Five Things to Know This Earnings Season

Furthermore, corporate dividends are richer relative to "safe" Treasury yields, implying that either corporate dividends will fall or Treasury yields will rise. Given the economic backdrop and actions in Washington, it is likely that dividends will fall. Many financial companies are expected to slash their dividends, with Bank of America (BAC Quote) being the most likely candidate.

3. Get ready for more write-offs. As corporate restructuring plans accelerate, companies will increasingly revalue assets. We could see the "kitchen sink" effect kick in, which is when a company takes an aggressive stance on writing off assets and taking losses. Kitchen sink quarters tend to occur en masse either systemically due to economic conditions or by sector, due to business specific conditions.

An example would be the huge write-off and charges that were taken in the aftermath of the big three hurricanes -- Katrina, Rita and Wilma -- in the fourth quarter of 2005. This occurred for oil and gas companies that had Gulf of Mexico operations, such as Chevron (CVX Quote) and Entergy (ETR Quote).

When you tune-in to the latest quarterly earnings, be prepared for a much broader-based kitchen sink effect.

4. It's guidance time. The first earnings season of the year is typically the period of time when most companies that provide guidance will do so for the first quarter and the entire year. To the extent that companies provide guidance, expect those estimates to be tepid at best, with plenty of companies forecasting EPS and revenues well below current analyst estimates.

Furthermore, there is a growing amount of public corporations that have decided not to provide guidance. Just last month, Costco (COST Quote) elected not to provide hard guidance to investors and analysts. I expect this trend to continue.

Unfortunately, when companies switch to a no-guidance policy, there is typically a negative short term reaction to the stock price. However, that anomaly will dissipate after quick-finger traders have completed their assault on the stock.