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Investing

Flawed Logic: Jason Trennert Barron’s Interview

Photo of Douglas A. McIntyre
By Douglas A. McIntyre Published

From Investment Intelligencer

This week’s Barron’s interview featured Jason Trennert of Strategas Partners.  Jason is bullish about the U.S. market and bearish about emerging markets.  Much of his logic is sound, and his conclusion is fine–the U.S. market goes up about two-thirds of the time, so predicting it will go up this year is rarely a dumb bet.  One of Jason’s points is flawed, however:

We expect $93 for S&P 500 operating earnings in ’07, and that puts the market at roughly 15 times earnings…The downside risk is low because P/Es are so low.

P/Es are not "so low."  In fact, they’re not even "low."  To get to "15-times earnings", Jason is looking at "forward operating earnings" (an estimate).  He’s then comparing it to last-twelve-months earnings.  Cliff Asness has written in detail about the folly of this apples-to-oranges comparison.  According to Cliff, the average "forward operating earnings" P/E is 11-times, not the 15-times that Jason and other contemporary bulls throw around.  This 11-times, moreover, is an average–so half the time the market’s P/E has been below this level. 

The market may go up, but, if so, it won’t be because P/Es are low.

Posted by The Editors on April 16, 2007

http://www.investmentintelligencer.com/

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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.

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