By Dan Ferris in the S&A Digest:

Former Merrill Lynch analyst David Rosenberg says the S&P 500 is trading at 24 times operating earnings and – this is not a typo – 760 times reported net income. 760 times earnings. No typo.

Our own experience tells us net income is nothing but a starting place for discovering the true earnings power of a business. Perhaps operating earnings are the same way... Rosenberg describes operating earnings as "the earnings that are adjusted to take out everything that is bad."

Rosenberg alone seems to have noticed that with the financial press crowing about "better than expected" earnings reports, corporate earnings are 31% below last year's deeply depressed levels. I'm not sure how "lower than deeply depressed" equates to "recovery" or even "end of recession." It's feeling more like an alternate reality all the time.

Mr. Market is even less up to the task of showing us real cash paid out of corporate profits than it was a scant few months ago... Since March, the dividend yield on the S&P 500 has shrunk nearly 100 basis points (1%) to about 2.75%.

Crux note: Dan Ferris is the editor of Extreme Value. For serious long-term investors, it's one of the most useful advisories you can buy for any price. Learn more about Extreme Value here...

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Dan Ferris on a huge potential financial disaster around the corner...