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Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!

Friday, April 16, 2010

Profits Indicators

The corporate profits indicators have been on the right side of a
strong "V" pattern for months. Viewed yr/yr, the indicators are
consistent with both sales growth and profit margin expansion.
This all on top of massive cost cutting done in late 2008 and
through 2009. Estimates for earnings are on the rise as normally
happens in the early phase of an economic upswing. The stock
market is discounting a rapid recovery of earnings out about six
months in time. Projections for SP 500 earnings range from $75 -
80 per share for this year and from $90 - 98 for 2011 (The prior
record high was a restated $91.47 for the 12 months ending in

If you've been reading the blog for a good while, you know I have
long regarded a big bounce in 2010 SP500 net per share to be an
easy mark to hit. The indicators currently suggest a strong run
for profits well into Q 3 '10 and probably the final Q as well. But,
my indicators are mute on 2011. When it comes to next year, we
are looking at assumptions. To hit the high end of the range for
2011 of $98 per, sales are going to need to grow by 7-8%, and this
in turn would involve the return of broader pricing power for
companies. So, we would need to see a normal full second year of
economic recovery, and we would also have to witness the onset of
fiscal stimulus withdrawal and a turn to a more restrictive
monetary policy with both developments having minimal effect. In
short, the analytical work that has brought us this far constitutes
the easy part of the job when it comes to earnings. Looking well
into 2011 is going to be more tricky.

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