Subscribe to Money Morning get daily headlines subscribe now! Money Morning Private Briefing today's private briefing Access Your Profit Alerts

Get Ready for Earnings Season – Wall Street's Quarterly Shell Game

It's earnings season. In fact it's prime time for companies' first-quarter earnings.

For company players the game is about trying to beat analysts' estimates, to get your company's stock to pop so you look better than your reflection.

But, the game is rigged.

What! Another rigged game on the purposely muddied fields where Wall Streeters play?

Yep. Another rigged game.

And like high-frequency trading (HFT) and so many other "institutionalized" games on the Street that are sucking the life out of other people's dreams, it's not illegal.

This is the norm…

The game is called managed earnings, or managing earnings.

The most successful gamers play with a gusto that crosses over the legal border. They juggle their books to shove losses and profits into columns, drawers, and boxes depending on what their objective is for that particular accounting period.

Maybe they made too much money and want to hide some for another quarter where they don't make what analysts expect. Maybe they bury losses somewhere so they don't look as bad in a reporting quarter.

It's about manipulation.

Earnings Season

That part of the game is illegal. But because it's merely accounting hocus pocus, the worst a company gets – when the facade of its magic show is blown – is a slap on the wrist.

If you want a history of how to play this part of the game to perfection, look how General Electric under Jack Welch, performed – I mean managed – their earnings. All I'll say is you just can't have your earnings come out to the penny quarter after quarter after quarter without internal prestidigitation.

While that locker room game is for seasoned pros, every company plays the field game.

On the field it's all about what analysts' estimates are.

If your company earnings beat what analysts expect, you're a winner. If your earnings fall short, you're a loser and so is your stock.

And where do these highly touted Wall Street analysts get their estimates from?

I'll tell you where, but you're not going to believe it…

Join the conversation. Click here to jump to comments…

About the Author

Shah Gilani is the Event Trading Specialist for Money Map Press. He provides specific trading recommendations in Capital Wave Forecast, where he predicts gigantic "waves" of money forming and shows you how to play them for the biggest gains. In Zenith Trading Circle Shah reveals the worst companies in the markets - right from his coveted Bankruptcy Almanac - and how readers can trade them over and over again for huge gains. He also writes our most talked-about publication, Wall Street Insights & Indictments, where he reveals how Wall Street's high-stakes game is really played.

Read full bio

Leave a Reply

Your email address will not be published. Required fields are marked *

Some HTML is OK