Inconceivable!

Wallace Shawn’s villainous character in 1987’s The Princess Bride thinks he has the whole kidnap-the-princess thing down to a science – and this certainty is what leads to his repeated exclamations of “Inconceivable!” as he is thwarted at nearly every turn.

After a multitude of inconceivables, his henchman feels compelled to mention to him, “You keep using that word. I do not think it means what you think it means.”

And in like fashion, it appears as though investors and market commentators may want to get used to the fact that certain events that were once inconceivable! could now be on the menu this fall.

These include:

Greek Default – “The shock resignation of European Central Bank chief economist Juergen Stark last Friday, and weekend comments by German politicians suggesting Athens may have to default and be “suspended” from the euro zone, drove the euro to a 10-year low against the yen and a 7-month low against the dollar.” – Reuters

Greece or another peripheral country leaving the European Monetary Union – “Sovereign default, corporate default, collapse of the banking system and international trade are just some of the problems a seceding peripheral euro-zone country would have to face, said UBS. That could entail an initial cost of around 9,500-11,500 euros per person in that country followed by an annual cost of 3,000-4,000 euros per person.” – Real Time Economics

Germany throwing its hands up and walking – “Even if a stronger country like Germany were to leave, UBS still thinks it is going to set every German back by about 6,000-8,000 euros in the first year and then around 3,500-4,500 euros per person in every year thereafter. A stronger euro-zone country wouldn’t face sovereign default but it is still vulnerable to corporate default, recapitalization of the banking system and a collapse of international trade.” – from Real Time Economics

A recession for corporate profits in the US – “[MKM Partners’ Michael Darda] reckons that consensus estimates for Standard & Poor’s 500 earnings could prove too generous by 25% to 30%. He points out in support of that conjecture that earnings expectations in the past have been, on average, 27% too high at business-cycle peaks, which obviously is where he thinks we are now. What this means…is that with year-ahead estimates for the S&P 500 at $108, the actual number may be…closer to $75 to $80. That gets confirmation of a sort, he feels, from the junk-bond market, where spreads have surged more than 400 basis points, from a low of 150 basis points earlier this year. That kind of big jump, he relates, usually goes hand in hand with something like a 30% fall in earnings estimates in the quarters that follow.” – Barron’s

2012 earnings estimate cuts for US equities – “The Street’s earnings forecast for the S&P 500-stock index is about $95 for 2011, and about $112 for 2012. If the bears are right, earnings estimates might too high by as much as 30 to 40 percent, and a recession-driven earnings contraction means lower equity prices.” – Washington Post

In 2011, the things that were inconceivable as recently as the end of 2010 are now becoming likely by year’s end.

Get used to it.

 

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here: https://www.ritholtzwealth.com/advertising-disclaimers

Please see disclosures here.

What's been said:

Discussions found on the web