SP 500 Trailing 12-month Earnings per Share and the SP 500

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Quotes or book excerpts that I find particularly insightful...

"The complexity of the world in which we live exceeds our capacity to comprehend it... In situations that have thinking participants, the participants' view of the world is always partial and distorted... these distorted views can influence the situation to which they relate...

I contend that situations that have thinking participants have a different structure from natural phenomena... the difference lies in the role of thinking. In natural phenomena thinking plays no causal role and serves only a cognitive function. In human affairs thinking is part of the subject matter and serves both a cognitive and a manipulative function... when both functions operate at the same time they interfere with each other by depriving each function of the independent variable that would be needed to determine the value of the dependent variable... when the independent variable of one function is the dependent variable of the other, neither function has a genuinely independent variable... the cognitive function can't produce enough knowledge to serve as the basis of the participants' decisions. Similarly, the manipulative function can have an effect on the outcome but can't determine it. In other words, the outcome is liable to diverge from the participants' intentions. There is bound to be some slippage between intentions and actions and further slippage between actions and outcomes.

As a result, there is an element of uncertainty both in our understanding of reality and in the outcomes of events... By contrast, in the case of natural phenomena, events unfold irrespective of the views held by the observers. The outside observer is engaged only in the cognitive function and the phenomena provide a reliable criterion by which the truth of the observers' theories can be judged. So the outside observer can obtain knowledge. Based on that knowledge, nature can be successfully manipulated. There is a natural separation between the cognitive and manipulative functions. Due to their separation, both functions can serve their purpose better than in the human sphere...

Interestingly, both Karl Popper and Friedrich Hayek recognized, in their famous exchange in the pages of Economica, that the social sciences cannot produce results comparable to physics... the subject matter of the natural and social sciences is fundamentally different... What is attainable in social science falls short of what is attainable in physics."

Earnings Backdrop

S&P 500 Trailing 12-month Earnings per Share and the S&P 500

Analysis: S&P 500 trailing earnings have been trending slightly lower over the past couple of quarters. According to Factset analysts are projecting earnings growth of 0% for calendar year 2019 (a slightly lower forecast relative to last month's report), and projecting10% earnings growth in calendar year 2020 (a slightly lower forecast relative to last month's report). I'm currently negative on this picture. Chart Framework: I'd get incrementally positive if the trailing 12- month earnings moved back up over consecutive quarters (QoQ), i.e., two or more quarters. It's worth noting that this framework may be more of a coincident or confirmatory rather than a leading indicator with respect to a major market top.

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