You Can Engineer Earnings But…

in Equities by

One of the things we’ve been pounding the table on for years is the extent to which corporate buybacks are influencing earnings beats.

In fact, there are any number of ways you can engineer beats on the bottom line. Don’t believe us? Here, have a look:


(Chart: Morgan Stanley)

And while Morgan wants you to know that their “analysis shows that a widening GAAP vs pro forma spread historically is not indicative of future market underperformance,” we still have a perhaps outdated tendency to prefer “real” to “fake” earnings.

As we’ve seen, corporations comprise the only expected net demand for US equities in 2016 (just ask Goldman). So in other words, borrow for nothing, buyback your shares, drive up the stock. It’s perfect. Elegant. Anyone would do it, right?

Well, you can fake the bottom line, but it’s harder to fake revenue. And that’s why we wanted to offer you the following interesting compare and contrast exercise.

Spot the discrepancy:



(Charts: SocGen)

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