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SideShowMel0329 (32.11)

The S&P 500 posts its worst earnings decline on record



May 16, 2009 – Comments (19)



To think we're nowhere near the bottom is foolish. The economy has been absolutely battered over the last 20 months and people still think there is room to drop.

Don't get caught on the short squeeze. See this as a buying oppurtunity and hold for the recovery.

Good luck all!

19 Comments – Post Your Own

#1) On May 16, 2009 at 5:57 PM, alstry (< 20) wrote:

After reading this, now I understand you a bit better.

If you think you are stressed now.....just wait until Fall.

Prepare...Don't Fear. 

You have been warned...the rest is up to you.

Seriously, Good Luck!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

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#2) On May 16, 2009 at 6:00 PM, Mark910 (< 20) wrote:

Your chart may say there is not much room fo profits to drop, but your logic is flawed because this very chart says stock prices must fall to match it.  Earnings predict the market,,not follow it silly.

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#3) On May 16, 2009 at 6:00 PM, alexxlea (58.84) wrote:

You're arguing against yourself, because why then haven't stock prices followed suit? Oh wait, they will.

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#4) On May 16, 2009 at 6:20 PM, Mark910 (< 20) wrote:

Perfect example of circular thinking..I hope you don't use this same type of logic in your investing.  Oh wait you do! You said this is a perfect buying opportunity.  Best Wishes

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#5) On May 16, 2009 at 6:48 PM, portefeuille (98.96) wrote:

Che chart can also be found in comment #16 here. It may have been discussed there ...

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#6) On May 16, 2009 at 6:49 PM, portefeuille (98.96) wrote:

The chart ...

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#7) On May 16, 2009 at 7:23 PM, iamnik77 (91.08) wrote:

One of investors' biggest follies during bear markets is the belief that "This time it's different" and our stock market will only destroy the wealth of those who buy to hold. However, this chart gives me a sinking feeling in my stomach. It makes it look as if this time it is different! It appears as if America was infected by a "stupid" virus that resulted in mismanagement of our resources and a steep decline of economic competitiveness. I understand we had a credit fueled economy in the last few years but can it be possible that our economy has become almost void of any substance whatsoever? Take away the credit fueled purchases and you would think we would still have avoided a reversion to profitability levels below those of 70 years ago. What the heck is happening? It's as if the wealth has just vanished into thin air.

I still refuse to sell my stocks. If we are about to have a second great depression than I am willing to go broke. Just playing the odds. When at the point of maximum pessimism, and I think the evidence points to Dow 6600 being very close to that point, optimism has usually been the formula for building wealth. My quota for bad news has been reached. Any more bad news can't make me feel any different.


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#8) On May 16, 2009 at 7:29 PM, SideShowMel0329 (32.11) wrote:


Stock prices have already priced in these poor earnings, they've been priced in since the beginning of the year. Hell, people were expecting it to be worse than this (I'm sure a lot of speculators were banking on negative earnings for the S&P).

My faith in the economy is still strong, and I know these low earnings are not permanent.

Buy and hold people!

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#9) On May 16, 2009 at 7:33 PM, RVAspeculator (28.54) wrote:

Earnings down 90% from the highs yet stocks are only down 40% from the highs.  


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#10) On May 16, 2009 at 7:36 PM, checklist34 (98.35) wrote:

and just like that any faint hint of bullishness vanishes and bearish sentiment dominates, almost totally, the news the commentators, the talking heads, the bloggers, the posters.

Everybody knows we're gonna crash next week.  Heck, I think we're gonna crash next week.  Will we all be right?  Hindsight will tell

But a few thoughts on earnings and some reason here:

1.  AIG alone must drop the earnings of the S&P by a huge amount.  Taking out just AIG must raise the figure by 10 or 20 bucks?  (anyone, beuller?  I have no idea what the actual figure it but it sure wouldn't be onthing)

2.  mark to market unrealized paper losses are enormous, and NOT ALL OF THEM ARE REAL OR WILL BE REALIZED and that skews this fairly dramatically, and could stand to add earnings slowly or in a chunk at some future time.

3.  a bit of throw-out-the-kitchen-sink has been happening in the last 2 quarters as companies whose share prices have nothing left to lose (often literally) take any and all writedowns they can think of to get them behind them.

4.  the losses in the auto industry are sort of once in a lifetime kind of things, off the charts, and like AIG that alone has a material significant impact on the overall thing

5.  the wild, crazy swings in commodities prices in the last 12 months have created losses not likely to be repeated. 

6.  this time creates horrible things like high unemployment and other miseries.  because companies see sales drop, margins drop, have to lay off, etc.  But that creates leaner companies more able to profit in the future.

Its a crappy, sucky time.  but thats why most of 2009 has represented a really good buying opportunity.  If you wait to buy until everything is happy and stuff, most of th emoney has probably already been made, etc. 

Buying stocks at the happiest time in history was a losing proposition.  buying them at the ugly times in history has been a winning proposition.

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#11) On May 16, 2009 at 8:54 PM, alstry (< 20) wrote:

Don't is always darkest.....just before everything goes black;)

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#12) On May 16, 2009 at 10:31 PM, Josher429 (< 20) wrote:

Stocks and the market are forward looking.  Any veteran of the market can recall examples of companies that post record profits, but also lower guidance.  The stock will take a beating. 


What is passed is water under a bridge. 

What is coming is all that matters.

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#13) On May 16, 2009 at 10:42 PM, russiangambit (28.77) wrote:

> Earnings down 90% from the highs yet stocks are only down 40% from the highs.  

Yes, it is due to the belief that the earnings will recover. If the earnings were 100, and now they are 10, but I am paying for 40, then assuming I have a 3 year horizon,  for example, I will come out OK if I have earnigns as 10 this year, 40 next year and then 70 the 3rd year. Now, of course, I need to have a premium for risk, so the  curve should be more like 10-50-100. How realistic is it for any given  stock in S&P 500 ? I think the plank is too high. I see something like 10-40-70 as the best case scenario, but even then there is no premium for risk. There should be at least 10% risk premium, baked in. Which menas, that even if the  best case scenario comes to pass, the stocks are 10% overvalued.

Now , many look at forward P/E.  I don't think it is very accurate in this deeply depressed market, since it is only a year out. But if  a stock was trading at P/E of 20 , and it lost 90% of its earnings, and you expect it to have let's say 50% of its earning next year (from the pick in 2007), then with the forward P/E of 10, the stocl price should fall  75%. With forward P/E of 15, the stock price should be down about 60%.

The bottom line, at 40% down the stocks are 10-30% too expensive no matter which way you look at them.


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#14) On May 16, 2009 at 10:44 PM, RVAspeculator (28.54) wrote:

People keep saying "bearish sentiment dominates" but a quick look at the put/call ratio, the AAII investor sentiment index,  Investor Intellegence Bull/Bear ratio.. .pretty much you name the sentiment indicator... 

All of them are OFF THE CHARTS BULLISH right now.

I agree that it seems like most of CAPS is bearish...  but the investment community as a whole is loaded to the gills with calls with little put protection and "all-in" for more upside. 

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#15) On May 16, 2009 at 11:09 PM, JGus (28.10) wrote:


Well said! I would agree that CAPS has more than it's fair share of Bears. That's probably due to the fact that we're in the midst of a vicious bear market and a lot of the bulls have been run off (or at least silenced). I started on CAPS in August and since then there have only been two periods where the bulls have been vocal - December to early January and late March until now. I'm sure most of these bulls will shut up or leave with the next leg down.

The VAST MAJORITY of mainstream financial media, however, are incredibly bullish. And, as you mentioned, the majority of sentiment indicators are very bullish. GoodVibe mentioned in his chat room earlier this week that one of the sentiment indicators was nearly 90% Bull. On March 6th, that same indicator was only 4% Bull.

Funny thing is, I rec'd this blog before I read SideShows comments because the chart (which I love) SCREAMS MORE PAIN AHEAD!!! 

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#16) On May 16, 2009 at 11:18 PM, russiangambit (28.77) wrote:

> What is coming is all that matters.

And what is coming, do you suppose?

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#17) On May 16, 2009 at 11:46 PM, SideShowMel0329 (32.11) wrote:


Just like the bulls who think record earnings growth means more earnings ahead,  you are a fool to think that record earnings drops means more drops ahead.

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#18) On May 17, 2009 at 12:31 AM, mistermiranga (99.53) wrote:

Sideshow - I have to admit that when I see that chart I am not exactly chomping at the bit to catch that falling knife but I do appreciate your perspective in pointing out how it can be seen as an opportunity. 

When you put this chart in the context of our current economic backdrop I don't think that you can dismiss a lower low.

IMO the stimulus plan actually started sometime before the housing market peaked. loose credit has artificially inflated growth for quite some time and  the powerful ally of leverage has now pulled a 180. I don't think we should underestimate the backlash of the unwinding process.


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#19) On May 17, 2009 at 8:18 PM, ChrisGraley (28.50) wrote:

All I know is the Bulls got way too excited and the government put the short sellers on leashes and those 2 things combined ruined what good have been a perfectly decent 6 month bear market rally!

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