Corporate Profits

Profits for the nonfinancial sector for Q1 ' 09 should be lower than
for the prior quarter and down substantially from the prior year
reflecting weak output comparisons and a loss of pricing power,
with the latter especially telling for commodities producers. Ditto
foreign earnings, and, for the offshore net of US companies, we have
to tack on an additional penalty for a stronger US$.

The financial sector maintained a high level of net revenues.
Downsizing likely cut noninterest operating costs, but the flow down
to the bottom line will primarily reflect the magnitude of loan loss
reserves and securities losses from the continuing unwind of the
mortgage paper crisis. That's all guesswork at this point. Naturally,
AIG -- the current poster child for the meltdown -- could have
more bad news to report.

With SP 500 profits broadly bad, companies are cutting dividends
to conserve cash. Measured yr /yr, the Sp 500 dividend is down 16%.

12 month earning power for the "500" is now a low $45. per share.
In a moderate global economic expansion with an accompanying
reduction of finance sector loan losses, earning power could be
$75 - 85. per share in the latter part of 2010.

The drop and crash of the stock market from 2007 is every bit
warranted by the drop and crash of big company earnings. US GDP
corporate profits -- a broader measure but one which has peculiar
economic adjustments -- is down about 33% off its peak, which is
still lousy.

The SP 500 Market Tracker, which uses current 12 month eps, is
priced now at 750 and reflects the current awful state of index profits.
The current rally underway in the stock market reflects an effort
to begin discounting a more stable economy with a bit more investor
confidence about the future.