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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: ild who wrote (41625)	9/15/2005 3:28:29 PM
From: ild	Respond to of 110194

"But yesterday, with the threat of bankruptcy hanging over Northwest, just one Wall Street analyst cut his rating on the airline. David Strine of Bear Stearns took his rating on the company to 'underweight' from 'overweight,' saying he thought the risk of the company going into bankruptcy had risen sharply. Analysts from Morgan Stanley, Merrill Lynch, J.P. Morgan Securities and Prudential Equity Group, all of whom have 'overweight' or 'buy' ratings on Northwest, also put out notes on the company. None of them lowered his rating." ----(The Wall Street Journal - 9/15/05) Schaeffer's addendum: According to Zacks, as of yesterday six analysts had "buys" out on Northwest Airlines (NWAC: sentiment, chart, options) , with two "holds" and no "sells". As I've said time and again, the huge (and often fatal) flaw in fundamental analysis is the fact that the more a stock declines in price, the "cheaper" it appears relative to "the fundamentals." And by the time the reason for the weak price action becomes apparent, the decline has often carried so far that it is considered "too late to sell." "Death spiral" names like Enron and WorldCom went to their graves with a shocking number of analysts still in "buy" mode. Bernie Schaeffer "[Over 10-year periods] there is very little correlation between earnings growth and share-price appreciation. During the 1950s, earnings grew less than 4% a year, yet that was one of the best decades for stock-price performance. The 1970s saw the fastest earnings growth in the past 55 years, but that was the worst decade for investors in the stock market ... The major determinant of stock-price returns isn't growth in corporate profits, but rather changes in price-earnings multiples. The bull market of the 1980s represented a period when multiples in the stock market doubled- then they doubled again in the 1990s. Though earnings of the underlying businesses climbed about 6% per year, stock prices appreciated nearly 14% annually ... [Over the next 10 years] investors are unlikely to be as well-compensated for taking the additional risk of owning stocks, relative to bonds. The yield on 10-year government bonds is about 4.2%, while the expected total return from common stocks is only 6.0%. Though stocks historically have produced a total return almost double that of bonds, over the next 10 years, this spread is likely to be much narrower." ----(Barron's - 8/29/05) Schaeffer's addendum: Wall Street likes you to think there is a direct correlation between earnings growth and share price appreciation, but the facts presented in this article by guest columnist Keith Wibel say otherwise. If "the major determinant of stock price returns is changes in price-earnings multiples" then what we really have is a stock market that's driven by the very factors that fundamental analysis chooses to ignore - technicals and investor sentiment. I find the author's conclusion - that the risk of holding stocks as compared to bonds at this juncture is not justified by the potential reward - to be particularly interesting and refreshing relative to the overwhelming consensus that bonds are a very poor value. Bernie Schaeffer