A Tweet to a Linked-In article by Edward Yardeni caught my eye. Yardeni asks What Are Stock Industry Analysts Smoking?

I would like to try some of whatever industry analysts are smoking. You can compare my earnings forecasts to their consensus estimates on a weekly basis in YRI S&P 500 Earnings Forecast on our website. I say “tomato.” They say “tomahto.”

My earnings-per-share estimate for 2018 is $155.00 (up 17.4% y/y). The analysts continue to up the ante and are currently at $160.40 (up 21.5%). My estimate for 2019 is $166.00 (up 7.1%). Theirs is $175.72 (up 9.6%). Perhaps the analysts are just high on life.

Their growth estimate for next year seems too high to me since I expect 2019 earnings growth to settle back down to the historical trend of 7%.

Are They All High on Life?

Yardeni says "You can drive a truck between my earnings estimates and theirs."

Yet he still suggests "the stock market is likely to be at new record highs by the end of this year," even with his earnings estimate.

What Can Possibly Go Wrong?

I guess we can throw out a recession, earnings reviersion to the mean, a global slowdown, a valuation scare, or simply a valuation reversion to the mean.

Asset Bubble Poised to Break

  1. Note that it has taken about $1 trillion in buybacks and dividends just to hold the the S&P 500 barely above breakeven on the year.
  2. Crescat Capital notes Fed Tightening Cycles Coincide With Bursting of Asset Bubbles.

Yardeni is still looking up.

Mirror Mirror on the Wall


When asking what others are smoking, perhaps one should look into a mirror to see if they are smoking essentially the same stuff, just less of it.


A reader emailed asking, "What make you so sure Yardeni is wrong?"

Another commented, "If I had to choose between 1) a small increase in earnings and modest stock market appreciation, as Yardeni is suggesting or 2) a 60% drop over the next year, as is often referred to on this site, I would go with option 1. I do expect the economy and the market to slow a bit next year though."

Actually, I am not sure of hardly anything other than the given I will someday die. Yardeni could be right. Interestingly, he is positioned well. If the stock market tanks, he can blame the earnings miss and claim he was right.

As long as he is closer than the herd, he can make an "I was right" claim. History strongly suggests he will do better than the herd.

Yardeni made a "cleverly safe call".

In regards to 60% drop predictions, I am unaware of anyone suggesting a 60% drop in a year. Other than Prectorites calling for the DOW at 2,000 or whatever, the most bearish person I know is Hussman.

But Hussman is not calling for anything specific in a year. Rather he thinks we see a 67% drop, top to bottom, occurring over an unspecified number of years.

50% or so may be more likely, or not. Everyone is guessing.

Unlike some others, I have not called for a "crash". Rather, I side with Hussman that the market is ridiculously overvalued.

Something like a 15% decline followed by a 5% advance, followed by a 15% decline, another 5% advance, then two consecutive 10% declines, followed by an 8% rally then a washout 15% decline is more along the lines of what I expect. That does not total 67%.

But a crash (which I define as 35% in a year, totaling or 50% in 2-3 consecutive years) would not surprise me in the least.

Mike "Mish" Shedlock

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