It was a real mind blower for both of us to fathom the profound meaning of these disappearing earnings. Mr. Gordon (he is a tiny bit older than I am) subsequently e-mailed a confirming chart my way:

Turn Away if You Suffer from Vertigo

Please grab a sickness bag. While many investors follow the Dow, the S&P 500 provides the most accurate measure of the status of the overall US market. As Andy reported, S&P earnings have “nosedived from $80 to $7 – the biggest drop ever recorded.” Both Andy and I are putting an exclamation point on this pathetic event.

You, also, should be extremely wary. This chart indicates that the earnings on one of the world’s most important stock indices are pitiful and plummeting. Little wonder corporate insiders are selling their company stock en masse.

Without earnings stock prices are temporarily levitating. Earnings have gone up in smoke! Isn’t that the life you’ve personally experienced over the last year as budgets are reigned in and unemployment has become pervasive? The S&P index has traded sideways within a range for the past few weeks, but it is still extremely overbought.

Personally, I have been shorting the S&P, but it’s hard to glean any satisfaction from making money from this catastrophe. There is no reason to hold stocks without sufficient earnings. I continually claim we’ve long been in depression mode and this ugly chart screams the truth. A picture (chart) can be worth a thousand words.

What should you do about it? I’m afraid you’re going to have to escape the CNBC, Wall Street and nightly news cheerleaders. These are all inside the box players and you will never regain your lost wealth or become rich following these puppets.

It’s a major stretch to believe you can randomly buy the general market and make 10% per year, though that is a common misconception. Factor inflation into the equation and you clearly see the folly. Most investors will never regain their lost wealth from the 2008 historic carnage. Only those of you wise enough to seek unique and highly profitable investment earnings will become whole again. The opportunity for enviable riches is also present.

Your IDE pundits are, to a person outside the box, offering commentary and services designed to protect and enhance your wealth. You cannot buy general stocks with miniscule earnings and expect to do anything but lose more money. No earnings directly equates to no capital gains.

Nor can your portfolio sit idle as it will end up looking like the nasty graph you just inspected. Ninety nine percent of us must have income or capital gains especially in a hyperinflationary environment.

As you may know, I’m primarily a resource stock investor. I’m also utilizing the incredible IDE brain trust in all of my financial decision making processes. You should be as well. I like and have confidence in each of these experts. We offer a very diverse range of worthy services that are designed to enhance your profits and assist you in escaping the failing financial matrix.

Check them out and see which of us best fits your investment temperament. We cover the total investment spectrum from bonds, blue chip stocks, options and natural resource speculations. The S&P index is down approximately 4% year to date but the last 14 picks I recommended in my Resource Windfall Speculator are up an average of 44%. All of your IDE editors are dead serious about bringing heady profits your way.

You simply must find the right escape hatch out of this historic mess.

Invest Resourcefully,

Rusty

Source: Neither You or the Economy Can Survive Without Earnings

The superhero S&P 500 added 3.4%. This means it’s 0.4% in the black for the year so far.
And here we were at Notes fretting over the recent dramatic spike in insider selling, the role of short covering in pushing stocks higher and the government’s funny games. In fact, so horribly emasculated did we become that we even wimpishly fretted over the lessons of history.
We recalled the Nasdaq crash of 2000 to 2002. It spawned two “healthy” rallies it spawned – one of 30.8% and one of 44.7% – before continued selling pressure took the market down to even greater lows. We also remembered the poor old Nikkei Index. Starting in 1990, it showed three very “healthy” rallies of 55%, 51.7% and 131% before collapsing and setting new lows.

And if you take a look at the chart above, you can see that during the Great Depression, the Dow saw no less than eight double-digit percentage-point rallies between 1929 and 1932 – a period when the index lost 90% of its value.

This week, we’re going to focus on the S&P 500 (GSPC), which has traded below its November lows and bottomed out at 667 points on March 6.

By trading below 670, the index reached an intermediate-term downside price objective and set up a daily buy signal. Earlier in the week, that buy signal got triggered, meaning that there is now an 82% chance that the S&P 500 will trace out at least a three-wave Elliott move (possibly increasing to five waves) to the upside. As you can see on the chart below, we’re still in Wave 1.

Although the S&P 500 may move higher over the near-term, keep in mind that the index has risen sharply over the past few weeks and is due for a pullback soon. This would be Wave 2 of a three-wave move.

A normal Fibonacci retracement would come in between 38% and 50% of Wave 1. However, in a very bullish market, it may only pullback 25% to 30% before reversing back up.

Either way, when the current rally runs out of steam (which may have been yesterday), look for the index to see at least four days of price action below the Wave 1 high before new highs are possible.

In Elliot wave terms, if we’re only in a three-wave move up, this would be called an A-B-C rally, which is just a corrective move within the the downtrend.

However, if we’re seeing the start a five-wave rally, the S&P would have to close above the January highs. If you want to play a move at least above the highs of Wave 1, you can buy on the first decent pullback.

Source: Ticker Of The Week: S&P 500 (GSPC)

Didn’t happen. The quaint notion that banks could beat their terrible earnings of fourth quarter 2007 by a mile was washed away in a tidal wave of bank writedowns in 2008.

Instead, earnings in the S&P 500 financial sector lost another 9,820 percent in the fourth quarter.

The lesson? When you think things can’t get worse, think again…

They can get a lot worse.

It may feel that the markets can’t get much worse. But of course they can.

In fact, I’m absolutely sure they’re far from hitting a bottom.

It’s true that P/E ratios (price-to-earnings ratios) look pretty cheap. The trailing 12-month P/E ratio for the S&P 500 is 13.7. The historical average is 16.

The forward S&P looks even cheaper. It’s at 11.9. But Wall Street has been awful in forecasting future earnings…

Forward P/E ratios are nothing more than a big guessing game.

Past earnings may not predict future ones, but at least they’re real. And earnings which are averaged out over the past 10 years do the best job of revealing a company’s true earning power.

That’s because a 10-year period covers at least a couple of business cycles. You won’t get single-year inflated earnings from a juiced-up economy. Nor would you get depressed earnings from an economy on the skids (like now).

On a ten-year earnings basis, P/Es are 13.4. That’s still pretty cheap. The historical average is 16.4. But, as you follow the blue line in the chart below, they can go much lower…

Since 1880 there have been five peaks and four troughs. And, as first discovered by Professor Shiller of Yale, they mirror the highs and lows of the U.S. stock market.

In 1982 the P/E fell to 6.6 before bouncing back up. The four lows have dropped to between five and nine.

At 13.38 right now, it would have to drop by another third to reach nine. It would reach five with a further 63 percent drop.

This time it’s different? I don’t think so. The markets have another major down leg to go.

Source: Getting to the Bottom of the Market

Immediately, I think to the Price-to-Earnings ratio of the S&P 500 index, as shown in Barron’s, and sure enough, earnings have been trending down for the entire year, which is, of course, bad news, as is proved when you see that the market value of the S&P 500 is down by about half in the last year, meaning that if you owned the stocks in the S&P 500 for the last year, then you have lost half of your money, and you are probably plenty upset!

So you would think that, you know, the P/E ratio would have fallen, especially since the prices of the stocks in the index (which are the P in the P/E ratio) have fallen by half, and you have lost half your damned money, about which you are still plenty peeved.

But surprise! Even though the S&P 500 index itself has fallen from about 1,590 a year ago (with a P/E of 18.9) to where the index is actually down by about half, earnings are down by half, too!

So this means that although the company made half as much money, and you, the hapless investor, lost half of your money investing in their stocks, both the P and the E went down, and thus the Price-to-Earnings ratio is still at an elevated 19! It’s actually higher! Hahaha!

Anyway, the point is that this current Price-to-Earnings ratio of 19 for the S&P 500 index is so high (audience shouts out, “How high, Mogambo?”) that it is still near where, historically, the market soon started down in a huge bear market, and is still high even after losing half its value! Gaaaah! I’m scared!

In fact, you can still have a high P/E of 19, indicating a high price, even if the earnings of the entire S&P 500 fell to a measly 1-cent and the shares in the index sold for a collective 19 cents! Hahaha! It’s weird!

You can tell by their faces that they are aghast that I would be ruining their presentation with my stupidities, and so they immediately get away from P/E ratios altogether, and instead turn to consumption and interest rates, whereupon they write, “consumers have started a spending strike, so any business that sells to them is heading into a huge headwind. This in itself is probably enough to do the damage but there’s more. Credit markets are at worst, closed and at best, much more expensive”, which they prove by noting, “Spreads for investment grade corporate bonds are 550 basis points over treasuries; even worse, junk bonds are a huge 20 percentage points above treasuries.”

They then cite a statistic that I have never heard of before, perhaps because I am an ignorant and stupid guy, but I was surprised to learn that “Looking forward, companies have no option but to slash capital expenditure, which is to say, slash other companies’ earnings, a vicious spiral that carries with it so much potential consequence that the Markit iTraxx Crossover Index is above 1000 for the first time since it was created, inferring that a record…number of companies are on the verge of default.”

Now, naturally I have no idea what in the hell any of this means, but I am always very interested in indicators that are in record territory, and I am willing to believe anything bad after hearing the words “on the verge of default”.

Then I remember that I am in gold, and I am calmed. Whew!

Of course, I’ll be ecstatic when gold zooms in price in response to such fiscal and monetary madness, but right now I am calmed. But really looking forward to ecstasy! And at these rates of monetary insanity, it can’t be far away! Whee!

Source: Markets Get an ‘F’ in P/E

With that being said, the calendar this week is full of some important reports that could set the tone for the early part of next year.

On Tuesday, the Building Permits report for November is released, and is anticipated to show only a slight decline of around 8k units. I am not sure if this is simply due to the seasonal slowdown of building in northern climates, or if perhaps builders have finally found an equilibrium point with the market, but I view it as a positive sign if the number holds close to expectations.

The same can be said about the November Housing Starts report that comes out at the same time. A decline is expected, but again, it could just be do to seasonal issues (you can’t build in northern climates when the ground is frozen) rather than a worsening housing sector.

The big reports of the week are the November CPI and Core CPI figures.  Much like last week’s PPI and Core PPI reports, the Core CPI figure is expected to show a slight increase while the CPI figure will likely show a continued drop. Energy costs (oil) continue to drop, and this will be reflected in the CPI figure.

The Philly Fed report comes out Thursday morning, and it looks like reality has set in again. As I reported last month, expectations for the November report were for a rather large improvement versus October. Well not only did that not come true, but the report was actually worse than October. This month, expectations are for a slight decline.

The attention grabber this week is the FOMC Policy Statement on Tuesday. As it stands, expectations are for a huge rate cut. Currently the Fed Funds rate is 1.00%, and the probability chart shows a 65 percent chance of a cut down to 0.25%. This is especially shocking for two reasons. One is the shear size of the cut, which would be three-quarters of a percent. The second aspect is that if the cut is down to 0.25%, it leaves only one more bullet left in the gun for the Fed to cut rates.

Source: FOMC Statement Highlights The Week … Will The Fed Be Left With One Bullet?

“Bullish news today on top of the recent Chinese stimulus package and news of Saudi Arabia’s supply cuts failed to overcome economic concerns,” said Sucden Research analyst Michael Davies.

Among that bullish news was a report that militants are threatening to renew attacks on oil facilities in Nigeria. A few months ago, that would have automatically shoved the oil market higher. No longer.

Oil prices will likely “keep skipping along bottom here at the $60 per barrel range until we see the fully-implemented OPEC cuts and some winter demand data hitting the market,” said Neal Ryan, of Ryan Oil & Gas Partners.

And Mexico has reportedly hedged almost all of next year’s oil exports at prices ranging from $70 to $100. That stood in stark contrast to last year, when the world’s sixth-largest producer hedged only 20-30% of exports.

“This is a clear sign that they fear oil prices will remain below $70 a barrel in 2009,” said Kathy Lien, of GFT Forex. Lien added that “we doubt that they are the only oil producing country to start hedging.”

Source: Crude closes below $60 -  Mexico hedging like crazy

Thus ended a record-setting month, with crude’s front-month contract plunging by 32.6%, the biggest monthly decline recorded on the Nymex since trading began in 1983.

“The oil market had the biggest change of heart since the tin man in the Wizard of Oz,” said Phil Flynn of Alaron Trading.

And Charles Perry, president of Perry Management, could only comment that, “I think we are all hoping for a more stable market in November, particularly after the election is over.”

Looking ahead, “Demand-side concerns are going to keep oil under pressure and we should find out soon just what price the Saudis want to defend,” said Michael Lynch, president of Strategic Energy & Economic Research. “Clearly, we are below the level that the price hawks, such as Venezuela, would prefer, but the Saudis have not publicly called for a restoration of higher prices.”

Source: Oil advances – But October was biggest losing month ever

Under normal circumstances, the VIX goes up when the market declines and goes down when the market rises.

Over the past week though, the VIX has been behaving rather oddly. On Friday June 6, the VIX jumped over 26 percent as the market took its nosedive. Then, this past Wednesday when the Dow dropped another 200 points, the VIX was only up four percent.

On Thursday, the Dow was up 57 points and the VIX was down 3.3 percent.

As you can see this is not a perfect inverse relationship between the VIX and the overall market. I know I am comparing it to the Dow rather than the S&P, but the differences in the percentage movements are not that great.

Personally, I think the problem stems from the options on the VIX. A few years ago, the CBOE started offering options on the VIX. To my knowledge, only the hardcore traders are trading the VIX options.

I can say that since the introduction of VIX options, the VIX itself has become a less reliable indicator for me. I always thought of the VIX as a good gauge of overall fear in the market. When puts were being bid up more than the calls, the fear level was increasing and the VIX was rising.

I didn’t always use the VIX the way other traders do or did. My best moves based on the VIX were ones where the VIX jumped sharply or dropped sharply over a ten-day period. Anytime I saw significant, sustained moves in the VIX, almost without exception, a move in the opposite direction was certain.

These days, my old indicator doesn’t seem to work as well, and quite frankly, I don’t watch the VIX as closely as I used to. The reasons behind that could be numerous, but I think it has a lot to do with the options.

First of all, the VIX is a derivative of a derivative. This might seem confusing, but follow along if you would. A derivative is simply anything that derives its value from another underlying instrument. The options on the S&P that are used to calculate the VIX are derivatives. Now the VIX derives its value from those options, making it a derivative of a derivative.

Now you have the options on the VIX, which are derivatives of a derivative of a derivative. Say what?

When the VIX was initially introduced back in January 1990, the idea was simple…measure volatility. The calculations may not have been all that simple, but the concept was. Now some 18 years later, the value of the VIX is being influenced by the options that are traded on it.

The point is that the VIX has lost of its meaning for me. I still look at it occasionally and it still makes some rounds in the media. But for all intensive purposes, it has lost most of its value.

That being said, the VIX is currently hovering right around its 100-day and 200-day moving averages. The 200-day has acted as support in the past and is now acting as resistance. This could have some merit, more because investors are focused on it.

Now it may seem odd that would base an investment decision on an indicator that I have just been dismissing, but I am looking for a rally in the coming week or so. Part of it is based on the 200-day moving average of the VIX acting as resistance and the index falling. But more importantly, with the big sell-off on the June 6, and the pullback on Wednesday, the S&P has moved into oversold territory on the daily chart.

Michael Lynch, president of Strategic Energy & Economic Research, believes the long-term trend is down.

“Certainly, a political disruption of oil supplies — civil war in Nigeria, major fighting in southern Iraq, attacks on Caspian pipelines — could occur and would send prices sharply higher, but overall there is a greater likelihood that prices will drop in the next few years, and perhaps sharply,” Lynch wrote.

But John Person, president of National Futures Advisory Service, said he wouldn’t be inclined to call a top “until we close back under the $118 level, which was close to the high made last month.”

All of which is of little concern to drivers, who watched as the retail price for a gallon of regular gasoline climbed to another record of $3.962 Friday, according to AAA’s Daily Fuel Gauge Report. That’s up 24.2% from a year ago.

Source: Oil Little Changed – Gallon of Regular Sets Another Record