the basis of “forward operating earnings” as the earmark of a cheap market. Graham would be appalled.

wall street has clearly gone into this direction....../ wall street hat sich die letzten jahre eindeutig in diese richtung entwickelt.......

As it happens, the simple, normalized earnings yield on the S&P 500 has been a remarkably good indicator of subsequent 20-year total returns for the stock market. In the chart below, I take the inverse of the price/peak-earnings ratio as a “normalized” earnings yield. Recall also that peaks in S&P 500 earnings over the past century have been well contained by a 6% annual growth trendline. (Finding that level today is easy. To quote Madge in the Palmolive commercial; “you're soaking in it”). In order to further normalize the earnings yield, I've added the amount of annualized earnings growth that would be required to bring the prevailing peak-earnings figure earnings at any point in time up to that 6% growth trend.

I should add that it would be reasonable to expect the relationship between normalized earnings yields and subsequent market returns to have been affected by variations in the proportion of earnings retained and reinvested, the average rate of return on invested assets, and so forth. Evidently, these variations have not mattered much over the long-term. One might at least expect interest rate fluctuations to have mattered, but remember that a 10-year bond has a duration of just 7-9 years depending on its yield, while the duration of the stock market can fluctuate between just 16 years when yields are very high, to about 60 years (as is presently the case) when yields are very low. Over a 20-year horizon, which is usually about 3-4 complete bull-bear cycles, shorter cyclical variations in interest rates simply wash out.

Suffice it to say that if Graham's emphasis on normalized earnings yields has anything to say about the market here, it is that stocks are priced to deliver very disappointing long-term returns, regardless of short-term speculative (and even cyclical) influences...........

....Graham's investment criteria largely focused on tangible assets, demonstrated (though normalized) earning power, and so forth, with as few assumptions as possible about the future. I can't imagine that he would have looked enthusiastically on the market's current willingness to place a historically rich multiple on record earnings based on record profit margins.........

i wanted to put this chart from one of few german fellows that see the market the way i see it "wörnie" / danke! he is also a fan of hussman.

especially the 2nd. chart that shows the trendline of the earnings is clearly extendet.

größer/bigger http://img153.imageshack.us/img153/922/uwagner3nz4.gif

Ich habe hier im Tröd mehrfach daruf hingewiesen, dass die Gewinne der S&P 500 Firmen langfristig, das heisst über einen Zeitraum von deutlich mehr als 100 Jahren mit im jahresdurchschnit 6 % gewachsen sind. ( Quelle J.Hussman) Die letzten Jahre war dieses Wachstum weit überdurchschnittlich ! Es ist jetzt natürlich nicht zwingend von einem Gewinneinbruch auszugehen. Aber ein weiter anziehendes Gewinnwachstum setzt natürlich entsprechende wirtschaftliche bzw. konjunkturelle Rahmenbedingungen voraus, die so nicht gegeben zu sein scheinen. Ziemlich wahrscheinlich wird sich das Gewinnwachstum irgendwann in naher Zukunft zumindest wieder dem langjährigen Durchschnitt annähern. (Reversion to the mean) Allein der Verlauf des 'Gewinnkanals' zeigt eine erhöhte Wahrscheinlichkeit für ein sich abschwächendes Gewinnmomentum. Wenn der Gewinnrückgang wie häufig in der Vergangenheit, bis auf oder in die Nähe des vorausgegangene Gewinnmaximums läuft, wären wir mit einem SPX Gewinn von sagen wir 52 USD (SPX Earnings 2000) bei heutigen Kursen bei einem KGV von 28. Das ist jetzt natürlich auch 'Spinnerei' bzw. im Nebel stochern. Aber mindestens so wahrscheinlich wie die bullische Unterstellung weiter steigender Gewinn bei sich gleichzeitig abschwächender Konjunktur