Posts Tagged ‘EARNINGS ESTIMATES’

Sure Thing?!

Sure Thing?!

Courtesy of Mish

Last week, David Tepper, a billionaire hedge fund titan and president of Appaloosa Management remarked on CNBC …

Two things are happening. It’s that easy sometimes. Either the economy is going to get better by itself, in the next 3 months and what assets are going to do well? You can guess what assets will do well – stocks are going to do well, bonds won’t do so well, gold won’t do as well. OR The economy is not going to pick up in the next three months and the Fed is going to come in with QE. Right? Then what’s going to do well? Everything! In the near term – Everything!

Video

Earnings vs. Share Prices

One might not be able to argue with Tepper’s past performance, but one sure can argue with his current logic. Stocks do not necessarily go up because earnings go up. Stocks rise or fall primarily based on sentiment.

Right now, sentiment is so bullish and earnings estimates so lofty there is room for hefty earnings expansion that falls short or estimates. Buying stocks that miss wildly optimistic earnings estimates is not likely to work out well.

Furthermore, even if earnings do come in on target, there is no historic guarantee that stock prices follow. For example, on March 31, 1973 the S& P was at 111.52 with trailing earnings of $6.80. Seven years later, on March 31, 1980 the S&P was at 102.09 with trailing earnings of $15.27.

Thus, over a span of seven years, earning rose 125% while stock prices fell 8.5%!

What happened? The PE ratio on the S&P fell from 16.40 to 6.68, that’s what.

Moreover, those were real earnings then. Now, corporations hide garbage in SIVs with the blessing of the Fed and analysts cite pro-forma earnings that throw out "one-time" charges that occur with increasing regularity.

Thus, anyone who says stock prices will go up because earnings go up, does not understand history. This does not make Tepper wrong, but it does make his argument fallacious.

What About Quantitative Easing? 

Tepper also argues that everything will be good if the Fed falls back on quantitative easing. Really?

The Cleveland Fed has a series of nice charts on Japan’s Quantitative Easing Policy

Japan’s Quantitative Easing vs. Price Inflation

Japan’s Quantitative Easing in Trillions of Yen

After a series


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Is Earnings Optimism for the S&P 500 Justified?

Is Earnings Optimism for the S&P 500 Justified? 

Courtesy of Doug Short

Regular visitors to dshort.com know I follow Howard Silverblatt’s earnings spreadsheet on the Standard & Poor’s website. Free registration is required to access this data. I’ve received several requests for more specific details on where to find the spreadsheet. It is fairly well hidden. Here are two links to help frustrated seekers: step one and step two.

I follow the "As-Reported" earnings and top-down estimates for future earnings (see column D in the spreadsheet). The chart below shows the higher estimates of future earnings from the most recent spreadsheet, dated August 24th, and three earlier spreadsheets (February 17th, April 28th, and July 15th).

The latest earnings estimate for 2Q 2010 is 67.20. Friday’s close gives us a P/E ratio of 15.84, which is close to the average trailing 12-month P/E of 15.48. Beyond the 2Q, the chart illustrates increasing optimism about next year’s earnings. The August 24th estimate of $80.20 for 4Q 2011 at today’s P/E would put the S&P 500 at 1,270 at the end of 2011. That’s a gain of 19.3% from the latest close.

But will as-reported earnings really live up to these estimates? Last month Howard Silverblatt pinpointed the problem for earnings in a Bloomberg article No Sales Means No Jobs Means No Recovery. His concluding remarks are worth repeating here:

I look to sales as a future indicator. On this basis, earnings are running ahead of Q1 2010, but sales are flat, and that’s the problem. It’s great that companies have improving earnings, but those improvements are due to high margins, which were the product of cost cuts — specifically job reductions, the very thing that we need to improve now. Until companies and consumers start to spend more, the job front will not get better, but they won’t spend more until they believe things are getting better. The stimulus programs were supposed to jump start the economy and break the downward cycle by convincing both groups that better times were here. But so far we’re not seeing the sales or the jobs; but earnings are good, at least for now.

Companies in the S&P 500 sell across the world. But consumption in the US, which remains critical for sustained earnings growth, has been undergoing a sustained contraction —, a fact that…
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ARE EARNINGS ESTIMATES TOO HIGH?

ARE EARNINGS ESTIMATES TOO HIGH?

Courtesy of The Pragmatic Capitalist

This excellent piece (below) was on Bloomberg yesterday and cites another bearish note from Gluskin Sheff’s David Rosenberg.  It notes that the analyst community now expects 35% earnings growth for 2010.  They go on to show that this has only happened 6 times in 75 years and has been accompanied by 10% GDP growth each time.  In essence, the implication is that this recovery is entirely different and is unlikely to rhyme with these other robust earnings recoveries.  This is accurate, but terribly misleading in terms of timing.  Have a look here and continue reading below:

What Rosenberg and Bloomberg fail to be more descriptive about is the timing of these high estimates.  As we have long noted with our expectation ratio and earnings analysis (which has been spot on) the analysts have remained far too bearish for the last year. Where the above analysis goes wrong is in bunching 2010 estimates together as a whole as opposed to breaking them down by quarter.

A closer look at these estimates is vitally important in positioning your portfolio for the coming few quarters. In our 2010 investment outlook we said we were bearish about H2 2010 partly due to the potential for overly optimistic earnings analysis. If you look at current estimates analysts are calling for just 2.7% sequential growth in 2009 Q4 earnings. For 2010 Q1 they are calling for just 1.9% sequential growth.  In a nutshell, they expect earnings to be in-line with the last few quarters (which I believe is utterly naive and lacking in any real analysis worthy of paid employment).   These estimates are almost certainly low.  Where things get interesting is in the later quarters of 2010.

In Q2 analysts are calling for a big jump in growth to 11.3% sequentially and 33% year over year. The same goes for Q3 where they are currently calling for 7% sequential growth and 25% year over year growth. These are big numbers. $19.72 & $20.62 in operating earnings per quarter is essentially what the S&P was doing back in 2006 & 2007 when the economy was at record low unemployment and the banks were cranking their high leveraged ponzi scheme on all cylinders. Can we realistically return to such levels so…
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Phil's Favorites

Is Facebook today's Compuserve? How Libra could hasten its demise

 

Is Facebook today's Compuserve? How Libra could hasten its demise

Will Libra be Facebook’s downfall? (Shutterstock)

Courtesy of Marc-David L. Seidel, University of British Columbia

When Mark Zuckerberg was five years old in 1989, two dominant players in telecommunications made a big announcement.

Compuserve (the first major commercial online service provider) and MCI Mail (one of the first commercial e-mail service providers) introduced commercial e-mail relays to the public internet. These relays connected their centralized networks to the public, outside of their direct con...



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Zero Hedge

Yuan, Stocks Erase Mnuchin Ramp

Courtesy of ZeroHedge. View original post here.

The overnight ramp in yuan and US equity futures - on the back of Mnuchin's comments - has been entirely erased as the algos were taught that tenses matter...

...a deal that WAS 90% done is different from a deal that IS 90% done... ...



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Kimble Charting Solutions

Metals Bulls Praying This Indicator Does Not Peak Here!

Courtesy of Chris Kimble.

Gold has been strong of late as the US Dollar has been weak. This combo has driven the Gold/Dollar ratio to a key price zone and momentum level, that looks to be important to metals bulls.

This chart looks at the Gold/Dollar ratio over the past 6-years. The long-term trend is down, while the trend over the past 3-years is pretty much flat (sideways trading range).

The rally of late has the ratio testing the 2018 highs as well as its 38% Fibonacci retracement l...



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Insider Scoop

Analysts Say Homebuilder Environment Still Looks Good For Lennar

Courtesy of Benzinga.

Lennar Corporation (NYSE: LEN) stock remains attractive in the long term, sell-side analysts said Wednesday after investors sent the share price on a post-earnings roller-coaster ride.

The homebuilder had a strong ...



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ValueWalk

Beyond Meat vs Impossible Burger: Comparing The Vegan Meat Burgers

 

Beyond Meat vs Impossible Burger: Comparing The Vegan Meat Burgers

Courtesy of Vikas Shukla, ValueWalk

Pexels / Pixabay

The trend of vegan food has been gathering momentum in the last few years as people become more health conscious. They have also begun to realize the environmental impact of raising meat for human consumption. According to PETA, it takes an estimated 1...



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Chart School

Formula for when the Great Stock Market Rally ends

Courtesy of Read the Ticker.

When valuations for the boring water company or the boring electric company is trading like your Facebook, Apple, Amazon or Netflix or Google (ie FANG) you know something is wrong.

This is when a seriously over valued market is screaming at you.

Of course the reader must understand in a world where money printing goes super nuts (Zimbabwe style) the stock market may go hyper inflationary and picking a time frame for a top is never a good idea, but we are not there yet. There is no Ben Bernanke helicopter money to the masses yet (ie MMT). 

To see when water company's (and such like) are nearing the crazy FANG like valuations a review of the Dow Jones Utility Index channel shows us how history can repeat. The c...

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Digital Currencies

Cryptocurrencies are finally going mainstream - the battle is on to bring them under global control

 

Cryptocurrencies are finally going mainstream – the battle is on to bring them under global control

The high seas are getting lower. dianemeise

Courtesy of Iwa Salami, University of East London

The 21st-century revolutionaries who have dominated cryptocurrencies are having to move over. Mainstream financial institutions are adopting these assets and the blockchain technology that enables them, in what ...



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Biotech

Consumer genetic testing customers stretch their DNA data further with third-party interpretation websites

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

 

Consumer genetic testing customers stretch their DNA data further with third-party interpretation websites

If you’ve got the raw data, why not mine it for more info? Sergey Nivens/Shutterstock.com

Courtesy of Sarah Catherine Nelson, University of Washington

Back in 2016, Helen (a pseudonym) took three different direct-to-consumer (DTC) genetic tests: AncestryDNA, 23andMe and FamilyTreeDNA. She saw genetic testing as a way...



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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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