This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Earnings Forecasts: Voodoo Science, Pt 1 of 2

The U.S. is a world-beater when it comes to flexible labor regulations. If a business needs to trim back costs to meet projections, it's relatively easy and cheap to do this with a large layoff, or closing down a business. In many countries, this option won't be easy or cheap, and it may not be permitted at all.

Then there is the unexpected. This year Anglo American (AAL.L), following South African labor regulations, announced an impending mass layoff. The South African government countered with a threat to revoke its license to mine.

Many sources of unpredictability are tied to varying views on the purpose of the corporation. Decisions at American corporations revolve around maximizing shareholder value. In many countries, corporations have legal obligations to achieve double, triple, or even quadruple bottom lines that include satisfying shareholders, employees, environmental sustainability, and the community.

While the definitive legal requirements can be quantified and planned for, surprise regulations and ambiguous requirements are another matter. For example, China's Company Law, besides having a nebulous requirement for social responsibility, has a very ambiguous and unpredictable requirement that: "Companies shall provide the necessary conditions for the Party organizations to carry out their activities." But, the when and what of the Party's "activities" are not predictable.

Beyond regulations that support multiple bottom lines, there are social cultural considerations. If customers don't like a corporation's behaviors, for example, a decision that is good for shareholder but bad for the community, they can protest their dissatisfaction with boycotts and vandalism.

Customers can also boycott corporations from countries whose political positions they dislike. In late 2012, the sale of Japanese autos in China tumbled due to a backlash by Chinese consumers who were protesting Japan's actions in the East China Sea.

Forecasting the unknowable and catering to multiple bottom lines are two sources of unpredictable earnings. In Part 2 of Earnings Forecasts: Voodoo Science, the impact of different cultural practices and legal systems that eliminate the usual options to corral sources of unpredictability are explored.
2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $95.18 1.64%
FB $117.43 -0.96%
GOOG $692.36 -0.84%
TSLA $232.32 -3.92%
YHOO $36.01 -1.42%


Chart of I:DJI
DOW 17,750.91 -140.25 -0.78%
S&P 500 2,063.37 -18.06 -0.87%
NASDAQ 4,763.2240 -54.37 -1.13%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs