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Gloom.boom.Doom.market.commentary.2009.08.RETAiL.ebook sUppLeX

Gloom.boom.Doom.market.commentary.2009.08.RETAiL.ebook sUppLeX

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marc faber
marc faber

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Published by: sidjain89 on Jun 04, 2010
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05/02/2015

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Dr. Marc Faber Market Commentary August 1, 2009www.gloomboomdoom.comPage 1 of 20 © Copyright 2009 by Marc Faber Limited - All rights reserved
 
Unnatural Market Moves, that too Is Natural!Marc FaberPolitical correctness is really a subjective listput together by the few to rule the many -- alist of things one must think, say, or do. Itaffronts the right of the individual toestablish his or her own beliefs.Mark BerleyA people living under the perpetual menaceof war and invasion is very easy to govern. Itdemands no social reforms. It does nothaggle over expenditures for armaments andmilitary equipment. It pays withoutdiscussion, it ruins itself, and that is anexcellent thing for the syndicates of financiers and manufacturers for whompatriotic terrors are an abundant source of gain.Anatole FranceDemocracy must be something more thantwo wolves and a sheep voting on what tohave for dinner.James Bovard
According to Bloomberg, Wall Street firms just raised their 2010 earningsestimate for the S&P 500 from $72.54 a share in May to $74.55. For2009, analysts see earnings in the vicinity of $59.80. Based on this newforecast, the S&P 500 currently trades at 13.13 times estimated profit,well below its 50-year average of 16.54. Since the S&P 500 index tradescurrently at around 970, it would need to rise to 1,233.06 for the multipleto equal its historic average since 1959.
 
Dr. Marc Faber Market Commentary August 1, 2009www.gloomboomdoom.comPage 2 of 20 © Copyright 2009 by Marc Faber Limited - All rights reserved
 
While I can see that the S&P 500 could rise to around 1250 within thenext 12 months or so, I doubt it would happen because S&P earnings willincrease to $75 (see Figure 1)
Figure 1: S&P 500 Index, 2003 - 2009Source:
www.decisionpoint.com
 
In fact, I tend to agree with David Rosenberg who says that “much isbeing made of the fact that over 70% of U.S. companies are beating theirlow-balled earnings estimates, but the majority are still missing theirrevenue targets (as per Verizon and Honeywell in yesterday's reports —top-lines down 6.7% and 22% respectively). Even so, a momentum-driven market will always be driven by just that — momentum; andthere's no doubt that investor risk appetite is being whetted. But afterpaying for the end of the recession in May, the market is now pricing in40-50% earnings growth for next year, and while costs have aggressively
 
Dr. Marc Faber Market Commentary August 1, 2009www.gloomboomdoom.comPage 3 of 20 © Copyright 2009 by Marc Faber Limited - All rights reserved
 
been taken out of the system, this sort of unprecedented profits revivalcan only occur in the context of a V-shaped recovery, which we give 1-in-50 odds of occurring."Take as an example Caterpillar (CAT – see Figure 2)). The companyreported second quarter earnings of $0.72 per share compared to $1.74 ayear ago (street estimates were just $0.22 – it shows the reliability of analysts estimates….) but sales were down by 41% year-on-year (streetestimates called for revenues to be down 35%).
Figure 2: Caterpillar, 2005 – 2009Source:
www.decisionpoint.com
 
I have the following problem with the $75 estimate for S&P earningsin 2010. S&P earnings peaked out on an annualized basis in late 2006 ataround $ 85 (see Figure 3). But these peak earnings occurred in thecontext of an unprecedented synchronized global economic boom whenfinancial sector earnings (including financial subsidiaries of industrial

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