"Beat and Lower"

"Beat and Lower" is the new earnings season routine, according to one prominent hedge fund manager. Monday, July 29th, 2013 "Beat and Lower" There's a new mantra for earnings season… Lowering the bar… again Plus: Are you terrified of a rising market? Greg Guenthner coming to you from Baltimore, MD... Greg Guenthner "Beat and Lower" is the new earnings season routine, according to one prominent hedge fund manager. Greenlight Capital president David Einhorn (who gained fame shorting Lehman Brothers in 2007, and then doing the same again with high-flyer Green Mountain Coffee Roasters in 2011) has taken note of yet another sluggish earnings season. And he has the formula for success all figured out… "During the first few years of the market recovery, the formula for higher stock prices was 'beat estimates and raise guidance.' Not anymore. Now it's enough to beat the current quarter, and make it easier to beat the next one too by simultaneously lowering forward expectations," Einhorn explains. "Beat and Raise" didn't last—and it has morphed into "Beat and Lower," Einhorn says. While common sense might dictate that the lowering of expectations should have bearish implications, it has actually had the opposite effect. So far this earnings season, 70% of companies in the S&P 500 beat esitmates, he says, while firms continue to lower guidance. "At this point in the cycle, lowering the bar seems to be treated as bullish because it increases the likelihood of future earnings beats," Einhorn concludes. Of course, this type of environment won't last forever. And it's not particularly ominous that investors are fine with the low bar companies have set. In fact, the reason that this earnings season has had little to no effect on the broad market is because investors' minds are elsewhere. Slowly but surely, every single market watcher is getting sucked into the Fed circus. Speculation about who will follow Bernanke continues to build. It will probably reach fever pitch by the end of next month. Earnings be damned! All eyes and ears are on a potential September Taper. Or hints about Yellen vs. Summers... Revenue growth and solid earnings will matter again. But as I have told you many times this year, the bar is low enough to prevent any terrible earnings misses from scaring investors. Don't get too wrapped up analyzing earnings this week. There's a ton of data hitting the wires (along with Bernanke comments later this week) that will steal the spotlight. Rude Numbers Targets, Predictions and Wild Guesses $100 buys a Bitcoin this morning. The alternative currency is back in triple-digits for the first time in nearly a month… $1,335 marks the spot for gold futures this morning. The yellow metal has jumped $13 in early trading… is all it costs to get heart surgery in India, compared to more than $106,000 in the United States, thanks to a program aimed at "making life-saving heart operations more accessible to potentially millions of people in India and other developing countries," according to Bloomberg. 468 points dropped from the Nikkei early today. The Japanese index lost more than 3.3%, finally landing at 13,661. That's its lowest level in more than a month. 1,683 is where you'll find S&P futures early this morning. A slightly lower open is in the works… Rude Trends When to Buy... When to Sell When you have a spare minute, check out the "most read" section tucked away on the bottom corner of your favorite mainstream financial news site. I've noticed lately that the popular headlines are mostly bearish. Here are a few I've compiled since Sunday evening: "3 Signs the Market is Near a Top" "Bubbles Forever…" "How to avoid a 2008-Esque Hit to Your Portfolio" These headlines have a powerful draw for two very different reasons. If you aren't in the market or have waited to buy stocks, the headlines reinforce your bias that the market is probably headed lower (after all, you don't want to obsess over your failure to buy back in late 2012 when stocks were far cheaper). On the other hand, if you are heavily invested, the bearish headlines probably make you more than a little nervous. Either way, I find it interesting that investors are so thoroughly obsessed with a potential market crash. If (hypothetically) 2013 ends up as a major market top, the sentiment picture this time around is much different than the denial that marked the 2000 and 2007 tops… [Ed. Note: Send your feedback here: rude@agorafinancial.com - and follow me on Twitter: @GregGuenthner] Ignore At Your Own Peril Today's Must Read Links What China's gold miners and banks have quietly been doing with their gold for the past 36 months. A Remarkable Income Secret... The best investment secret on the planet BE SURE TO ADD dr@dailyreckoning.com to your address book. Additional Articles & Commentary: To end The Daily Reckoning's Rude Awakening e-mail subscription and associated external offers sent from The Daily Reckoning and The Rude Awakening, click here to unsubscribe. Please Note: If you unsubscribe from The Rude Awakening, you will also be unsubscribed from The Daily Reckoning. The Daily Reckoning's Rude Awakening is committed to protecting and respecting your privacy. We do not rent or share your email address. By submitting your email address, you consent to Agora Financial delivering daily email issues and advertisements. Please read our Privacy Statement. 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