I don’t know if I am more disappointed by first quarter earnings and their poor top line numbers or investors who believe that earnings are great. We didn’t skip a beat from bragging about 14 consecutive quarters of double-digit earnings growth to bragging about 5%. It’s quite impressive actually but not in a positive way. It reminds me of someone who takes a test, gets a 50% and receives a curve-adjusted A grade.

I know we needed to lower the bar to make everyone feel great about numbers that would have made us puke last quarter, but this is pathetic. You don’t need to fantasize about a soft-landing - you are getting a huge earnings soft-landing right now. In a world that relies heavily on meeting estimates, corporate execs must have let out a collective huge sigh of relief when analysts whacked their estimates. If nothing else, it saved them from having to buy back a ton of their “cheap” shares to manipulate EPS and meet numbers.

But I have to wonder when and where the guidance came from to encourage analysts to cut estimates. At the start of the year, Thomson had estimates at 8.7% growth and by the time AA kicked things off, we were down over 50% off that number to a whopping 3.8%. Did I miss a whole bunch of warnings and guidance at the end of 2006 or during the first quarter? If I did, then I guess everyone else did too because stocks didn’t decline on any such news. Or you can take another view and just believe that all the analysts independently woke up one day and had an inspiration without the companies telling them anything. One other alternative is that Reg FD is not so threatening any more.

Fundamentals supposedly rule the market and theory says that investors are supposed to react negatively to warnings, estimate revisions and the inevitable increase in valuations. That never happened and instead stocks are getting bid up for companies that are meeting or beating these ridiculously low earnings standards. As a former adjunct prof in Finance, I give everyone involved a curve-adjusted “A” grade for the 50% reduction.