A recent Bloomberg headline gave me a chuckle. It was, “Analyst Estimates 10 Times Higher Than GDP in S&P 500 Rout.”
The story went on to say, “ Wall Street firms pushed up estimates for Standard & Poor’s 500 Index earnings for a 10th straight quarter, forecasting a 17% gain in 2011… That’s 9.9 times more than economists say gross domestic product will grow.”
Those economists are party poopers.
My initial reaction was “duh.”
In finding analysts to provide an opinion on a market, we always have a hard time when looking at equities because we face this perma-bull outlook. When talking to futures brokers about say soybeans, some may be bearish and some may be bullish but when talking equities, it is hard to find a bear. If you watch certain business shows on cable you surely have seen some folks who have not given a sell recommendation this century, which included two huge bear markets, if not outright crashes.
It is awfully hard to find a broker to come up with a bearish outlook. This has been proven painfully obvious with scandals over the last decade showing e-mails from analysts at investment banks talking about how cruddy some stock was that they just had given a buy recommendation to. With the potential for greater restrictions on short selling, I don’t see this changing.
What was odd is the story tried to analyze this discrepancy as if there was some great mystery. “The split underscores the skittishness among investors, whose confidence has been shaken by Europe’s debt crisis and the slowing global economy.”
No. The split underscores the conflict of interest of brokers who want commissions. Every sell-off is a great buying opportunity. Sometimes they are sometimes they aren’t but when you hear that repeated after every move over many years you have to question the motivation of the analysts continually singing the same tune.