Sunday, March 04, 2007

Rapunzel Gets a Trim / hussman

a very good post (as usual) from hussman. he was right. i suggest to read the full piece. some good comments on private equity etc. click on the headline

i empfehle den kompletten artikel zu lesen. plötzlich steht er hussman nicht mehr als zauderer da.... das hat sich mit der letzten woche wohl erledigt. bitte auf die überschrift klicken.

A few comments about prevailing bullish themes here. Probably the main bullish theme at present is the misguided focus on “forward operating earnings,” which create the impression that stocks are reasonably priced. This piece of bait contains a very long, sharp hook, which is likely to keep many investors on the line well into the next bear market.

Expectations for future operating earnings assume that current, record high profit margins will not only be sustained, but will expand further. Yet even when earnings ultimately fall short, analysts will be under no obligation to lower their “forward” expectations, at least initially. The resulting illusion of cheap valuations, fairly early in the next bear market, is likely to keep a great many investors holding on deep into the decline (whenever it begins in earnest). As in many other bear markets, earnings will probably decline convincingly only after a great deal of damage has already been done.

I cannot emphasize enough that price/earnings ratios, especially those based on “forward operating earnings,” are unusually poor metrics of valuation at present. ( this must be "breaking news" for 98 percent of wall least to all the guests that appear in the media...... muß für 98% von wall street ein schock und ne echte neuigkeit sein...zumindest bei denen die in den medien auftauchen....leider gilt das zunehmend auch für deutschland....)

As a refresher of where the earnings picture stands at present, note that S&P 500 earnings have now slightly exceeded their long-term 6% growth trendline, while profit margins are about 50% above the norm (i.e. an earnings trendline about 33% lower would run through the middle of the data).

From an historical perspective, this is about as good as it getsonce earnings have become similarly elevated, one has generally been able to find a point years later where earnings have achieved zero growth from that peak.

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