The Residential Real Estate Crash Index Message Board

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Strategies & Market Trends : The Residential Real Estate Crash Index

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From: Giordano Bruno	10/14/2009 10:06:10 AM
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Rosenberg- The latest consensus results are in from the National Association of Business Economists and Q3 real GDP growth is seen coming in at a 3.4% at an annual rate (versus 0.7% in May) and 2.4% for Q4 (again, up from 1.8% in the May survey). For all of 2010, the consensus sees 3.0% real GDP growth, up fractionally from 2.7% in May. So, consider for a moment that the S&P 500 has surged over 20% over a time period in which the growth outlook has climbed the grand total of ... 30 basis points. REVENUE-LESS RECOVERY To date, an amazing 78% of the S&P 500 companies have thus far beaten consensus estimates. Then again, maybe this is less amazing than meets the eye since the consensus of street analysts have taken such a knife to their estimates that Q3 operating EPS is seen declining 25% from what were already depressed recession profits of a year ago. The WSJ ran with an article stating that because companies are being rewarded by the marketplace to such a great extent for beating their EPS estimates via relentless cost-cutting moves, executives are saying that “they are hesitant to reinvest such profits into their businesses.” This strategy is being deployed by so many firms that it is having a broad based dampening impact on private aggregate demand and hence corporate revenues — enticing firms to take even more costs out of the system. All we know is that this process is not sustainable — either pricing power/revenues improve, and there was certainly no sign of this in the just-released National Federation of Independent Business (NFIB) survey, or the $80+ of earnings currently embedded in equity market valuation will have to be revisited, revised and reduced. It will be at that point — and the timing is next to impossible, but it is a “when”, not an “if” — that the stock market embarks on its true corrective phase.

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