Profit Warnings?

by Larry Levin

The market slowly went lower Monday - all day. The reason given is almost laughable: corporate earnings fears. Umm, who didn't see that coming? Oh yeah, that would be perma-bull long-only money managers, economists, and sycophantic analysts. Ah yes, hope springs eternal on Wall Street. New York should be renamed Pollyannaville, while here in the trading pits of Chicago we live in Reality town.

I mean seriously folks - who but some joker on Wall Street could be surprised that NOW corporations will be reporting lower than expected earnings? This will need to be remedied, most likely in the only way Wall Street knows how - with more lies. One way they will attempt to assuage your fears and keep you in the game longer than you should be is to either use the whisper number more often, or just lowball the hell out of everything. In fact, the latter is indeed happening now.

When you get a lot of reduction in earnings estimates going to the earnings season, it usually gives you at least a lower hurdle to jump over. I would still be surprised if we could make it over that hurdle, said Bill Stone, chief investment strategist at PNC Wealth Management.

These low estimates, or hurdles as Mr. Stone says above, are not low enough but the so-called experts will get it there eventually. Soon the estimates will be so low that when a corporation beats the estimate, it will be like calling an F on your son's report card an A.

Mr. Stone goes on to predict that earnings-reporting season will fall in line with expectations, except for one sector: The financials will be worse than people expect.

Again I have to wonder who, but the never-say-die perma-bull, could possibly believe the financial sector would be profitable now or any time soon? The financials were at the epicenter of the nuclear credit-bomb that exploded last year. There business model is DEAD! There will be no more screwing the little guy with too much credit. There will be no more mega-mega-deals, or even mega-deal takeovers financed with credit. There will be no more attempts to securitize every idiotic loan the PhDs of mathematics claim has no risk. There will be no more 30-1 leverage. In short, there will be no more financial alchemy!

The financial sector's business model is dead and buried, at least for a while. The amazing ability of people to ignore the recent past, however, should not be underestimated. Do you remember how many people were screwed after the NASDAQ bubble? It was a total fraud, but people believed in it with all their heart. The same with the phrase housing prices never go down and anyone who can fog a mirror gets a loan nonsense. Nobody bothered to question the validity of what was happening; for example, how does a college graduate without an income get a loan to buy a $1/2-million house? What planet would this make sense on?

Nobody wants to speak up and possibly be wrong. So I pick up my pen in others absence and say what you want to but can't. Like stupid is stupid, for example, no matter who is doing it; whether it's a wino walking in traffic or a Wall Street exec in a $5,000 suit giving away money to anyone who asks because they have a sure-fire way to mitigate the risk to zero. Whatever - that's stupid and complete bull$h*! no matter who you are and what your wearing.

Wall Street NEEDS a new way to cheat, con, and defraud the American public. Sadly, I fear that when they conjure up this new swindle the same chumps will knock each other down trying to get in on the ground floor. Maybe some deserve what they are getting?

Why do I believe this? Because the very Congressman that allowed it to happen are still in power. Because the same rubes that were lied to in the NASDAQ bubble believed the same something-for-nothing claptrap in the housing market. And because after all that has happened; nationalizing banks, insurance companies, auto manufacturers, etc - THERE IS NO OUTRAGE!

Sad.

And here we are with what is said to be the worst recession since the Great Depression and, as of yet, nobody seems to be upset with the so-called expert (read: sycophantic) analysts who continue to play their games with S&P earnings are $42.00. Although they know S&P earnings in 2001-2001 fell to $25.00 - in the mildest recession of all time - they still have today's estimates at $42.00. Do they really believe this, or do they have to post this nonsense to keep their jobs?

If this recession really is as bad as some say it is or will be, then S&P earnings should be south of the 2001-2002 level of $25.00 - probably estimated at $20.00 or lower.

The historical PE ratio of S&P earnings is 15 and often overshoots it during bear markets. So let's do the math with a 12 PE. Uh-O, a PE of 12 and $20 earnings yields an S&P of just 240! No wonder Wall Street continues to lie day in and day out.

I can't STRESS this enough ? Trade well and follow the trend, not the so-called experts.

Previous Day's Trading Room Results:

Trade Date: 1/12/09

E-Mini S&P Trades*
(before fees and commissions):

1) OTF sell @ 11:40am at 873.00 = +2.00 (1 lot)

2) Most trades we not filled today.

3) Algorithm positions (0)...combined daily total...+2.00

ZB (30 Year Bond) Trades*
(before fees and commissions):


1) No trades today.



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