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Sunday, March 11, 2012

Call Me A Pessimist

A semi-interesting article appeared in Barron's yesterday (which I don't read, but Ritholz picked it up), which included the above graphic detailing the gains in the last 3 years (since the March 2009 bottom) for various asset classes. The yellow highlighting is mine, and I highlighted revenues for one reason: in all the euphoria about how the SP 500 has doubled since the bottom, and that EPS are at all time highs, there was not much notice that revenues for the SP 500 have essentially been flat (I won't even go into the 10 year yield, which has been tortured unmercifully by the Fed). Also note that the earnings they are talking about here are "operating" earnings and not "as reported" or GAAP earnings. I have shown in the past how operating vs. GAAP earnings have diverged sharply in the last 3 years after years of being roughly the same. The point here is that if we are expecting the SP 500 to continue rallying on the basis of earnings, we may be in for a serious disappointment.

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