• John Hussman, Ed Yardini

Earnings and Revenues Don't Matter (until they do).

"I expect the S&P 500 to lose approximately two-thirds of its value over the completion of this market cycle." -John Hussman

Back in August of 2000 John Hussman first caught my attention when he predicted the NASDAQ could fall another 20%-60%.

The NASDAQ 100 (QQQ) had already lost 20%. History proved him right as the NASDAQ 100 (QQQ) lost another 60%.

Earnings and revenues didn't matter as "investors" threw money at new ideas and quickly rising markets. Suddenly the idea that a business should generate sales revenue and make a fair profit on that revenue to justify the value of the shares became important.

Well, here we are again. Measured against earnings and revenues, the S&P 500 has never been so expensive. Even after a 10% drop, the S&P trades at record levels. And John Hussman thinks it is going to be another 50% lower. Until these normalize, there is a LOT of risk in this market.

I know, broken record...

That is the bad news.

Here is some good news.

The Trump Tax Break will goose corporate earnings a good 10%, according to consolidated earnings estimates on Wall Street.

The weakness in the US Dollar may add as much as 7-10%.

Corporate share repurchases may add a few more percent.

The problem with these factors is that none of them increase the revenues of these companies. Unless these improved profit margins are shared with the work force, growth in top line revenues will be a challenge. Employment and Wage Growth will factor large in long term stock market performance.

On my radar is the performance of the Hang Seng Index overnight, treasury auctions this week and of course,


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