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Monday, July 7, 2008

Analysts Expect a 50% Profit Increase in Fourth Quarter

I’m not making this up…

Deutsche, UBS Fight History Forecasting Best S&P 500 Since 1982: “Deutsche Bank AG, Lehman Brothers Holdings Inc. and UBS AG say the Standard & Poor's 500 Index will gain the most in 26 years during this year's second half. That isn't going to happen, if history is any guide.

The S&P 500 will rise 18 percent by January, according to the consensus projection of 10 U.S. strategists surveyed by Bloomberg. The forecasts are based partly on estimates that profits will jump 50 percent in the fourth quarter after falling for the past year.”

What? Jump 50%? On what? It is far more likely that profits will COLLAPSE in the fourth quarter as real estate prices continue to slide and consumer credit is aggressively reduced.

“Even if that happens, it may not be enough. In 2001, the last time profits fell as much, they then had to climb for three straight quarters before stocks rebounded. Analysts' earnings estimates for this year still represent a decline from 2006 levels, making the strategists' optimism harder to justify, investors say.”

Most analysts still have a ridiculous year end target for the S&P 500.

“Based on the index's closing price of 1,280 on June 30, the average strategist forecast of 1,515 by year-end calls for the biggest rally of any second half for the S&P 500 since Ronald Reagan was in the White House in 1982.”

From Calculated Risk:

Bridgewater Study: Banking Losses to Hit $1.6 Trillion: “From SonntagZietung: Brisante Studie: Die Bankenkrise wird noch viel schlimmer (hat tip Dwight)

Paul Kedrosky at Infectious Greed has a translation: The expected losses from the financial crisis will reach $1600 billion. To-date financial institutions have so far announced only $400 billion. The pessimistic forecast comes from a confidential study by Bridgewater Associates...

It's hard to comment without seeing the study, but I'm sure this includes all losses including corporate debt, CRE and C&D debt, consumer debt, credit cards, etc. in addition to losses on mortgages.”

$400 billion in losses have been booked. With losses of $1.6 trillion now being predicted, corporate profits can’t possible improve by the fourth quarter.

Analysts expect the S&P 500 to close at 1 515 by year end. Considering 1 576 was the all time record high during the greatest real estate and credit bubble in history, I'm going to call BULLSHIT on that and trade accordingly.

You don’t even want to know my year end target.

Related Posts that should make it clear that the S&P 500 won’t see 1500 for years to come:

German Output Unexpectedly Falls the Most in 9 Years (Update1): “German industrial production fell the most in more than 9 years in May, further evidence that Europe's largest economy is losing momentum.”

U.K. Factory Production Weakens to Eight-Month Low (Update2): “U.K. manufacturing unexpectedly contracted in May to the weakest in eight months, choked by record commodity prices and slowing economic growth.”

Bank of Japan Says Economy Worsened in 8 of 9 Regions (Update2): “The Bank of Japan said the economy has worsened in eight of the country's nine regions since April as costlier energy and raw materials slowed the expansion.”

European Investor Confidence Drops to 3-Year Low, Sentix Says: “European investor confidence slumped by a record amount to the lowest in more than three years in July on concern that record oil prices and a stronger euro will dent economic growth and hurt companies' earnings.”


Anonymous said...

If the big boys want to get out of stocks, this is how they would signal it.

Recall that the Clintons have been out of the market for nearly a year.

Charles Butler said...

And what was the environment in '82? In a word - Volcker. Where do these guys get off? If anything we're in 1973 and we'll see SPX 800 before 1500.

Anonymous said...

been shoring up with DUG for past few days. Nice move today.
Bush supports stronger dollar...
Rates need to pop...and oil will drop.
Time to get in on shorting the SPX????


Anonymous said...

hey! C'mon! Everyone knows real estate only goes up and that the stock market return at least ten percent a year every fricking year. So, it's obvious to me that profits MUST increase by 50% in order for the market to finish up ten percent on the year.

Jeez! Where did you learn your finace? You need to watch more CNBC and listen to Ben Stein. Maybe then you will understand all this.

Oh, and we need to increase the Bush tax cuts to negative 25% across the board while increasing spending on the War on Terror by seventeen trillion. The lower the tax rate, the more the revenue; so a negative tax rate should send tax receipts to infinity. QED

If you guys need more help with the hard stuff, let me know.

Anonymous said...

the best part is that there is Billions in HELOC's, that people used to pay off their OliveGarden/Bertucci's bills...

How does a bank repo that?!?!?

So to say the banks now own $hit, is an understatement.

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