Monday, September 29, 2008

Joe says...
The fundamentals really are sound!
Hello Everyone....

I'm Back and I hated being gone. Lots to catch upon, including about 7 weeks in the UK. I am pretty sick of it over there. I must say, the rabbit casserole in Basingstoke is absolutely delicious. Definitely a redeeming factor, on the other hand I am so over London.

Well, where do we start? Hmmm... Election, Environment, European Travel, "Cushy Job" stories. I think it best I not ignore the 800lb gorilla in the room. Before I post on the "Crisis" and our bailout, I want to talk about the fundamentals of the economy.

Senator Mccain is getting hammered by saying the fundamentals are sound. Despite my support for him, he has not the level of comfort defend this statement. But guess what, its true! He has either morons (not likely) or wimps (most likely) advising him. There are so many ways to prove this, despite Poll after poll that say everyone feels the economy is bad. I feel like its bad to, but its not.

Let me show one way to prove it. I was quite surprised when I wanted to see the 3Q and 2Q EPS for the 30 companies that make up the DOW. Either I googled it wrong, or it is not published. I am sure it is, but didn't want to pay for it. So I compiled it myself. First a definitions:
EPS is Earnings Per Share - Its basically the number of shares of stock a company issues divided by the number of pennies (literally) they earn (Revenue) in a given quarter/year. This number can be positive or negative. Typically ranges from .01 to about $4.
M = Million
B = Billion
Shares - Shares of Stock
Q - Fiscal Quarter of a year

Example: - Exxon has 5 Billion Shares outstanding (5.2) and to make $0.01 EPS it must ear $50M . Their 3Q EPS Estimate is 2.46 or $123B

Now, based on my experience each $0.01 EPS equates to about $40M in revenue for a fortune 500 company, I am sure its higher, but humor me. Here is what the data says:

1. If you add up the 3Q EPS for all the DOW companies combined you get 1.459T in 3Q this year alone!

2. The Average Earnings per company on the DOW is about 48.6B

3. The Average EPS is $1.22

4. Only one loser in the bunch, and that's GM. They are losing money because of Cafe Standards (save that for a different post)

5. These companies live and die by this ratio, they try not to let them fluctuate outside a projected range. Even positive earnings surprises can be bad.

So, what are you thinking? I sound snobby again, in denial perhaps. Well, the DOW is the DOW for a reason. I've listed below, hopefully image comes through, all the companies in the DOW their stock symbol and 3Q EPS Estimates. What does this have to do with fundamentals? Tell me if you don't know someone working for a company in the dow or it doesn't affect your industry or you are not a customer (even loyal perhaps) of a company on this list? That tells me the fundamentals of the US economy are pretty sound.

Before anyone starts, I am also enfuriated with the greedy bastards who are causing this bailout. I want to see people in cuffs more than anyone. So I am not defending those actions, my point is, aside from a corrupt few, we are still in good shape!

My wife didn't really understand how this happened and isn't into finance (not being condascending here) so I put together an explanation for her. I'll share with you all shortly. Its great to be back!!!!!

P.S. Sorry if I didn't spell check. :-)


Janell said...

Welcome back, Joe!
Thanks for the explainations here. The EPS formula is especially interesting. I did hear just a few minutes ago the bailout was voted down. Talk to you again later.

Shirley said...

I think your explanation may be a day late and about 70 Billion Dollars short.

Mary Connealy said...

I look forward to your next post explaining all this mess.
I have some idea maybe about it, but I don't really understand how all of a sudden it's the next great depression TOMORROW if we dont' spend $700b.

Sounds ridiculous to me that it was so suddenly so bad.

So explain away, Joe.