It's a battle

“Life can only be understood backwards, but it must be lived forwards.”
Soren Kierkegaard

Yesterday, Bloomberg.com published an article opining that Ben Graham would still think that this market is overvalued. The argument is that in bear markets, stocks have traded at less than 10x earnings (10-year trailing average earnings) so they probably will this time as well. My friend Charlie Minter from Comstock funds makes this argument all the time and it puts me on tilt. Charlie bears it up weekly over here.

As follows is a summary of recent earnings revisions for the S&P from the excellent John Maudlin:

• On February 13, David Rosenberg, Bank of America's North American Economist, recently reduced his 2009 and 2010 S&P 500 operating EPS forecast to $46 (from $56) and $55.50 (from $63), respectively. Mr. Rosenberg is now forecasting an S&P 500 low of 666 based on a 12x multiple of forward (i.e. 2010) earnings.
• Francois Trahan of ISI Group dropped his S&P 500 earnings forecast from $60 to $45 on February 23. Mr. Trahan used a 13x multiple to forecast a potential market low of 585.
• On February 26, Goldman Sachs' David Kostin dropped his 2009 and 2010 S&P 500 operating EPS forecast to $40 and $63, respectively, after deducting $23 and $8, respectively, for provisions and write-downs. Mr. Kostin uses a 13.2x multiple of 2010 earnings (pre-write-downs and provisions) to come up with a year-end 2009 S&P 500 target of 940.

That ^^ is bad. No denying it.

If we're doing a 10-year exercise, I'd rather value something I'm going to buy today based on the next 10 years' earnings rather than the trailing 10 years. Trailing earnings are history, not analysis. That being said, I've invested in crappy semiconductor stocks for long enough to have trouble with the idea that with all the information available, stocks will trade at trough multiples on trough earnings again, absent consensus that there is something very much worse looming.

Daily Blueprint for 2009

1. Really ugly pre market futures


2. Fake rally in the morning


3. Afternoon fade as everyone realizes there's nothing good going on


4. End

Another day that makes folks want to do anything other than trade this market, let alone invest in it.

Not quite full circle

Henry Blodget, the former star Internet Analyst at Oppenheimer and Merrill Lynch, saw his Wall Street career ended by Eliot Spitzer et al over conflicts of interest in research.

Henry - a good analyst and a good writer - was forced to reinvent himself. He founded and now presides over a family of websites where he writes prolifically and with insight and humor. Silicon Alley Insider, Clusterstock, Green Sheet and The Biz are his properties and today in Silicon Alley Insider he questions the achievability of the 10% growth rate that analysts are expecting for Google over the next three quarters.

The reason that I bring it up is that Blodget's call was highlighted as market moving news in the morning email of a Wall Street sales guy today.

****

Despite the Merck / Schering-Plough merger announcement, U.S. futures are ugly this morning. The lack of fun continues.

BofA is good at acquisitions

Another setback:

"A Merrill Lynch currency trader has been suspended after racking up more than $400m in undisclosed losses in recent months, raising further questions about the financial health of the investment bank bought by Bank of America last September.

Merrill is poring over the books of Alexis Stenfors, a London currency trader, who was suspended after Norwegian and Swedish currency trades went wrong, according to people familiar with the situation. Merrill is in talks with UK regulators after uncovering what it called a trading “irregularity” in London."

FireFox

According to today's WSJ, Mozilla's FireFox browser has gone for 19% market share last June to 22% last month.

"The most recent version of FireFox, released last June, makes it much easier for Web surfers to return to a site they've previously visited. They won't need to know the site's address -- the browser's address bar offers what's essentially an automated bookmarks list.

This is likely to reduce the number of search queries per person over time. People frequently use search engines as a de facto address bar to find a site they visit repeatedly but haven't bookmarked."

The above feature is not enough to build or sustain momentum, however. FireFox is cooler than Internet Explorer, which may be.

Circuit City

It's funny how duplicitous, or milquetoast, or wimpy financial journalism is when investors, arguably the most important consumer of financial journalism, are anything but.

Circuit City bit the dust today. No more. Ask a professional investor and they'll tell you that Circuit City got killed by better service from Best Buy at the high end and lower prices from Walmart on the low end and that's all you need to know.

Reuters takes the following slant:

"Circuit City's going-out-of-business sales that began Jan. 17 were expected to last up to eight weeks. But last week, liquidators said the process would be completed early, closing the doors of the once-vaunted consumer electronics chain's more than 500 stores for the last time on Sunday.

Dennis Patel, who said he was the first employee hired at the North Bergen store when it opened nine years ago, watched as customers hovered over the paltry selection.

"It's a sad thing for us employees," he said, attributing the chain's failure to the economy and competition."

Futures are looking green for the morning.