Posts Tagged ‘analysts’

Market Still Deluding Itself That It Can Escape The Inevitable Dénouement

Market Still Deluding Itself That It Can Escape The Inevitable Dénouement

Courtesy of John Mauldin, Outside the Box 

One of my favorite analysts is Albert Edwards of Societe Generale in London. Acerbic, witty and brilliant. Emphasis on brilliant. The fact that he is a Doppelganger for James Montier (who long time readers are well acquainted with) is a coincidence (or he would say vice versa). I only kind of have permission to forward this note to you, but better to ask forgiveness… So, this week he is our Outside the Box. And a short but good one he is.

High angle view of glasses of red and white wine

I am in Amsterdam and it is late, but deadlines have no time line. Tomorrow more work on the book. It is getting close to the end. Most books are finished when the authors quit in disgust. How many edits can you do? I am close.

I wonder late at night, with maybe a few too many glasses of wine, why I feel like a book is so much more than an e-letter. Really? The last ten years of what I have written are on the archives. Good (ok, sometimes really good) is there. But some are an embarrassment. What was I thinking?

But somehow in my Old World brain, a book is more than a weekly letter. It is somehow more permanent than an “online” letter. Which may be archived forever. The book is “paper” and may be around for a few years. But the online version is here for a long time.

I know that is stupid. Really I do. But what is a 61 year old mind to do? A strange world we live in.

It is really time to hit the send button. More than you know! The conversation tonight has been too deep!

Your trying to figure out the purpose of life analyst,

John Mauldin


Market still deluding itself that it can escape the inevitable dénouement

By Albert Edwards

The current situation reminds me of mid 2007. Investors then were content to stick their heads into very deep sand and ignore the fact that The Great Unwind had clearly begun. But in August and September 2007, even though the wheels were clearly falling off the global economy, the S&P still managed to rally 15%! The recent reaction to data suggests the market is in a similar…
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WHY AREN’T EQUITIES SELLING OFF MORE SIGNIFICANTLY?

WHY AREN’T EQUITIES SELLING OFF MORE SIGNIFICANTLY?

Courtesy of The Pragmatic Capitalist 

The deterioration in the economy has been clear in recent months, but the equity markets have confounded many investors.  Stocks are just 10.6% off their highs and have shown some remarkable resilience, particularly in the last few weeks. There’s a great tug-of-war going on underneath what appears like a potentially frightening macro picture.

A closer look shows that what we’ve primarily seen is deterioration in the macro outlook and not so much in specific corporate outlooks. Despite the persistently weak economy, earnings aren’t falling out of bed.  Without a sharp decline in earnings there is unlikely to be a sharp decline in the equity markets (outside of some exogenous event such as a sovereign default).

The most distinct characteristic I can recall from the the 2007/2008 market downturn was the persistent deterioration in earnings.  Like dominoes we saw the various industries go down one by one: housing, then banks, then consumer discretionary and on down the line.  While the macro picture has deteriorated recently we haven’t seen the same sort of deterioration in earnings that we saw in 2007 and 2008.

In a recent strategy note JP Morgan elaborated on the divergence between the macro outlook and the earnings outlook:

“What matters for equities is earnings and not GDP growth. US GDP growth projections are being cut, but earnings projections have been little affected so far. Investors and analysts are hoping that, to the extent the soft patch in US GDP growth lasts for only a few quarters and does not spillover to the rest of the world, US companies will be able to protect their revenues and profits. Indeed, this is what happened during 2Q, when US companies were able to deliver strong top line and EPS growth even as US GDP grew at only a 1% pace.

It is a prolonged soft patch that poses the greater threat for corporate earnings and equity markets as it raises the specter of deflation and profit margin contraction. Why is deflation bad for corporate profitability? When nominal interest rates are bounded at zero, a fall in expected inflation causes a rise in real interest rates and the cost of capital, hurting corporate profitability. In addition, nominal wage rigidities mean that deflation reduces output prices by more than input prices putting pressure on corporate profitability. Indeed, the


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STOCKS ARE CHEAP, BUT THIS METRIC DOESN’T WORK?

STOCKS ARE CHEAP, BUT THIS METRIC DOESN’T WORK?

Courtesy of The Pragmatic Capitalist 

WHEN PEOPLE THINK OF IMPORTANT JOBS THAT CAN NOT BE LEFT OUT OF OUR LIVES THEY DO NOT NORMALLY THINK OF WASTE COLLECTORS. BUT DURING A HAULERS STRIKE GARBAGE PILES UP AND BEGINS TO SMELL. THERE IS NOWHERE TO PLACE IT ALL AND PESTS RUN RAMPANT AS THEIR AVAILABLE FOOD BECOMES ABUNDANT. DUMPSTERS OVERFILLED TRASH WASTE HAULER STRIKE

I’ll be frank – I have a special place in my heart for the PE ratio and it is the same place where all the things I hate are stored.  This simple to understand metric has, in my opinion, resulted in more misguided Wall Street thinking than just about any metric in existence.  A quick glance at the breakdown of the PE ratio shows serious flaws at work here.  It is basically a moving price target (which is never correct unless you still believe in EMH) divided by the earnings estimates that are created by analysts who have literally no idea where future earnings will be.  In other words, you might as well pick random numbers out of a hat and divide them and then go buy or sell stocks.  Naturally, proponents of the PE ratio will say that you shouldn’t use forward PE’s, but to those people I have to respond: do you always drive through your rear view mirror?  The numerator (or market price in the PE equation) could care less about past earnings so it’s less than helpful in telling us where future prices might go.

What disgusts me even more about this metric is its incessant use in selling buy and hold strategies.  You can’t read a book on value investing or buy and hold without running into the PE ratio.  “The market is cheap – stocks for the long-run!”  You’ve probably seen this slogan on every mutual fund pamphlet you’ve ever read.  Your stock broker no doubt thinks the market is “cheap” right now.  The PE ratio has become the sales pitch of an entire generation of sales people who are just herding small investors into fee based products.  “Did you know Warren Buffet is a value investor?”  “Just buy cheap stocks and hang on.  Your status on the list of the world’s richest is in the making!”  Or so goes the old sales pitch.

So, I wasn’t surprised to open Yahoo Finance this morning to see the following headline arguing that stocks are cheap according to the PE ratio.  But just two articles down is an article from the WSJ arguing that the PE ratio doesn’t work in this environment.  You can’t make this stuff up.  According to the article:

“Not only is the P/E


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ANALYSTS HAVE BEEN WRONG FOR A DECADE

ANALYSTS HAVE BEEN WRONG FOR A DECADE

Courtesy of The Pragmatic Capitalist

Interesting commentary in the latest McKinsey Quarterly on the analyst community.  As we’ve often noted here, the analysts have been impressively wrong year in and year out.  In fact, McKinsey notes that the analyst community has been too optimistic for the majority of the last decade.  And they haven’t just been wrong – they’ve been horribly wrong.  Their estimates have fallen short by almost 50% over this period:

overopt ANALYSTS HAVE BEEN WRONG FOR A DECADE

Source: McKinsey 


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Apple Praise Borders On Hyperbole

Time to invest in, say, Orange. – Ilene

Apple Praise Borders On Hyperbole

Young woman holding a bowl of green apples and smiling

Courtesy of Joshua M Brown, The Reformed Broker 

Every single  living, breathing analyst on Wall Street (and some that are deceased) has come out with a bull call on Apple ($AAPL) this morning on the heels of the company’s blockbuster first quarter earnings announcement.  In over a decade trading this market, I have never seen anything like this analyst lovefest. 

Never.

Don’t believe me?  How ’bout this?

Clyde Montevirgen, Standard & Poor’s: Buy rating; new target $295, up from $270.

Samuel Wilson, JMP Securities: Market Outperform rating; target to $290, from $260.

Peter Misek, Canaccord Adams: Buy rating; target to $325, from $300.

Robert Cihra, Caris & Co.: Buy rating; target to $310, from $300.

Tavis McCourt, Morgan Keegan: Outperform rating; target now $325.

Young woman holding an apple

Keith Bachman, BMO Capital: Outperform rating, target now $290, up from $265.

Doug Reid, Thomas Weisel Partners: Overweight rating; target to $320, from $300.

Andy Hargreaves, Pacific Crest: Outperform; target to $330, from $300.

Jeffrey Fidicaro, Susquehanna: Positive rating; target to $300, from $275.

Shaw Wu, Kaufman Bros.: Buy rating; target to $315, from $305.

Scott Craig, Bank of America/Merrill Lynch: Repeats Buy rating; target to $300 from $260.

Mike Abramsky, RBC Capital: Outperform rating; target to $350, from $275.

Gene Munster, Piper Jaffray: Overweight rating; target to $323, from $299.

Toni Sacconaghi, Bernstein Research: Overweight rating; target to $300, from $275.

Yair Reiner, Oppenheimer: Outperform rating; target to $320, from $285.

Mark Moskowitz, J.P. Morgan: Overweight rating; target to $316m, from $305.

Close-up of a young man tossing an apple in the air

Richard Gardner, Citigroup: Buy rating; target to $320, from $300.

Phil Cusick, Macquarie: Outperform rating; target to $325, from $250.

Bill Shope: Credit Suisse: Outperform rating; target to $315, from $300.

Ben Reitzes, Barclays Capital: Overweight rating; target to $315, from $300.

Katy Huberty, Morgan Stanley: Overweight rating; target to $275, from $250.

Chris Whitmore, Deutsche Bank: Buy rating; target to $350 from $325.

Told ya.


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STAT OF THE DAY: 93% OF ANALYSTS EXPECT S&P TO RALLY HIGHER

STAT OF THE DAY: 93% OF ANALYSTS EXPECT S&P TO RALLY HIGHER

Courtesy of The Pragmatic Capitalist

As if sentiment wasn’t already starting to get a bit too bullish!  The latest compilation of analyst estimates and year-end targets is now calling for substantially higher earnings and equity prices.  Of the 13 major banks, JUST ONE (Andrew Garthwaite of Credit Suisse) is calling for the S&P 500 to finish the year below the current level.  We’ve covered Garthwaite’s full year outlook and it’s very much in-line with our own – a relatively robust first half and a dicey second half.  On the other end of the spectrum is Binky Chadha whose price target sits at 1325.

Firm                 Strategist           2010 Close   2010 EPS
===============================================================
Bank of America      David Bianco           1,275       $75.00
Bank of Montreal     Ben Joyce              1,225       $74.50
Barclays             Barry Knapp            1,210       $71.00
Citigroup            Tobias Levkovich       1,175       $76.50
Credit Suisse        Andrew Garthwaite      1,125       $77.00
Deutsche Bank        Binky Chadha           1,325       $80.80
Goldman Sachs        David Kostin           1,250       $76.00
HSBC                 Garry Evans            1,300
JPMorgan             Thomas Lee             1,300       $81.00
Morgan Stanley       Jason Todd             1,200       $77.00
Oppenheimer          Brian Belski           1,300       $76.00
RBC                  Myles Zyblock          1,225       $76.00
UBS                  Thomas Doerflinger     1,250       $81.00
---------------------------------------------------------------
Mean                                        1,243       $76.82
Median                                      1,250       $76.25
High                                        1,325       $81.00
Low                                         1,125       $71.00
 

Source: Bloomberg 


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THE 5 BIGGEST RISKS OF 2010

THE 5 BIGGEST RISKS OF 2010

Courtesy of The Pragmatic Capitalist

Rock Climber on Steep Granite Face

As we enter the new year investors will be wise to focus on the risks of 2009.  Although the crisis appears long behind us it’s important to keep an eye on the bigger picture.  Little has changed in terms of the structure of our global economy therefore the risks remain largely the same.  Let’s take a moment to highlight some of these risks as we begin to prepare for a new year:

1)  Those darned analysts

It would be comforting to think that Wall Street’s analysts were in fact doing us all a great big favor with their expert analysis, but the truth is, more often than not, they aren’t.  As we have seen with my proprietary expectation ratio, the analysts have been behind the curve at every twist and turn of the crisis.  They remained too bullish heading into 2007 & 2008 and then were behind the curve as operating earnings tanked and they turned very bearish in Q408 and Q109.  Like clockwork, the ER bottomed and the market soon followed.  The greatest risk heading into 2010 is an analyst community that becomes wildly bullish and sets the expectation bar too high for corporate America to hurdle itself over.  Early readings show this is not a great risk at this point, but it continues to tick higher.

2)  Stimulus, stimulus, stimulus.

There is little doubt that the greatest mean reversion in modern economic times has been largely due to government stimulus.  The bank bailouts, housing bailouts/stimulus and auto bailouts all helped stop the bleeding during a time when the economy appeared to be on its deathbed.  Unfortunately, government spending isn’t the path to prosperity and the private sector will be forced to pick up the slack sooner rather than later.  2010 is likely to largely hinge on this transition.  The government will begin to sap the economy of its massive stimulus as the year drags on and with that comes increased risks that the equity markets will struggle on without big brother’s aid.

3)  Anything China

China has grown to become the hope of the global economy.  With their booming growth, growing consumerism, and fiscal prudence, China is the envy of the economic world.  The rally…
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Telling Big Earnings Lies is Easy

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Telling Big Earnings Lies is Easy

earnings liesCourtesy of Ben Bittrolff, The Financial Ninja

FN: The full article is mind boggling.

Wall Street Analysts Keep Telling Big Earnings Lie: David Pauly:

At a time when the financial industry’s credibility is at an all-time low, you would think Wall Street’s finest would break their necks providing transparency.

Not so. Stock analysts continue to promote corporate earnings lies, insisting that net income isn’t really what investors need to know.

Instead, their earnings estimates ignore often huge expenditures that can’t help but affect a company’s health.

In analystspeak, Intel Corp. wasn’t hit with a $1.45 billion fine from the European Union in the second quarter for anticompetitive practices.

After setting aside funds to cover the fine, which Intel is appealing, the semiconductor-maker had a quarterly loss of $398 million, or 7 cents a share. Disregarding the fine altogether, analysts maintain the company earned 18 cents a share, beating their average estimate of 8 cents.

As Wall Street tells it, the employee stock options Google Inc. granted in the second quarter didn’t cost its shareholders $293 million.

Google, according to generally accepted accounting principles, earned $1.48 billion, or $4.66 a share, in the period. Not enough for Wall Street, which prefers to say the company earned $5.36 a share, leaving out the cost of stock options.

Continue reading Bloomberg article here.  

 

 


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Zero Hedge

F.I.R.E. - Ignited By The Bull, Extinguished By The Bear

Courtesy of ZeroHedge. View original post here.

Authored by Lance Roberts via RealInvestmentAdvice.com,

Do you remember this commercial?

The Etrade commercial aired during Super Bowl XLI in 2007. The following year, the financial crisis set in, markets plunged, and investors lost 50%, or more, of their wealth.

However, this wasn’t the first time it happened.

The same thing happened in late 1999. This commercial was aired 2-months shy of the beginning of the “Dot.com” bust as investors ...



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Kimble Charting Solutions

Is Crude Oil Sending a Bearish Message to the Stock Market?

Courtesy of Chris Kimble.

Crude Oil (NYSEARCA: USO) and the S&P 500 Index (INDEXSP: .INX) have peaked and bottomed together several times in the past 9 months. See points (1) and (2) on the chart above.

In summary, the correlation between Oil and the stock market has been quite interesting and demands investors attention.

Crude Oil has been creating lower highs of late and is breaking price support at (3).

If the correlation remains the same, Crude Oil may very well be sending a bearish message to stocks.

Tricky spot for active investors – careful here.

...

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Phil's Favorites

Central Planning and "Team Human." Are we able to steer the ship, while letting markets do their creative thing?

 

Scientist, tech consultant, best-selling author and futurist David Brin discusses central planning vs. market forces and the problems at either extreme. (Visit the CONTRARY BRIN blog to read David's latest posts. For his books and short stories, visit his website.)

 

Central Planning and “Team Human.” Are we able to steer the ship, while letting markets do their ...

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Insider Scoop

Benzinga's Top Upgrades, Downgrades For July 19, 2019

Courtesy of Benzinga.

Upgrades
  • For American International Group Inc (NYSE: AIG), William Blair upgraded the previous rating of Market Perform to the current rating Outperform. American International Gr earned $1.58 in the first quarter, compared to $1.04 in the year-ago quarter. American International Gr's market-cap stands at $48,358,299,270. At the moment, the stock has a 52-week-high of $56.49 and a 52-week-low of $36.16. American International Gr c...


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Chart School

RTT Plus Chart Book (Sneak Peak)

Courtesy of Read the Ticker.

The magic of support and resistance channel lines and how they direct price. Here are some chart disclosed to members via the RTT Plus service. All charts are a few weeks old. 


XAU bound by parallel channel lines.


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Newmont Mining support from Gann Angles.



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US Dollar index (DXY) dominate cycle ...

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Digital Currencies

Cryptos Suddenly Panic-Bid, Bitcoin Back Above $10k

Courtesy of ZeroHedge. View original post here.

Following further selling pressure overnight, someone (or more than one) has decided to buy-the-dip in cryptos this morning, sending Bitcoin (and most of the altcoins) soaring...

A sea of green...

Source: Coin360

Bitcoin surged back above $10,000...

Ethereum bounced off suppo...



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Biotech

DNA testing companies offer telomere testing - but what does it tell you about aging and disease risk?

Reminder: We're is available to chat with Members, comments are found below each post.

 

DNA testing companies offer telomere testing – but what does it tell you about aging and disease risk?

A telomere age test kit from Telomere Diagnostics Inc. and saliva. collection kit from 23andMe. Anna Hoychuk/Shutterstock.com

Courtesy of Patricia Opresko, University of Pittsburgh and Elise Fouquerel, ...



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ValueWalk

Professor Shubha Ghosh On The Current State Of Gene Editing

 

Professor Shubha Ghosh On The Current State Of Gene Editing

Courtesy of Jacob Wolinsky, ValueWalk

ValueWalk’s Q&A session with Professor Shubha Ghosh, a professor of law and the director of the Syracuse Intellectual Property Law Institute. In this interview, Professor Ghosh discusses his background, the Human Genome Project, the current state of gene editing, 3D printing for organ operations, and gene editing regulation.

...

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Members' Corner

Despacito - How to Make Money the Old-Fashioned Way - SLOWLY!

Are you ready to retire?  

For most people, the purpose of investing is to build up enough wealth to allow you to retire.  In general, that's usually enough money to reliably generate a year's worth of your average income, each year into your retirement so that that, plus you Social Security, should be enough to pay your bills without having to draw down on your principle.

Unfortunately, as the last decade has shown us, we can't count on bonds to pay us more than 3% and the average return from the stock market over the past 20 years has been erratic - to say the least - with 4 negative years (2000, 2001, 2002 and 2008) and 14 positives, though mostly in the 10% range on the positives.  A string of losses like we had from 2000-02 could easily wipe out a decades worth of gains.

Still, the stock market has been better over the last 10 (7%) an...



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Mapping The Market

It's Not Capitalism, it's Crony Capitalism

A good start from :

It's Not Capitalism, it's Crony Capitalism

Excerpt:

The threat to America is this: we have abandoned our core philosophy. Our first principle of this nation as a meritocracy, a free-market economy, where competition drives economic decision-making. In its place, we have allowed a malignancy to fester, a virulent pus-filled bastardized form of economics so corrosive in nature, so dangerously pestilent, that it presents an extinction-level threat to America – both the actual nation and the “idea” of America.

This all-encompassing mutant corruption saps men’s souls, crushes opportunities, and destroys economic mobility. Its a Smash & Grab system of ill-gotten re...



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OpTrader

Swing trading portfolio - week of September 11th, 2017

Reminder: OpTrader is available to chat with Members, comments are found below each post.

 

This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...



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Promotions

Free eBook - "My Top Strategies for 2017"

 

 

Here's a free ebook for you to check out! 

Phil has a chapter in a newly-released eBook that we think you’ll enjoy.

In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

This chapter isn’t about risk or leverage. Phil present a few smart, practical ideas you can use as a hedge against inflation as well as hedging strategies designed to assist you in staying ahead of the markets.

Some other great content in this free eBook includes:

 

·       How 2017 Will Affect Oil, the US Dollar and the European Union

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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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About Ilene:

Ilene is editor and affiliate program coordinator for PSW. She manages the site market shadows, archives, more. Contact Ilene to learn about our affiliate and content sharing programs.

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