Outside the Box

Beyond The Horizon: Economics & EPS

John Mauldin

November 20, 2006

I am excited to present to you today a very interesting piece by my good friend and local Dallas resident, Ed Easterling. Ed has performed an in-depth study on how several key fundamentals have performed over time and how they are likely to perform over the next several years. His analysis shows how EPS and corporate profit margins have correlated to the business cycle dating all the way back to 1950. I find his study to be very insightful and dead on in the midst of the current market climate.

For those of you unfamiliar with Ed and his work, he is the author of Unexpected Returns: Understanding Secular Stock market Cycles and President of an investment management firm. In addition, Ed is a member of the adjunct faculty at SMU's Cox School of Business where he teaches a course on alternative investments and hedge funds for MBA students. Mr. Easterling is most known for publishing provocative research on the financial markets which can be viewed at www.CrestmontResearch.com.

I trust that you will find his "Beyond the Horizon" to be very compelling research and an "outside the box" point of view. May you enjoy!

John Mauldin, Editor
Outside the Box

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Beyond The Horizon: Economics & EPS

By Ed Easterling

Earnings have increased at double-digit growth rates for almost five consecutive years--although many agree that earnings growth may be slowing, it's beyond almost everyone's foreseeable horizon that earnings might actually experience a decline.

Yet a look back at history provides insights about the earnings cycle…

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