Comments on: Wall Street’s numbers on earnings and revenue for 2010 don’t add up http://jubakpicks.com/2009/10/07/wall-streets-numbers-on-earnings-and-revenue-for-2010-dont-add-up/ Sat, 19 May 2012 20:47:22 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: dblwyo http://jubakpicks.com/2009/10/07/wall-streets-numbers-on-earnings-and-revenue-for-2010-dont-add-up/comment-page-1/#comment-1182 dblwyo Wed, 07 Oct 2009 18:59:01 +0000 http://jubakpicks.com/?p=1530#comment-1182 Moutaineer makes a point I agree with. Shiller's work shows a 14.9PE, excluding the bubble years. And range-bound markets tend to experience earnings PE compressions as well. But the overall questions about profits are dead on. This decade saw unusually high margins because of reduced hiring and capex investment in general, but if you take away Finance sector profits they were a much smaller bubble and followed years of below l.t. GDP trend growth. Given that we're expecting l.t. GDP growth of 2.5% the Street's expectations are NOT grounded in any defensible realities, IMHO at least. And that's not entirely casual...if you look at national account data and compare GDP and Profits a 2.5% growth rate correlates to a 1.1% growth in corporate after-tax profits. A final straw would be if you applied the Graham-Dodd formulate for valuation with a margin of safety [(8.5+2*grwth rate)*4.4/AAA yield] should be in the 6-13 range, perhaps centered on 8-10! Moutaineer makes a point I agree with. Shiller’s work shows a 14.9PE, excluding the bubble years. And range-bound markets tend to experience earnings PE compressions as well. But the overall questions about profits are dead on. This decade saw unusually high margins because of reduced hiring and capex investment in general, but if you take away Finance sector profits they were a much smaller bubble and followed years of below l.t. GDP trend growth. Given that we’re expecting l.t. GDP growth of 2.5% the Street’s expectations are NOT grounded in any defensible realities, IMHO at least. And that’s not entirely casual…if you look at national account data and compare GDP and Profits a 2.5% growth rate correlates to a 1.1% growth in corporate after-tax profits.
A final straw would be if you applied the Graham-Dodd formulate for valuation with a margin of safety [(8.5+2*grwth rate)*4.4/AAA yield] should be in the 6-13 range, perhaps centered on 8-10!

]]> By: sigli http://jubakpicks.com/2009/10/07/wall-streets-numbers-on-earnings-and-revenue-for-2010-dont-add-up/comment-page-1/#comment-1174 sigli Wed, 07 Oct 2009 17:05:54 +0000 http://jubakpicks.com/?p=1530#comment-1174 Profitless prosperity is my prediction. I don't see how margins can grow when we have a historically low capacity utilization. There is too much pent up competition right now. Increases in demand can quickly be met. Just my .02 Profitless prosperity is my prediction. I don’t see how margins can grow when we have a historically low capacity utilization. There is too much pent up competition right now. Increases in demand can quickly be met.

Just my .02

]]> By: mountaineer http://jubakpicks.com/2009/10/07/wall-streets-numbers-on-earnings-and-revenue-for-2010-dont-add-up/comment-page-1/#comment-1171 mountaineer Wed, 07 Oct 2009 15:28:13 +0000 http://jubakpicks.com/?p=1530#comment-1171 Jim, "And if companies deliver, the index is now trading at 15 times projected 2010 earnings. That’s on the low side of the range that history tells is us fair value." That's not correct. In Bill Hesters article he clearly states that Hussman calculates the long-term historical norm P/E on forward operating earnings at 12. A 15 P/E would only be considered "fair value" on TTM operating earnings, and right now we are at around 25 on those. Hussman's great writeup on this, one of his best, can be found here... http://www.hussmanfunds.com/wmc/wmc070820.htm Jim,

“And if companies deliver, the index is now trading at 15 times projected 2010 earnings. That’s on the low side of the range that history tells is us fair value.”

That’s not correct. In Bill Hesters article he clearly states that Hussman calculates the long-term historical norm P/E on forward operating earnings at 12. A 15 P/E would only be considered “fair value” on TTM operating earnings, and right now we are at around 25 on those.

Hussman’s great writeup on this, one of his best, can be found here…

http://www.hussmanfunds.com/wmc/wmc070820.htm

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