Effor.com

Some headlines from today for perspective.

Fed Officials Saw Contraction in Economy `Likely'

Washington Mutual to slash jobs despite cash injection

Pending home sales index off 1.9% in February: NAR

Credit crunch cost $1 trillion estimates IMF

Basically there was a lot of bad news that came out today, and the US stock markets were down a little for the day.  Given the news today, I don’t understand why they weren’t down more - but you can’t argue with the markets. 

The market is always right (no, I’m not being sarcastic) and no matter what I think are compelling reasons for it to drop, the market will do what it wants to do.  The market is the ultimate arbitrator of right and wrong, because it will do what it wants to do regardless of what I think.

That’s the short term view anyway, and successful traders already know this.  I’m not a trader - I look strictly at long term trends - but I confess to being annoyed when the market doesn’t do what I think it should do based on the fundamentals and the news.

I’ve started to do a little analysis of the S&P 500 earnings based on Standard and Poors own published data.  No conclusions yet, but the estimates for Q4 2007 were way high, and I expect the estimates for Q1 2008 will be even more off base. 

The estimates I’ve seen are for a 12% drop in earnings in Q1.  That’s simply wishful thinking.  I’m expecting a minimum of a 25% drop (year over year) and I will not be surprised if the total S&P 500 earnings ends up 50% lower that Q1 of 07.

Any takers?

gk