Tuesday, April 22, 2008

Its Time to Ignore the Stock Analysts

I hope everyone had a better day then the market did today. Things are really getting messy folks. We have $120 oil, soaring inflation, and houses that can't sell. I think the market is finally starting to realize what a disaster this is.

Bad news has been bringing buyers to the market recently because the analysts were predicting a short recession, and as a result, investors figured they were able to buy stocks cheap as the DOW crept below 12000.

Many are starting to second guess these bets as the news flow and earnings have been horrible. I say this because recently people have been selling on bad news versus buying on bad news. Today was a good example of this. Investors are starting to realize how bad things are out there.

I think I am starting to realize personally that things are worse then I thought they were. Sometimes when I get on here I don't even know what to discuss because there are so many negatives related to housing and the economy right now.

For example, I came across this when I got onto the computer today:

"The number of California homes lost to foreclosure in the first quarter surged 327% from year-ago levels -- reaching an average of more than 500 foreclosures per day -- DataQuick said in a report, warning that the widening foreclosure problem could "spread beyond the current categories of dicey mortgages, and into mainstream home loans."

I can't even put into words how bad this is. This was the worse foreclosure data on record which dates back to 1992.

I read this type of news all day and sometimes I want to be like CNBC and try to find a silver lining amongst all of the bad news. I want to be bullish on America and its future.

The problem is I don't see that we are even near the end of this crisis. In fact, things seem to be deteriorating at a faster pace then I could have ever imagined. 300% increase on foreclosures? I wish this was a misprint.

I say this because I see the banks scrambling to find capital by diluting their shares to stay solvent. Then I see the rapidly rising default rates on housing, credit cards and home equity debt. I flip to another article and I read about the dollar hitting all time lows forcing gas and food prices through the roof.

I can only come to one conclusion. We are going to see the worst economic downturns since the 1970's. What really scares me about this is Americans have ZERO savings to combat it as we head into this mess. This is going to put people in the bread lines much faster if this turns to be worse then the '70's.

Now a little advice:

Ignore the talking heads on CNBC!!!

You hear me say this all the time and I found a great article today explaining why. This is how clueless most of our "analysts" are. Bloomberg looked at some research looking at the accuracy of analysts calls on earnings estimates:

"In the fourth quarter, the almost 1,800 equity analysts overestimated final results by 33.5 percentage points, the biggest miss ever, based on data compiled by Bloomberg. Yet 62 percent of companies in the Standard & Poor's 500 Index beat average estimates -- because analysts lowered their forecasts as the quarter progressed. First-quarter numbers show a similar trend, with 55 percent of the 111 companies reporting so far exceeding the average estimate."

Take a look at their ratings on GE heading into their nightmare quarter:

"Most analysts missed the earnings shortfall for Fairfield, Connecticut-based GE, the world's biggest supplier of power- plant turbines, locomotives and medical imaging machines.
Sixteen of nineteen had ``buy'' ratings on the shares before the company said April 11 that profit from continuing operations fell 12 percent to $4.36 billion, or 44 cents a share, 7 cents less than the average Wall Street estimate"

My take:

Look at how ridiculously bullish the analysts were in the fourth quarter. 62% of companies beat earnings during the quarter and analysts on average were 33% too high on their estimates. If that's not market pumping then I don't know what is. 16 of 19 had "buys" on GE, and they were then made to look like fools when GE announced their worst quarter since 2000.

These are the same clowns that are predicting a mild recession followed by a bounce back in earnings during the second half of the year!!! The idea that this will be over in June is a pipe dream!!

Bottom line:

Next time you hear that slick analyst scream BUYBUYBUY on CNBC simply ignore them. When you look at the fundamentals now is not the time to buy stocks.

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