Saturday, January 16, 2010

MAJOR Market Problems


Most people understand that corporate earnings were pumped by a wild governmental orgy of theft and bribery. But most people can't understand why stock prices plunge on such great earnings.

The reason is simple: if we dissect a stock price with a 20:1 P/E, we pay 5% for actual earnings and a 95% premium for future growth. The greater the P/E, the more earnings don't matter. The price you are paying is almost entirely premium (hope).

So if we learn retroactively, say, from an earnings report, that earnings grew unexpectedly last quarter (ancient history), then the next quarterly report will have a much harder time clearing the same bar, and the forward-looking stock price must fall. Good earnings destroy the future multiple, especially if they are unexplained or from unrelated economic anomalies. Your chance to profit from that blip is over.

And so, there are two major problems with good earnings reports next week:
  1. The last few quarters have been artificially pumped from outrageous crimes by a government-corporatacracy against her people. That's over, while our depression continues to rage making future quarters worse when compared to mass theft, resulting in negative growth rates. The better last quarter's thievery, the more that 95% growth premium must contract.
  2. Major index P/E's are running near 200 if you sum negative earnings. The advertised index P/E simply ignores a huge number of companies running losses (P/E=infinity) or hides the fully calculated P/E from the public. So the earnings level doesn't matter, only the relative height of the bars matters.
Not to mention all the other catastrophic problems:
  • Plunging cash supply continuing the US Dollar's 22 month long, massive strengthening trend. Stronger buying power prices everything lower, including future earnings with the same 200:1 leverage from spiking P/Es.

  • Historic run on banks converting uninsured deposits into near-0% Treasuries.
  • Berserk government flailing. Bureaucrats doing ANYTHING to stay employed. From new taxes on TARP2, to the upcoming TARP3 transfer from poorest to richest, to the recent Fannie and Freddie defaults exacting a $5T government backstop, to a stone-broke FDIC kicking dead banks to the dying to avoid an insurance payout, to cops ignoring violent crime so they can hop up traffic fine revenue, to prosecuting costly wars against faceless enemies, to government-forced vaccinations to spread virulent strains to pump drug and health care corporation profits. The government is attacking her citizens in a confused rage. There is a U.S Government jihad against American citizens.
  • All-time record foreclosures, eclipsing the Great Depression.
  • 22% unemployment, as calculated using the pre-Clinton method, soon to eclipse the Great Depression peak of 24%.
  • Most large State governments are about to default--the Federal Reserve prohibits those United States from infringing on their cash-printing monopoly.

4 comments:

  1. So a stock with a high p/e that misses earnings should rise because earnings don't matter and forward looking, the be will be easier to beat?

    ReplyDelete
  2. "So a stock with a high p/e that misses earnings should rise because earnings don't matter and forward looking, the be will be easier to beat?"

    Usually that's true, yes. In our unfolding mega-depression, it probably doesn't matter what short term earnings do, as the economy has already collapsed. It's all over but the accounting.

    Dow 3,800-ish by 2012 is the initial EW retracement guideline. It's kind of hard to imagine earnings wouldn't fall even more between now and then, sending the Dow much lower to find a more traditional depression P/E of around 6. But EW guidelines are pretty solid here, so I'm probably going to go long at approx 3.8K.

    Going long at Dow 3,800ish should be good for a 5-10 year ride before the Dow collapses to its EW-forecast bottom, well below 1,000.

    ReplyDelete
  3. FDR I was just reading (Planet Yelnick) that Robert Prechter is now calling Dow 400 by 2014. Yelnick picks this apart and seems to be on a similar price page/time frame as yourself. I'm thinking with the inflation/credit cycle of the last ninety years broken the previous patterns which so many are relying on to predict the future no longer have any relevance and we are now flying without charts or instruments. Seems such a scenario would ultimately serve to part the largest numbers of people (bulls and bears) with the most amount of their money/assets.

    ReplyDelete
  4. "FDR I was just reading (Planet Yelnick) that Robert Prechter is now calling Dow 400 by 2014. Yelnick picks this apart and seems to be on a similar price page/time frame as yourself. I'm thinking with the inflation/credit cycle of the last ninety years broken the previous patterns which so many are relying on to predict the future no longer have any relevance and we are now flying without charts or instruments. Seems such a scenario would ultimately serve to part the largest numbers of people (bulls and bears) with the most amount of their money/assets."

    I follow Bob because he's been such an incredible visionary since his 1982 call that you absolutely could not lose going long stocks with maximum leverage for the foreseeable future, as he accurately called the launch of the 5th Wave (probably within a much larger degree 5th wave, which literally defined and created public stock ownership, itself).

    So I'm familiar with Bob's similar price targets to my own. I don't recall him putting a 2014 time frame on them, though maybe I missed it. To the contrary, I thought he too was calling for a 2012 initial low--though he doesn't give a specific price target for that--mine is Dow 3,800ish, before an eventual collapse, also of some unspecified time frame.

    The truth is, the time dimension is difficult to predict with accuracy, since we dealing with huge wavelengths relative to our puny lives. But that doesn't preclude one from playing the unfolding trend.

    Enormous reversals like this one are ultimately the most profitable, as they are unfathomable for the 99.999% who engage in blind stock speculation.

    ReplyDelete

The USA's political-economc system is best described as:

On Nov 2, 2010, I plan to vote (FOR or AGAINST) my incumbent congressman

 
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