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« Can You "Get Smart"? | Main | Reviewing Economic Data »

July 31, 2008

Comments

oldprof

Mike -- I think that it is fine to look for turning points, but that should be the focus. The top down analysts were predicting a turn for years, and underestimated profits as a result. The economic data suggest that things peaked about eight or nine months ago. If/when a recession is declared, that will be the official start date and therefore the turning point. I agree that we should be looking for the next turning point :)

Thanks,

Jeff

Mike C

Jeff,

Maybe I'm not clear on what you are saying here, but are you suggesting the entire concept of a "turning point" is entirely bogus?

It is probably impossible to identify an exact date as the "turning point" for say overall economic growth and/or forward estimates for corporate profits, but obviously things have gotten significantly worse compared to what many perma-bullish??? (personally I think the use of these perma terms are distracting but the term perma-bear gets thrown around a little too cavalierly) prognosticators were forecasting 12 months ago in August 07.

I think it is safe to say that many with bearish/pessimistic leanings were incorrect for basically a few years (05, 06, some of 07) while many with bullish leanings did in fact miss the "turning point" where the economy began to weaken and forward profit estimates began to come down and down and down.

http://www.raymondjames.com/monit1.htm

Of course, the difficult and useful question is "where are we at now"? Are we near the trough of both the economic and market cycle, and can expect economic growth to strengthen and forward profits to get revised upward, or are we in the 2nd inning as Roubini puts it?

oldprof

Vermont --

Top down analysts have been undercutting the regular analysts for many months. They were basically wrong for several years. They have been more accurate when financial stocks took write-downs.

I have had excellent results, beating the market by a wide margin for ten years, by ignoring the top-down analysts. I urge you to consider this approach.

Many of them are quite arrogant and have little real basis for their approach. I like the idea of having hundreds of scouts looking at companies...

Just a thought...

Jeff

oldprof

Lord -- NFP revisions are strictly a result of those firms not reporting.

Do you have something suggesting a different interpretation for other revisions?

And please -- you say that revisions are correlated at turning points. Just when is the "turning point"? The bearish argument is that it was last November or December. So why does that argument apply now?

This is one of those slick phrases that continues the process of frightening most investors: Don't trust any data.

What do you think?

Thanks,

Jeff

oldprof

Gaius Marius -- Thanks for the pointers. I have published your comment which did hit the spam filter for some reason. This happened despite the fact that you are on the list of valued contributors.

Sorry, and thanks for your viewpoint.

I hope to have something soon on the BLS Birth/Death issue, perhaps the most widely mis-interpreted data out there.

Jeff

Lord

You seem to think revisions are random, but aren't they highly correlated at turning points?

gaius marius

sorry again -- my first comment is held for moderation, probably because of the number of links in it. i reposted it here:

http://declineandfallofwesterncivilization.blogspot.com/2008/08/worse-than-reported.html

gaius marius

sorry -- i misrepresented karlsson's method -- he is deflating gross GDP using the gross domestic purchases deflator, not CPI.

http://www.bea.gov/briefrm/price.htm

Vermont Trader

"In short, the news was a little negative, but no big deal."

I disagree, when real GDP misses projections (on which many top down earnings projections are based) in a quarter with massive stimulus and a lower than expected deflator it is a big deal.

Murray Trillionaire

Maybe if we all just ignore this recession it will get bored and move to Canada.

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