If Garzarelli's current Sell recommendation came abruptly, it nonetheless reflected a significant change in her black-box economic reading. One key component of her system involves comparing the cash flow yield to bond yields. Her latest corporate cash flow numbers are pointing to trouble ahead for corporate earnings. The cash flow number counts for 20 points in her 100 point system, where anything above 65 is bullish, anything below 30 bearish. The recent weakness in corporate cash flow sent her numbers plummeting to 28.5, the first clear sell signal in nearly six years.
Many analysts use cash flow to predict the strength of future earnings.
Like Garzarelli, Jeff Fotta at Ernst Institutional Research in Boston also sees a red flag in the latest corporate stats. He says many companies may not be growing as fast as their earnings suggest. Even so, one must realize the stated limits to Garzarelli's system. The savings may simply go to pay the cost of her newsletter. For all the perhaps justifiable skepticism regarding Garzarelli, however, her record of long-term bullishness in recent years would likely hold up quite well against the predictions of Oppenheimer's Michael Metz or other permabears who continue to be quoted regularly in the mainstream financial media despite disturbingly poor track records.