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Hello realtraders,
I snipped this from a newsletter I get from Alan Newman
www.cross-currents.net. If you've never read this guy his archived
material is very instructive.
"Our question also asks about the odds for an upwards path for
earnings and how this all might attract investors like the "good old
days." Given the economic background, the only positive influences
on earnings will be less negative influences, like the billions in
write offs taken last year. That's not saying much, but since we are
coming off a punk year, nominal increases in earnings could be in the
cards. But what in heaven's name are earnings, anyway? There are now
so many different definitions that one hardly knows what is specified
in the latest earnings announcement s without diving completely into
the numbers. Rather than look at operating earnings or as-reported
earnings, we believe that most folks will eventually fall back on the
most reliable measure of how a company is doing as shown by "core"
earnings. Over the last 12 months, core earnings for the S&P 500
have been $18.49. If we assume a generous rise of 25% over the
course of the year, core earnings might rise to $23.11. Placing a 30
P/E multiple on core earnings would then take the S&P 500 up to only
693. Er, um....did we say UP to 693? Whoops, sorry....DOWN to 693.
Even a 40 multiple on core earnings that rose 25% takes the S&P no
higher than it has already been this year and a 30 P/E multiple on a
huge 50% increase in core earnings places the S&P at nearly the same
levels as today, at 832!"
--
Best regards,
Jim Johnson mailto:jejohn@xxxxxxxxxxx
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