Lies, damn lies, and statistics

Source: Chartoftheday.com

S&P earningsJul09.gif

There are “lies, damn lies, and statistics” according to Mark Twain, the famous American humorist. His argument was that statistics are often (a) untrue* and (b) used without the necessary context.

Last week provided a perfect example of the latter. As the blog’s own Boom/Gloom Index© shows, sentiment is currently very positive in global financial markets. And so US markets rallied 4%, on the basis that reported company earnings were “above estimates”.

Yet in context, this “outperformance” disappears. The above chart from ChartOfTheDay.com (COTD) shows 12-month, ‘as reported’ S&P 500 earnings, adjusted for inflation. And COTD highlight that these are now down over 98% since peaking in Q3 2007. Equally, they say this is “by far the largest decline on record (the data goes back to 1936)”.

Also ignored last week was S&P’s own report on Friday that forecasted total S&P 500 earnings for the 12 months to September “to be negative ($-1.01 EPS), for the first time in index history”. Howard Silverblatt, S&P’s senior equity analyst noted that any recovery in earnings will depend on a recovery in sales, as “you can only cut so much, and for so long”.

*The blog carefully checks all those it uses with reputable sources

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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One Response to Lies, damn lies, and statistics

  1. Biophilos 5 September, 2009 at 5:26 pm #

    then please explain why the Markets continually go up and do not reflect the gloomy image of depressed earnings ? Why we are continually bombarded by ” better than expected” ” beat analysts estimates” ……bright outlooks, and all the other optimistic jingle coming from the Mass Media…..would it be profitable to admit that the entire economic grid is in shambles and writhing in pain from a form of financial parasitism which continues to persist like a virus implanted in its host……..incurable perhaps…..?

    In psychology they have a name for people who refuse to confront reality….” delusional” …..but yet we loan more money via national treasuries to the same group that created the mess in the first place….a case of the “blind leading the blind”.

    I do not believe that any real or solid progress will take place without charades and facades finally being ignored by the general investing public. there is a true need for untainted information that has not been distortionalized to fit covert financial agendas.

    Truth heals Lies.

    Economies can not be healed by artificially created fantasies that are not based upon honest realities which need attention and redress.

    thanks for all the interesting and informative posts on your site.

    regards and hope

    Biophilos

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