3 replies to this topic

[gm_general]

Perhaps you recall the late 90s into 2000, the term used for phony accounting was "pro forma earnings". Have you noticed they had to lately come up with a new term for this fraud, namely "adjusted earnings"? Even GAAP as I understand it was loosened a bit. But I wanted to have a look at GAAP to see how the rise in GAAP of SP500 lately compared to the drop that was experienced before. Well, it seems stockcharts has just about any chart you could need somewhere, here it is !GAAPSPX. I compare to the SP500 chart of the same time frame. As you can see, so far the rebound in GAAP is not so much compared to the drop. And since GDP estimates from the Fed have been lowered to +0.5% recently, well...

 

Anyway, as you can see, if SP500 was at the same level now when similar GAAP earnings were, we would be around 1650-1700. Whatever.

 

 

[alexnewbee]

Who cares? It is momo and animal spirits.
Market could as well undershoot. And will, but later.

[Geomean]

Your analysis is spot on.  The Value line geometric index has not reached new highs and barely reached highs it saw in 2000 and 2007 before declining. 

 

The new highs we are seeing in the DOW, and SP500 a purely a function of arithmetic averaging, which goes as follows:

a.  If you have 100 to start, make 100 the next year, and lose 100 the second year, your geometric average gain is 0%.

b.  Using arithmetic averaging, per the manner of almost all stock indices, you would have gained 100% the first year, lost 50% the second year, and would have an "average" yearly gain of 25%, even though you are not richer. If your stock average started at the same 100, it would now be 125.

 

This numbers rigging was created by the  wall street types and the financial press and is foisted daily on an unwary public.

[dowdeva]

Very interesting, thank you!