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November 20, 2008

"They Just Haven't Seen It Yet"

Yesterday, late in the day upon returning from a tech conference my RealMoney.com colleague Bob Faulkner wrote, " Now the bear in me will say they just haven't seen it yet but, who knows?" in relation to solar demand at MEMC Electronics.

I've got a longer column coming up today facing up to the pain and trying to explain Central European Media Enterprises (CETV). I think Bob's comment is exactly what people would say about CETV's ongoing confidence in local currency ad growth in 2009 throughout the Central and Eastern Europe markets where they own TV stations. They first said it a month ago and reiterated it today at a Morgan Stanley conference in Barcelona.

But the point of this comment is not solely CETV. You can read my column later. Rather, I think this attitude/question that Bob raises applies pretty broadly. I follow lots of stocks where the stock price has to be discounting far worse in 2009 and 2010 than management is indicating or willing to admit to at the moment even if they have already guided lower (Disney would be a good example).

I think for the market to stabilize and have a big sustainable rally we need a sense that the outlooks are not a black hole. Right now, pretty much everyone assumes that even where earnings and cash flow estimates have been slashed they are going to be even worse (DIS again). Visibility is poor so there is little defense against this view. We need something in the macro story to hang our hats on because we are already expecting terrible results. If we could find something that tells us they will not be worse than terrible, we will get a big and sustainable rally.

I doubt I can predict what it will be ahead of the time but I think it is important to consider all possibilities as the news flows. The last few weeks especially have taught me that in this market it is OK to wait and react. I'll be watching.

Posted by Steve Birenberg at November 20, 2008 08:05 AM in Stock Market