Thoughts from the Frontline

Earnings Deflation

By John Mauldin

October 24, 2003

Plausible Expectations
We Are Losing the War in Europe
The Investor’s Glass Ceiling
Earnings Deflation
Earnings Have Not Kept Up With Inflation
April Fools Investing
Halloween in New Orleans

Earnings season is upon us, and with each announcement the market seems to surge on new ecstasies or retreat with disillusionment. Each new announcement is cut open, like so many sheep, to see what its entrails will divine to us about the future, as if one more bit of fresh data will give us the clear forward vision we think we so desperately need. Is the bull finally back? Are we climbing a wall of worry, or just on another fool's errand, rising in a bubble toward the inevitable pin? Yet, earnings are up by more than 100% since the end of the last recession. How can we not be optimistic?

Today's letter will show that projecting recent past earnings growth too far into the future is a prescription for pain. I have to admit to being surprised by some of the facts with which I will present you. I bet 98% of you will be surprised as well. These are facts you need to know.

And I will end with some very optimistic and brief stories. They are examples of why I…

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