Posted by: Howard Silverblatt on August 21, 2008
Financial earnings have been negative for three consecutive quarters, which ties IT’s Q1-3,’01 earnings record, but their 44% stock decline from the October highs is still better than IT’s 18 month (3/00-10/02) 82% free-all. Next quarter, Q3, the Financial sector is expected to be positive, with earnings only declining 52% year-over-year (we can always hope). And their current 12-month P/E of -21,972 is expected to decline (but doesn’t a lower negative P/E mean a higher loss - must be those imaginary numbers from 9th grade algebra).
Employment/unemployment keeps moving in the wrong direction, and housing, well, at least its shelter from the storm.
The good news is that oil is down 8.0% at the pump over the last month and Agriculture is down 4.1%; so the 12-month increase is now down to just 34.3% and 30.6% - and they’re still running those “What’s in your wallet” ads - it’s empty, like my gas tank.
The rebates are gone, and little is now being said about more, at least not from Congress which adjourns next month, only to return January 15th - they need time for all those inauguration parties.
However, relax, be happy, relief is just around the corner (or the curtain), with Q4 2008. Yes, that quarter which starts in a little over a week for MS, GS, LEH, COST, FDX, KBH, and LEN, is predicted to not just be better, but post the highest quarterly earnings in history, ever! No, it’s not earnings creep from inflation (which depending on who you talk to may not exist) - it’s optimism, because the sun will always come out tomorrow.
2009 is expected to be even better, with operating earnings projected to be 23.2% above the record 2006 numbers, but (again, don’t pay any attention to that man behind the curtain) the As Reported earnings, under those Generally Accepted Accounting Principles, set by the Financial Accounting Standards Board, are expected to still be down 20.7% from 2006; their respective P/Es are 12 and 20 (for specifics click here).
Maybe it’s time someone admitted that the market, the economy, and earnings were good for awhile. However, times and cycles change, and things are a lot more difficult now then they were (if you prefer challenging, you’re not there yet). No patriotic speech, but things will get better, then worse and then better again. Hope you’re sitting for the big news, but this will not be the last Bear market. Seems like both parties are quoting Reagan – how about ‘trust but verify’.
So do you buy now? Well, maybe. Buy if you’re a long-term investor who has time and liquidity on your side, and the ability to ride out the years. You should eventually be able to point back at what, most likely, is now a buying point. Even if it’s not at the bottom, over years, close enough should be good enough. But if you’re part of the weeping majority on a shorter schedule or are just missing a digit or two in your latest cash flow statement, you may want to consider a little less risk, a lot less potential gain, and buying some non-perishable food before the price goes up, or any of those expected post January 15th changes (surcharges, special purpose funds, revenue enhancers, deduction reducers - a tax by any other name) take affect for these challenging times and spend it for you.