re: this disconnect is normal near bottoms and tops
IMO, what's normal is: At bottoms, the news about current conditions is uniformly horrible, but the indicators about conditions 12 months out are positive.
Today, yes, the news about today is bad. But, the conditions that predict where we will be in 3, 6, 12 months, that's bad too:
1. earnings are bad today, but that doesn't worry me.
2. PEs using 12M trailing earnings are way too high. This doesn't worry me either. What worries me is that PEs using forward 12M EPS estimates are also way too high. And those EPS guesses are, IMO, also still too high.
3. countries, companies, and consumers that are sinking under a mountain of debt, and adding more every day, are still going to be in the same situation in 3, 6, 12 months. The only way that changes, is through defaults. My point is, we are sitting right on the edge (and a not-small group of countries, companies, and individuals go over the edge every month). And I don't see any way this situation gets any better, through 2002, because:
4. Even if consumers continue buying at current levels, there is still so much overcapacity (from cars to chips to mobile homes to installed optical fiber to everything), that increasing sales aren't going to be turned into profits. Pricing power isn't coming back, not until 2003 at the earliest. Look at what's happening with the auto industry: nice sales, not-nice profits. That's the model for the whole economy in 2002, IMO. |
