Friday Afternoon Wrap

CR reports that: S&P heads to first quarter ever of negative earnings.

(MarketWatch) - As Wall Street tracks Washington's moves to help the beleaguered banking sector and pass more economic stimulus, nearly 400 of the S&P's 500 companies have weighed in and reported a collective loss -- even excluding financials.

That's not all:

This is the worst, after the sixth quarter of negative growth, it will be the first quarter ever of negative earnings," said Howard Silverblatt, senior index analyst, at Standard & Poor's.

A sixth quarter of negative growth ties the prior record set when Harry Truman was president, and ran from the first quarter of 1951 to the second quarter of 1952.

"And next quarter we're expected a new record of seven quarters of negative growth," Silverblatt said.

As of the close of business Thursday, Silverblatt calculates S&P earnings-per-share, on a reported basis, at a loss of $10.44 for the quarter. If financials were taken out of the equation, that EPS deficit would drop to $2.35.

Comment: When profits vanish, the emphasis placed here on tangible book value becomes paramount. More specifically, cash in the bank and high-grade financial instruments are safer from an investor's standpoint than the book value of plant and equipment. After all, there's no law that a stock cannot sell for prolonged periods of time below tangible book value. In fact, many companies have sold for less than the value of their net working capital, with patents, trademarks, and physical assets net of debt thrown in. Under the "We are Japan" hypothesis, there could be many more years of a grinding down of stock prices before a secular bull market occurs, kickback rallies notwithstanding.

Additionally, the Economic Cycle Research Institute finds that:

Business Cycle Recovery Remains Elusive

Reuters February 13, 2009

(Reuters): A measure of U.S. future economic growth slipped further along with its annualized growth rate in the latest week, indicating a hazy reading of economic recovery, a research group said on Friday.

The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index fell to 106.1 for the week ending Feb. 6, from a revised 106.6 in the previous week.

The index's annualized growth rate fell to minus 24.8 percent from a revised minus 24.5 percent, hitting its four-week low since Jan. 9 when it read negative 25.2 percent.

"With WLI growth falling once again, a business cycle recovery remains elusive," said Lakshman Achuthan, the Managing Director at ECRI.

The index fell to a nine-week low, the lowest reading since Dec. 5, 2008, when it was 105.7.

Comment: The ECRI has a marvelous track record. On an absolute basis, the WLI is about at a 1995 level. The Dow Jones was then much lower than today. In addition, a technical analysis of the WLI going back to 1974 shows that for the first time, a recovery in the economy/bull market in stocks both pushed to a new high in the WLI (in 2007) and then dropped to a low that was below the prior cycle's low (in 2001).

In addition, the Commerce Department reported an unprecedented 9% year on year drop in retail sales yesterday. With some or many money center banks feared to be insolvent, more and more factual news items keep piling up that have not happened since the early 1930s.

In any case, Monday is President's Day. Both America's George the First and Honest Abe faced tougher times than do we.

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