Otherwise, spend some time on today's links. You won't regret it.

Connecticut, Massachusetts, Rhode Island and Illinois had the highest share of homes with price reductions at 33 percent, followed by six states at 29 percent: Oregon, Washington, New Jersey, Minnesota, New Hampshire and Maryland.

Jacksonville, Florida, had the highest rate of reductions among cities tracked as 38 percent of listings there had been cut. Portland, Oregon, followed at 35 percent. Milwaukee, Minneapolis, Boston and Seattle each had 34 percent and Albuquerque, New Mexico, and Chicago had 33 percent.

Prices were cut 22 percent in Detroit; 16 percent in Las Vegas; 15 percent in Miami; 13 percent in New York City and Phoenix; 12 percent in San Francisco and Los Angeles; and 10 percent in Washington and Honolulu, Trulia said.

While this does put more downward pressure on housing prices, I would argue that the fact that expectations are becoming more rational is a very good thing. The closer we get to prices in which houses will clear, the closer we will be to a bottom in non-distressed sales. The concern, of course, is that continued foreclosures, especially as more mortgage resets occur next year, will prolong the bottom-finding process.

http://www.bloomberg.com/apps/news?pid=20601103&sid=av0pts0otNRc

As reported versus operating earnings: I got the link to this piece in the Financial Times from The King Report. It is a discussion of which earnings we should be focusing on when we evaluate individual companies and the S&P index. As reported earnings that are based on GAAP accounting take include non-recurring items and are obviously lower as companies have been hammered by so called onetime events. Operating earnings on the other hand exclude onetime items like restructuring charges and asset write downs. Investors who are focused on the long term earnings power of companies are often fine with excluding certain items so that they can get a good sense of what the company will be able to earn when this cycle is over. However, according to the article, this may be a mistake as onetime items seem to pop up more often than the name implies:

There is plenty of evidence to show that the exclusions in adjusted operating earnings are not one-off or non-recurring items. Often they contain useful information pointing to weaker cash flows ahead. Messrs Doyle, Lundholm, Soliman, in their "Predictive value of expenses excluded from pro forma earnings" 2003 study found that the three-year return for companies in the top decile of "other exclusions" is 23 per cent lower than for those in the bottom decile for exclusions. One dollar of exclusions in a quarter predicts $4.17 less of cash from operations over the next three years.

The truth is that the current environment may be unique in its impact on companies so the 2003 data may not apply as well now. The scary thing is that there is now a record $54 gap between as reported earnings and operating earnings on the S&P. That sure makes it hard put a meaningful P/E multiple on the index. In any case, this article ends with a passage that I think incorporates my concerns about future earnings as well as anything I have read. It is basically John Hussman’s argument as well:

There is no doubt that strong earnings numbers several years ago reflected extraordinarily high, debt-fuelled margins that are difficult to imagine again, particularly in a deleveraging and deflating economy. Investors should not expect a rebound in earnings or profitability and certainly not to previous elevated levels. Why? Because earnings growth must entail some combination of increased profit margins, rising turnover or greater leverage. Increased leverage is currently unacceptable to managements and investors alike. Wider profit margins and higher turnover may be achievable in the short term, but are much less attainable in a deleveraging cycle.

http://www.ft.com/cms/s/0/6aa58256-87a0-11de-9280-00144feabdc0.html?nclick_check=1

Money coming off the sidelines may not be a good thing for the market: I got the link to this article in Reuters from Seeking Alpha. I can’t even count the number of times I have heard so called pundits on CNBC talk about all the money waiting on the sidelines that can juice the market at any point. But what if when that money does eventually flow into the market it indicates unjustified optimism and signals a market peak?

One of the stock market's favorite accepted nuggets of wisdom is the notion that there's a pile of money waiting in the wings, itching to jump back into the market.

Investors should be careful what they wish for: Such a move is more likely to signal a topping-out in the recent rally than a sign that it will ignite a new run in the market.

It’s an interesting thought. We know that the tech bubble suckered retail investors in after it ran up after the initial downturn. Of course those poor people got hammered when the market fell for good. So most likely, when watching flows into and out of mutual funds it makes sense to look at the direction of flows as a contrarian indicator. As James Montier always says, you don’t get true bargains or see a durable bottom until revulsion occurs. But are we anywhere near revulsion? Definitely not:

Currently, investors hold about one dollar in liquid assets for every dollar in shares, which includes mutual funds. That's right at the post-war average.