SATURDAY FUN

Barrons with some good stuff this weekend from some folks who think the markets are cheap others no so much.

Steve Leuthold (bullish):

Does this particular downturn remind you of any other economic slumps in particular?

This recession is probably similar to the one that occurred around 1981. The average recession since World War II has been about 11 months. The longest was 16 months, and we've had two of those. And I think this one is going to last at least 16 months and probably longer than that, maybe 20 months.

This recession started in the fourth quarter of last year, so you are looking at a recession through the fourth quarter of 2009. But you have got to remember that the stock market is a lead economic indicator, and historically it has turned up about 60% of the way through a recession. Applying that timetable suggests that this market should be bottoming sometime this month, and that is very, very possible.

Jacqueline Doherty (various bearish analysts)

Talk about out of touch:

Analysts currently estimate that earnings for the companies in the S&P 500 will rise 29% in the fourth quarter, and keep climbing, by 15% in 2009, to a record $91.41 a share, according to Thomson Reuters. That seems wholly unrealistic, given the recent jump in unemployment, the credit crisis and last week's news that the economy contracted at a 0.3% annual pace in the third-quarter.

To get a better fix on what lies ahead, forget the analysts and pay attention to Wall Street strategists, who spend their time looking at the overall market, not individual companies.

The strategists tend to place greater importance on economic growth and employment patterns in formulating their earnings predictions.

Five prominent strategists we polled last week expect earnings for the S&P 500 to fall 15% this year and 3% next year, to roughly $70 a share.

If the strategists are right, stocks are pretty fairly valued right now. The S&P 500 was trading Friday at 960, or 13.7 times the strategists' $70 earnings estimate for 2009. For the past 30 years, stocks have traded at an average of 13.7 times expected earnings. So 13.7 times depressed earnings seems pretty reasonable.

Analysts' estimates have been falling, just not enough to reflect a weakening economy. For the quarter ended Sept. 30, earnings now are expected to drop 12% -- a complete reversal from last January, when analysts thought third-quarter results would rise 23%, according to Thomson Reuters. For the two-thirds of the companies in the S&P that have reported so far, earnings are down 11%. And many companies are lowering guidance.

In each of the three past recessions -- 1982, 1990 and 2001 -- earnings fell 22%, on average, from peak to trough, notes Steven Wieting, U.S. economist at Citigroup Global Markets. This time around, he's forecasting a deeper recession and a 31% drop in profits.

The S&P 500 currently trades at 21 times trailing earnings, higher than its 60-year average of 17.82, according to Birinyi Associates. If the top-down crew is correct and 2009 earnings come in around $70 -- and the average historic trailing multiple is applied -- the S&P 500 would be valued at 1247 by the end of next year. That's roughly 30% above today's level.
Let's say that S&P companies earn only $60 a share next year, which is Merrill Lynch's top-down estimate. Apply the same historic multiple of 17.82, and the index would be valued at 1069 -- about 11% above Friday's level.

The risk:

In past recessions, earnings multiples have fallen well below the average. In the 1975 recession, the market's trailing P/E sank to 7.28, and in the 1980 downturn it shrank to 6.84. A seven multiple applied to $60 of earnings would result in the S&P 500 trading for only 420 -- 50% below.

Standard and Poors earnings numbers:

2006 SPX eps- $87.72;

2007 SPX eps- $82.54;

2008 SPX eps- $72.54;

2009 SPX eps -$94.25;

The polling continues on a daily basis but the tightening mentioned continuously in the MSM doesn't appear to be happening- the numbers represent the trackers numbers for the last 3 iterations:

Rasmussen (+5) (+7) (+7)

Zogby (+5) (+7) (+7)

Hotline (+7) (+7) (+7)

Gallup (+10) (+8) (+7)

IBD TIPP (+5) (+4) (+4)

And besides the polling numbers - the early voting seems to be favoring the dems. Of course the numbers on INTRADE refuse to tighten.

Just in from Gallup:

Gallup's interviewing conducted Wednesday through Friday shows that 27% of registered voters who plan to vote have already voted. The trend in early voting has trended consistently upward on a day to day basis, moving from 7% of registered voters, who had already voted during the period of Oct. 17-19, to the current estimate of 27%. Another 8% of registered voters still indicate that they plan on voting before Election Day itself. The vote choices of these early voters -- all of whom are included in the likely voter pool since they are definite voters -- skew more toward Barack Obama than the sample average. Thus, more and more of these Obama-oriented voters' choices are being "locked in" to the likely voter pool through early voting, benefiting Obama. (To view the complete trend since March 7, 2008, click here.) -- Frank Newport

So 35% will have voted before Tuesday? Well lets see how this pans out?