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The Broad Market: My Current Working Scenario

My "best case scenario" (which I've very admittedly kept increasing over the past 12 months as companies have continually surprised me with their earning power in the face of awful revenues) would be for 2010 S&P earnings to come in at $65, which would roughly equate to Q4 of 2009 annualized, and would be at least $10 below consensus. (I think revenue will continue to stall at current levels and perhaps even worsen if China starts reeling in its banks; meanwhile, I don't think there's any cost-cutting left for American companies and, in fact, they may have have cut TOO much in terms of maintenance cap-ex, R&D and perhaps even-- on the margin-- employment.)

If we put a very generous 15x multiple on that $65 figure, we get a near-term (within three to four months) target of 975. I then expect stocks to either do nothing (best case) or continually erode their way down (highly possible case) over at least the next three or four years (back down to the S&P 800s), as the massive debtload out there gradually gets either written off or paid down, and PE multiples compress in the face of no earnings growth. Eventually, we'll reach the point-- similar to the 1970s-- when no one cares any more about stocks or the stock market, at which point stocks will finally be able to start going back up again in a sustained manner. In the meantime, of course, there will always be companies to buy that are non-correlative to the overall economy, and hopefully we'll be able to find them.

None of my positions have changed since my last update, and as of yesterday's close I'm around 86% in SDS and 30% in DUSA. (I'm using a bit of margin.)