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« Weighing the Week Ahead: The Rise of Headline Risk | Main | Interpreting the St. Louis Fed Stress Index »

August 16, 2011


Todd L

Great post Jeff - my comment has more to do with the link through to your post on analyst's ability to forecast earnings 1 year out. Your general conclusion was that analysts were actually pretty good at 1 year forecasts. It looked to me like that was fair, but that you could also just as easily conclude analysts just play it safe with their forecasts and predict little in the way of change.

During an expansion, from the chart your show, it seems like they underestimate earnings. During a contraction/recession, they seem to overestimate earnings. And at inflection points, they seem really bad (2008, Lehman).

It's admittedly not much data to go off of. But I guess I would just be a little cautious using analyst earnings forecasts to support conclusions about the valuation of the market right now, especially since it seems like there is some evidence that we are nearing an inflection point.

Dal Paull

I knew I'd like this when I saw "....Wall Street Parrot (parietis vicus psittacidae)" The article is delightful. Kudos to the Old Prof and the (ahem) extensive "A Dash" research staff.


"Many of the parrots are building a recession into their forecasts. Since a recession is unlikely, their forecasts will probably be wrong."

Not so sure about this. For one, most of the "parrots" that I have had a chance to read are calling for the U.S. to AVOID another recession. As you pointed out, no reasons are offered, just the naked opinion. Secondly, do you really think a recession is unlikely? I would cite John Hussman's latest missive:

"The composite of recession warning evidence we observe here falls into a Recession Warning Composite that has been observed in every recession since 1950, and has never been observed except during or immediately preceding a recession." Hussman's methods are data-intensive, and should not be dismissed, in my opinion.

Regardless, I certainly concede that you correctly point out that corporate earnings can (and indeed, have already) grow while economic readings continue to be horrific. But I would argue that the economic backdrop is largely responsible for the lower multiple being assigned to said earnings. Until the economic backdrop improves, multiple expansion will be hard to come by.

So, while there are certainly individual stock opportunities aplenty, it is pretty tough to argue that "there is a lot of room for slack" from a market-wide perspective.

Andrew H

Parrot speak:

We are running out of options, we are running out of options

Its a dead cat bounce, its a dead cat bounce

We're heading foe a double dip, we're heading for a double dip

We're all doomed, we're all doomed.


"...the 10-year Treasury Note, formerly viewed as risk free."
Best line I've read this week; I'm still laughing.

And I expect Apple to be slashing their dividend in the not too distant future. (my attempt at humor)


"None of us has a guarantee that markets will move higher in the next few weeks, but at least we have reason and data on our side."

Of course, the data was on your side three weeks ago as well.

If valuations exert such a weak gravitaional force on stock markets (certainly in the short-term) then isn't it possible that prices could move still lower in the next few weeks?

And is a recession still unlikely? How unlikey? Is a recession more likely today then it was three weeks ago?


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