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Notes to myself, possibly of interest to others.
-- Bill Northlich

Wednesday, October 7, 2009

Not so fast, Rosenberg! Santoli of Barrons presents the view of the loyal opposition

It has become a hackneyed observation among skeptics to ridicule the current 2010 operating-profit forecast for the Standard & Poor's 500 of more than $75, up what seems a giddy 36% from the 2009 consensus of $55, and $62 last year.

Yet the index itself has seen massive turnover in its makeup, with more than one-tenth of its constituents changed since early 2008.

Michael Cembalest of JPMorgan Global Wealth Management recently calculated that today's S&P 500 members collectively had $69 in operating profit in 2008. Which means the 2010 consensus number essentially projects about 9% growth next year over the level in 2008 -- a year in which the economy tanked in the final quarter.

Meanwhile, companies are performing their own version of consumers' "cash-out refinancing" binge of several years ago, seizing on historically low interest rates and highly receptive debt markets to raise cheap, long-term capital. Some $700 billion in corporate debt has been sold year to date by U.S. issuers, more than was raised all of last year.

Companies have the means, therefore, to spend and hire a bit more forcefully if they see the chance and so choose. This doesn't mean they will. Nor does it mean that the market hasn't already gone a long way toward pricing in the relative good health of the corporate sector.

But this reality should, for now, insulate the market from a substantial reversal, unless the economic numbers start turning convincingly and consistently for the worse.

---Michael Santoli, Barrons, 5.10

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