	Generational Dynamics
	Forecasting America's Destiny ... and the World's

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Generational Dynamics Web Log for 15-Jul-2009
Will the market's direction be clarified by Friday of this week?

Web Log - July, 2009

Will the market's direction be clarified by Friday of this week?

Long-time market veteran Art Cashin says that it will.

Art Cashin has worked on the floor of the New York Stock Exchange for decades, and is thought to be among the "wisest" of the wise old men working there.

And so what Cashin said on CNBC last week really made me sit up and take notice:

"I think we will know the course of the stock market by July 17, 2009. Whether we retest the lows or not, we will have an answer by the end of next week. As far as earnings go, I an discounting the earnings and focusing on the outlook.

The first stimulus package was part illusion and hope, we misused it, we may not be able to help ourselves now the we actually need it."

What was interesting about Cashin's remarks were their specificity. Long time readers of this web site know that I make many predictions (See "List of major Generational Dynamics predictions"), but I avoid being specific about time, using phrases like, "such and such is coming with absolutely certainty sooner or later, and probably much sooner than later."

So I'm absolutely fascinated by the boldness of Cashin's prediction. He is saying, definitively, that questions about the stock market will be answered between Wednesday and Friday of this week. Appearing again on CNBC on Tuesday morning of this week, Cashin was quite vehement in repeating his forecast of last week that there will be a lot of market clarity -- one way or the other -- by Friday of this week, as earnings reports come pouring in. And although he said it could go in either direction, his facial expression made it pretty clear that the expected direction was down.

The reason why we'll know the market direction by Friday, according to Cashin, is that a flood of Q2 corporate earnings reports will come out between Wednesday and Friday. These reports will indicate whether the economy is recovering or continuing to crater.

According to the official Standard & Poor's earnings spreadsheet, analysts' estimates of earnings per share (EPS) for Q2 2009 have been falling steadily:

   Date         Q2 2009 S&P 500 EPS estimates as of that date
----------      ---------------------------------------------
 6/30/2008      $ 26.73
 9/30/2008      $ 25.44
12/31/2008      $ 19.92
 3/30/2009      $ 14.84
 6/30/2009      $ 14.15

Any one of these numbers would be astonishing, when you realize that the reported Q4 earnings per share value was -$23.25, and reported Q1 EPS was $7.54, 25.5% below analyst estimates.

And yet, the analyst estimates for Q2 are at $14.15. Not only that, but here's what I heard from a Deutsche Bank analyst: He said that "street" expectations for earnings this week are considerably higher than analysts' estimates. He added that a further rally based on good earnings reports is unlikely, since good earnings are already priced in.

Cashin works for UBS AG as a floor manager, one of the old-timers on the New York Stock Exchange floor. He probably talks to hundreds of people a day, and reaches conclusions based on those conversations. What he's sensing is that something very big is coming. I've quoted him several times in the past, and last October, I quoted him as saying that he's expecting "something major, something that will be remembered for generations."

I don't know if he still expects something major that will be remembered for generations or, if he does, whether that something will be occurring this week.

From the point of view of Generational Dynamics, something major that will be remembered for generations - a generational panic and stock market crash - is coming with certainty. The market has been overpriced since 1995, and is still overpriced by a factor of 150% or so. (See: "How to compute the 'real value' of the stock market.") However, I would never be so bold as to name a specific week and day of the week, as Cashin has done.

So I'll be joining everyone else to watch breathlessly what happens this week. Will this week's earnings reports clarify the direction of the market? I guess we'll know by Friday afternoon.

By the way, I'd like to encourage all web site readers to read and contribute to the Financial Topics thread of the Generational Dynamics forum each day or so. It's a bit of a pain, because you have to click on the little box that moves you to the last page of the thread to get the most recent postings. But it's some of the most intelligent discussion of financial topics on the internet.

(Comments: For reader comments, questions and discussion, as well as more frequent updates on this subject, see the Financial Topics thread of the Generational Dynamics forum. Read the entire thread for discussions on how to protect your money.) (15-Jul-2009) Permanent Link
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Generational Dynamics Web Log for 15-Jul-2009 Will the market's direction be clarified by Friday of this week?

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Generational Dynamics Web Log for 15-Jul-2009
Will the market's direction be clarified by Friday of this week?