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« Romney? 100% Chance of Recession! | Main | Drawing the Wrong Inferences from Economic Data »

August 18, 2012



Thanks again for a good post Jeff.

Here's some interesting data concerning the European situation:


RB -- This is a really good topic, and one that I am considering.

My basic idea is that those who focus only on profit margins -- -taking a big haircut to market values -- are over-simplifying.

Profit margins will decrease, but it will happen as the economy improves and revenues increase. Guys like Montier look at only two variables and do not account for how margins got so high.

Montier is also pretty lame on forward earnings. He is one of the pundits who criticize the analysts (who have actually done well) without offering any alternative.

Good questions and thanks.


doug of North Texas

great calendar link ! thanks

doug of North Texas

Re the good stuff from this week: Leading Econ indicators from Conference Board just got back to May value, reversing June fall - so flat (net) over 90 days. Consumer Metrics shows (monthly data) a fall in Retail Sales in their analysis - really quite bad for more than a quarter. So I have problems with that indicator also. The big wrinkle is, "how many decisions will be postponed or put on hold as we watch events work out for the next 3-5 months?" I see opportunity there rather than a trend.


BTW, Ben Inker's recent article at GMO regarding GDP correlation with stock market returns was also interesting. The conclusion seems to be that 7-year returns could be 0 with an intervening 30% fall - interestingly this analysis seems to be based on price-to-normal earnings, which I suppose is their equivalent of the Shiller P/E. That could still of course mean that a new great bull market began in March 2009, but with a different spin from Vrba's analysis using the same backward-looking methodology.


Scott Grannis could be right about the contrarian possibility of 3-4% growth and it may not have much implications for the market. Abnormal Returns has a series of articles in recent weeks about GDP growth not correlating with stock market returns. Jeff, I would be interested in your take on James Montier's article on the unsustainability of profit margins from March this year on the GMO website.

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