Jeremy Grantham, manager of the $100 billion investment firm GMO, believes analysts’ 2009 earnings estimates are “vastly overstated”, writes Forbes James M. Clash. “Grantham says S&P 500 earnings could easily drop 30% to $65,” Clash says, adding that Grantham “thinks the index is close to fairly priced at its Nov. 13 close of 911. But he notes that bear markets overshoot as often as bull ones do. So he guesses that the index will bottom out between 600 and 800.”

Clash also delves into the trouble with analysts’ estimates, particularly during downturns, when they are slow to lower their estimates. “In times like that ‘top-down’ earnings estimates, put out by ecnoomists, strategiest and the like, and focused on macroeconomic trends, tend to be more conservative — and more accurate,” he writes. “Here’s a telling statistic: Standard & Poor’s industry analysts expect S&P 500 earnings to come in at $94 next year; its economists are calling for $62, or one-third less.” [Note: S&P’s bottom-up analysis is now at about $86 for next year.]