My Baseless Theory: A Conspiracy of Numbers

Discussion in 'Trading' started by ByLoSellHi, Apr 29, 2007.

  1. What's one of the biggest factors driving the financial markets forward?

    Lowered expectations.

    If the analysts and economists and those forecasting eps growth, GDP data, employment numbers, productivity, etc., etc. etc. keep setting the numbers low enough, and distribute those anemic forecasts far "out ahead enough" of the actual release dates, how can anyone be disappointed?

    In fact, if you set the numbers low enough, you only dramatically increase the odds of an 'upward surprise,' hence causing the markets to cheer.

    Watch for an 'upward surprise' in the employment figures this week.
  2. "What's one of the biggest factors driving the financial markets forward?

    Lowered expectations."


    Now it becomes the "psychology" of the market. It's not about the numbers. I agree with your post.

    "Employment numbers" too dang hard to figure out the truth. The obvious point being, it's not about the truth of numbers but what is behind the science of the numbers when the effect is to achieve a desired goal, in this case, Dow - to da moon.
  3. I too have thought this for a while ....all these companies coming in at 'above expectations' actually means bo diddley (other than the people who 'set' the expectations were either very astute or rather inept).

    I subscribe to the theory that there are some big swinging dicks who set the tone for a market (be it expectations or what the main theme is for a given day).

    They can't perpetuate the illusion forever though.
  4. Persdawg


    Why not?
  5. Its always been that way, economic data and earnings can be "manipulated" to look good when they really aren't that great, its all about expectations and forecasts.

    They will continue to make things look "great" as long as rates remain low and there is ample liquidity. Nothing else really matters.
  6. Nothing else matters?!

    It's earnings that drive the market...all we've seen in the past 2 weeks is earnings beat 'lowered' forecasts. Seems the market wants its cake & eat it. If I said I could run 100 yards in 80 seconds, you'd think "no're a fat b@stard & can only do 100 yards in 120 seconds". I then go on to run it in 100 seconds....which is p1ss pooor, but hey, I beat your expectations.

    Eventually, the froth will die of Dow 20k will subside & alas, it'll come back to more mundane things earnings and fundamentals. A stripped bare forward EPS for the S&P of 25 looks expensive in the face of the housing problems, high oil price & low GDP.

    But hey, let's not get facts & numbers get in the way of a lot of euphoria.
  7. Earnings expectations are often arbitrary, therefore it does not matter.

    Money will keep pouring into stocks as long as rates remain low, there is simply no money to be made from bonds or other asset class right now.
  8. piezoe


    ByLo, your "theory" is not baseless. It is exactly on the money. This is how Wall Street works. If we we were in the real world the only thing that would matter is actual earnings trend over time. But on Wall Street what matters is the invented perception of earnings. Thus a company such as Beazer has a disastrous quarter and Wall Street reports that they beat estimates! It's all a game. We make up the rules and we play along. One thing we can count on though is that when Wall Street says Buy and their analysts are reporting companies beating estimates, we know that there is a high probability that the investment banks and brokers have long inventory in those same companies they want to move. On the other hand, when wall street reports that a company missed estimates the investment banks and brokers are likely low on inventory or short and want to buy. At the moment, the word is Buy Buy Buy, so perhaps their is a bit of panic behind the scenes as the investment banks scramble to dump their long inventory before the Fed meeting in May. We shall see won't we.

    I have used these ideas for years to good effect in managing my own investment accounts. Thus when Wall Street bad mouths a company (e.g., AMD) it can be either because the company is truly bad or because they want to buy. I check out the company and often times end up buying. Thus the companies that the Street bad mouths serve as a nice initial list of potential buys. :cool:
  9. nkhoi

    nkhoi Moderator

    MSFT play this game they always talk down their numbers quater after quater.
  10. dtan1e


    very perceptive, i have heard of this but never actually look into it
    #10     Apr 30, 2007