The Folks Who Called Apple's Big Quarter

The financial press was breathless over Apple again yesterday as the world’s most-valuable company blew past analysts’ estimates for earnings in the second quarter on the strength of 35.1 million iPhones sold. “[A]nother amazing quarter from Apple … is single handedly driving markets this morning,” wrote Peter Boockvar of Miller Tabak. Apple posted earnings per share of $12.30 and $39.2 billion in sales. The Street, or at least the sell-side analysts who carry that tag, predicted $10.02 in earnings per share and $36.9 billion in sales, according to data compiled by Bloomberg. The surprise pushed Apple’s stock up nearly 10 percent and kick-started a worldwide rally.

Who saw this coming? A crowd of 115 people at Estimize did. The startup is opening up earnings estimates to all comers—and, so far anyway, beating the Street. The Estimize crowd predicted $11.68 in earnings per share and actually overshot on sales with $39.5 billion. So next quarter, maybe check “Xiath,” a self-identified buy-side analyst at Estimize who anticipated $12.25 in earnings per share and $39.6 billion in sales.

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Why Lower Natural Gas Prices Help the U.S. Only a Little

There’s a rule of thumb that says a $10 rise in the price of a barrel of oil reduces gross domestic product growth by anywhere from 0.2 to 0.5 percentage points. Applied over the past six months, when crude prices rose by about $30 from early October to the end of March, that means dearer oil might’ve chewed as much as 1.5 percent out of GDP growth during the last two quarters. Not a trivial amount considering GDP increased 3 percent in the fourth quarter of 2011. Economists surveyed by Bloomberg tend to think the economy grew just 2.2 percent in the first three months of 2012, when the price of gas really took off.

Oil is our economy’s most important raw material. The price of it (and therefore, gasoline) impacts the price of just about everything we buy, from groceries to clothes to appliances. The more expensive oil is, the more expensive a whole lot of other stuff becomes. But what about that other gas, the kind that we’re practically swimming in these days? Natural gas is now 80 percent cheaper than it was four years ago. How much has that price decline counteracted our recent pain at the pump?

Unfortunately, not much. On the consumer side, at best you’ve seen a small reduction in your electricity bill. Natural gas has certainly played a part in slowing the pace of rising residential electricity prices, from an average annual increase of 5 percent between 2003 and 2008, to 0.8 percent from 2009 through 2013. Rates are actually forecast to fall 1.4 percent next year. According to the consumer price index, the cost of utility gas service for heating declined 9.1 percent over the past year. But that’s a relatively tiny portion of what we spend our money on—less than 1 percent. Motor fuels, on the other hand, carry a relative importance of 5.8 percent and have increased 9 percent in price over the past 12 months. So whatever you might’ve saved on your electric or home heating bill, you probably plowed right back into your gas tank.

Cities with public buses that run on compressed or liquefied natural gas have benefited from lower fuel costs. And if you happen to be one of the handful of people in the U.S. who drive a natural gas car, you’re probably coming out ahead on your fuel bill every month—especially in California, which has the bulk of the country’s 400 public natural gas fueling stations, and where regular gasoline prices are among the highest.

Manufacturers have certainly benefited from lower natural gas prices. The fuel is a particularly critical input for the petrochemical and refining industry, giving U.S. firms a big cost advantage over international competitors—as much as 70 percent over manufacturers in South Korea and Europe. Whether cheap natural gas is propelling any of the strong job growth in the manufacturing sector over the past couple years is debatable. It’s certainly making a lot of manufacturers more profitable. On the flip side, it’s been bad for producers. As prices have plummeted it’s become uneconomical to keep drilling for gas. There’s a good chance that if you were working on a natural gas drill rig a year ago, you’re not anymore.

Big picture as of today, cheap natural gas hasn’t done much to counteract the run-up in oil prices. “So far it’s been a pretty small positive,” says Mark Zandi, chief economist at Moody’s. That doesn’t mean that in the future it won’t pay big dividends for the U.S.—particularly, as Zandi points out, if we’re able to get more natural gas into our transportation network. T. Boone Pickens wants to retrofit our long-haul trucking fleet to run off natural gas. There’s evidence that’s starting to happen. If done on a large enough scale, that could take a big bite out of the impact high oil prices play in driving up the costs of goods.

We’re also severely limited in our capacity to export natural gas right now. The U.S. has just one export facility, in Alaska. A recently approved LNG export terminal in Louisiana will bring that to a grand total of two once completed in 2015. Regulators aren’t likely to approve any more LNG export projects in the coming year, though they probably will in the future. Depending on domestic demand, abundant natural gas could significantly reduce the U.S. trade deficit and perhaps turn us into a net exporter.

Although we have massive amounts of natural gas—an estimated 2,214 trillion cubic feet, enough to last 100 years by some measures—we still don’t use that much of it. Case in point: We’re drilling so much and using so little, it’s conceivable that we’ll max out our 4.3 trillion cubic feet of storage capacity at some point this year. Americans burn about 22 trillion cubic feet of natural gas every year, enough to fill up about 595,000 Empire State Buildings. But we could use a whole lot more, and certainly will soon. Until we do, the U.S. economy won’t see that big of an upside from cheap prices.

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Japan's Stock Market Signals Better Times

After plunging in the aftermath of last year’s earthquake and nuclear disaster, Japanese stocks may be poised for a comeback. Profits for the large-cap companies in the Nikkei 225 Stock Average will rise 69 percent this year after plunging 31 percent in 2011, according to more than 2,600 analyst estimates compiled by Bloomberg. “The worst is over for Japan in terms of earnings,” says Masafumi Oshiden, an investment manager at ING Mutual Funds Management (Japan). “Consumer spending is improving and corporate earnings are rebounding. The cautious mood following the quake is gone.”

Investors are betting the profit forecasts will turn out to be accurate. Trading at 24.5 times reported earnings, Japanese equities are the most expensive among the world’s 60 biggest markets, data compiled by Bloomberg show. If profits rebound as analysts forecast, Japanese price-earnings ratios will fall back in line with global stocks.

Bulls say the current high valuations are justified because an economic recovery will help Japanese stocks make up some of the ground they have lost to other major equity gauges since global markets bottomed on March 9, 2009. The Nikkei 225 is up 35 percent since then, compared with 89 percent for the MSCI All Country World Index (ACWI) and 104 percent in the Standard & Poor’s 500-stock index. One reason: Policy makers in Tokyo have committed to spend 20 trillion yen ($246 billion) to rebuild towns and spur economic growth. Bank of Japan Governor Masaaki Shirakawa pledged during a speech in New York in April to continue adding monetary stimulus.

Pessimists point to combined annual losses from Sony (SNE) and Sharp of 900 billion yen and an economy that has contracted three of the past four years as evidence the Nikkei 225 has come too far, too fast. Japan still faces a shrinking population and the world’s highest debt burden. “There are several drags on Japanese shares,” says Shane Oliver, the Sydney-based head of investment strategy at AMP Capital Investors. “One of them is ongoing deflation, which acts as a disincentive to spending and is also a huge constraint on company profits. The other is a relatively strong yen, which is actually a drag on growth and competitiveness.” A strong yen makes Japanese products more expensive abroad, inhibiting exports.

There are signs that the yen’s strength may be ebbing. So far this year the currency has fallen 8.7 percent vs. nine developed-nation peers as the Bank of Japan set an inflation goal of 1 percent and expanded asset purchases by 10 trillion yen in February. The currency is forecast to decline 3 percent, to 84 per dollar, by the end of the year, according to the median estimate of 75 analysts surveyed by Bloomberg.

That will help boost corporate profits and stock prices, according to Rob Taylor, a fund manager at Chicago-based Harris Associates. Japanese executives “have been taking a lot of costs out and trying to be able to make money in this very harsh environment,” says Taylor, who owns shares of Toyota Motor (TM). “Then you get the yen weakening, and then you’ll start to really see those earnings snap back.”

The bottom line: Japanese stocks’ high price-to-earnings ratio of 24.5 indicates investors expect companies to show robust profit growth.

Thomasson is a reporter for Bloomberg News in Hong Kong. Nohara is a reporter for Bloomberg News in Tokyo. Wang is a reporter for Bloomberg News in New York.

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Fannie Mae's Former Chief Fights to Clear His Name

After Daniel Mudd was forced out as chief executive officer of Fannie Mae (FNMA) when the government seized the company in September 2008, he headed for the river. In the weeks following his dismissal, the 6-foot-4 former Marine, a onetime U.S. Olympic rowing prospect, buzzed his receding gray hair into military style and took a boat out on the Potomac—gathering strength to rebuild his career, according to his friends.

Ten months later, Mudd left Washington, taking the helm of a New York-based hedge fund, Fortress Investment Group (FIG), and putting his mansion up for sale. Yet Mudd didn’t really leave Fannie Mae behind. In December 2011 the Securities and Exchange Commission sued him for allegedly misleading Fannie Mae investors about the company’s stake in subprime loans. Fortress directors offered to let Mudd stay on if he settled the matter quickly, according to two people with direct knowledge of the board’s thinking. Instead, he left Fortress to fight the charges full-time. His stint at Fannie Mae “cost me two jobs,” says Mudd, 53. “I’ve told my legal team, ‘If you use the word “settle,” I will fire you.’?”

In March, Mudd asked a federal judge to dismiss the SEC complaint on grounds that during his tenure Fannie Mae filed detailed data on risky loans the company held. His lawyers also argued that the SEC failed to show Mudd had a motive, financial or otherwise, to deceive shareholders. No ruling is expected on the motion to dismiss before June.

The stakes are high for both Mudd and the agency. Losing the case could cost him some of the millions he earned during his four years as Fannie Mae’s CEO and make him a symbol of the excesses that blew up the housing market. For the SEC, a failed lawsuit would heighten criticism from lawmakers and others that the agency hasn’t held enough top executives accountable for taking risks that led to the worst recession since the 1930s. “They’ve got to show some scalps,” said Adam Pritchard, a University of Michigan law professor who previously served in the SEC’s Office of the General Counsel. “Anybody can file a case. It’s another thing to win it.”

Mudd is the most prominent of six former executives of Fannie Mae and its smaller cousin, Freddie Mac (FMCC), who are accused in the SEC’s Dec. 16 lawsuit of deceiving investors about Fannie’s and Freddie’s subprime portfolios before souring mortgages sent the companies to the verge of bankruptcy. Shareholders were wiped out, and U.S. taxpayers have so far spent about $190 billion keeping the companies afloat. “Fannie Mae and Freddie Mac executives told the world that their subprime exposure was substantially smaller than it really was,” Robert Khuzami, director of the SEC’s enforcement division, said when the suit was filed, calling the disclosures “material misstatements.”

Mudd says his reputation and future are on the line in what he considers a witch hunt by an agency responding improperly to outside pressures. “I worked honestly and honorably, and I’m not going to roll over in the face of a baseless, politically motivated work of fiction,” he says.

The son of TV news anchor Roger Mudd, he grew up in Washington and attended Sidwell Friends, a Quaker school where presidents and other members of the capital’s elite send their children. He graduated from the University of Virginia and earned a degree in public administration from Harvard’s Kennedy School of Government.

By the time Mudd joined Fannie Mae as chief operating officer in 2000, then-CEO Franklin Raines and his predecessors had built the company into a dominant force in the market for 30-year fixed-rate mortgages. Fannie Mae and Freddie Mac operated like private businesses, while also benefiting from a congressional charter and implied government backing. They provided liquidity to the home loan market by buying mortgages from lenders and packaging them into securities that they guarantee.

Fannie Mae’s troubles began before Mudd became Raines’s deputy. The company’s accounting practices manipulated earnings statements so executives could maximize their bonuses, its regulator later reported. The regulator, the Office of Federal Enterprise Housing Oversight, also found that Mudd had failed to act on a subordinate’s report when accounting irregularities were brought to his attention in 2003. Mudd told the Senate Banking Committee that he had been “as shocked as anyone” to learn of the manipulation when it surfaced publicly in 2004. Most of the public blame fell on Raines. He was ousted and in 2008 settled a lawsuit filed by Fannie Mae’s overseer saying he wasn’t acknowledging guilt while agreeing to pay back $25 million of the $90 million he had earned as CEO since 1998.

Fannie Mae’s board installed Mudd as CEO in Raines’s place in 2005. Colleagues nicknamed him “Harry Houdini,” according to one former staff member, since he was promoted rather than sanctioned. “Mudd should never have been permitted to be Raines’s successor,” says William K. Black, a professor of economics and law at the University of Missouri at Kansas City and a former bank regulator. “Mudd was part of the Raines regime. It was just an unconscionable mistake.”

Mudd says he saw the move as a call to duty: “I took the job at the request of the board with the approval of the government in the middle of an accounting scandal where, in the middle of the night, the CEO, the CFO, the accountant, the internal auditor, the outside auditor, and the lawyer had all been fired.” From 2006 to 2008, the time at issue in the lawsuit, Mudd earned almost $24 million in taxable compensation, according to the SEC.

At the core of the SEC’s suit is the question of how to define subprime loans and reduced-documentation loans known as Alt-A mortgages. The agency alleges that Mudd and his codefendants failed to disclose the full amount of such mortgages held or guaranteed by Fannie Mae. Mudd and his codefendants say there was no universal definition. In his motion to dismiss the lawsuit, Mudd says Fannie Mae “explicitly defined” subprime and Alt-A loans in its public filings and then “accurately disclosed the amounts” that were in the company’s portfolio.

Part of the SEC’s legal theory against Mudd and the other executives failed last year before U.S. District Court Judge Paul Crotty, who will be hearing the matter in New York. Crotty threw out shareholder claims, based on financial disclosures, that Mudd and other Fannie Mae executives didn’t warn investors about the company’s exposure to subprime mortgages. Ruling in a suit filed on behalf of government pension funds in Massachusetts and Tennessee, and other investors, the judge found that Fannie Mae’s public filings explicitly warned about the risks of subprime and Alt-A loans. Crotty allowed the shareholder suit to move forward with claims based on internal company e-mails—messages that also are part of the SEC suit. They allegedly show that Mudd and other executives knew the company’s risk management was flawed. The SEC suit “will be a very complicated and long case,” says Charles Carberry, a partner at law firm Jones Day, who isn’t representing any of the parties. “It’s going to be a battle of the experts.”

Now that he has his legal team in place, Mudd says he won’t keep his life on hold and he’s begun to think about what his next job might be. He says he would be up for the challenge of managing or restructuring a private company. “At some level,” Mudd says, “I’m not really afraid of messy situations.”

The bottom line: Refusing to settle, Dan Mudd quit his hedge fund job to fight an SEC suit stemming from the collapse of Fannie Mae and Freddie Mac.

Benson is a reporter for Bloomberg News in Washington. Gallu is a reporter for Bloomberg News in Washington.

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Bid & Ask: The Deals of the Week

1. Nestle (NESN) will pay $11.9 billion for Pfizer’s (PFE) infant-nutrition unit and may sell as much as $1.8 billion of the assets to address antitrust concerns in countries including Mexico, say people with knowledge of the matter.

2. Russia’s No. 2 mobile-phone operator, MegaFon, will pay owners TeliaSonera, AF Telecom, and Altimo $5.2 billion in dividends and pursue an IPO in London.

3. Banco BTG Pactual, led by Brazilian billionaire Andre Esteves, raised almost $2 billion in the biggest IPO for an investment bank in two years.

4. Royal Dutch Shell (RDS.A) is acquiring African oil explorer Cove Energy for $1.8 billion to secure a stake in gas fields discovered off Mozambique.

5. The world’s No. 1 wireless operator, Vodafone (VOD), will purchase Cable & Wireless Worldwide (CW/) for $1.7 billion in cash, adding a U.K. fixed-line network to its mobile-phone system.

6. London Heathrow Airport owner BAA is selling its Edinburgh terminal to U.S. buyout firm Global Infrastructure Partners for $1.3 billion after antitrust regulators ordered a breakup.

7. Thomson Reuters (TRI) will sell its healthcare unit, which provides data and analytic services to hospitals and health-care providers, to an affiliate of Veritas Capital for $1.3 billion in cash.

8. Amgen (AMGN) is buying closely held Mustafa Nevzat Pharmaceuticals for almost $700 million to expand in Turkey, where economic growth is boosting demand for medicines.

9. Illinois-based Beam (BEAM) will purchase the Pinnacle Vodka and Calico Jack rum brands from White Rock Distilleries for $605 million to expand in the fast-growing spirits business.

10. Facebook will beef up its intellectual property arsenal by paying $550 million for some of the patents Microsoft (MSFT) recently agreed to buy from AOL (AOL).

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China Gambles on Affordable Housing

The Beijing Star Brand Building Materials West Factory has been demolished, and in its place is a construction pit crawling with dump trucks as cranes tower above. This is the future home of the Taiheyuan Affordable Housing Project, which will have grocery stores, restaurants, and 2,400 apartments for factory hands and other low-income residents.

As growth slows and real estate values slump, Chinese officials are counting on cheap housing to help prop up the economy. The Taiheyuan project is just a tiny piece of a vast national effort to build subsidized housing for the urban poor. Five million affordable apartments are to be built this year, with a goal of reaching 36 million units by the end of 2015. “We will work speedily to improve the system for constructing, allocating, [and] managing … low–income housing,” Premier Wen Jiabao said in a speech on March 5. Leaders in Beijing, though, may encounter stiff opposition at the local level as cities and towns balk at footing the bill and seek more profitable investments for their money.

Social housing, as it is known in China, is not just meant to give the growing numbers of low-income workers and pensioners affordable places to live. It is also intended to boost the steel, cement, copper, and aluminum industries as prices sag and construction slows in the real estate market. With growth in private housing likely to be flat, total floor space for social housing should grow 30 percent to 40 percent this year, predicts Tao Wang, an economist at UBS Securities in Hong Kong. “While the government is trying to manage housing prices down, it does not want the economy to have a hard landing. Social housing can support overall growth,” says Wang. Low-income housing construction will act as a “sedative” for the broader housing market, Vice Premier Li Keqiang said last year.

The combination of artificially low interest rates, a lackluster stock market, and restrictions on investing abroad drove huge sums into the real estate market. Fixed asset investment, much of it in real estate, has grown more than 40 percent annually for the past eight years, says Nicholas Lardy, senior fellow at the Peterson Institute of International Economics in Washington. In 2011 real estate made up 9 percent of gross domestic product, estimates Lardy, far higher than the 6 percent reached in the U.S. at its peak. “The whole growth trajectory of China has been driven by housing investment,” says Lardy. “If you wanted to create a bubble, you would have done exactly what China did.”

Starting in September, the market began to slow. Home sales dropped 18 percent in the first quarter, while housing prices in more than half of the top 70 cities fell in March, the sixth straight month of declines for Beijing, Shanghai, Guangzhou, and Shenzhen. “The property sector is where most concerns lie,” wrote Mark Williams, London-based chief Asia economist at Capital Economics, in a note on April 13. “The biggest near-term threat to growth is that construction activity does stall.”

Social housing may not prove the savior it’s expected to be. The most ambitious program was pushed by disgraced former leader Bo Xilai. The city of Chongqing, which he led, was planning 800,000 apartments at a cost of 100 billion yuan ($16 billion), with construction handled by state-owned developers such as Chongqing City Construction, according to Standard Chartered (STAN). Now the central government has started sifting through the financing of many of Chongqing’s projects, the China Business Journal reported on April 14. “A lot of the new social housing is built in remote areas [of Chongqing]” on the assumption that the city will keep up its torrid growth rate, with GDP up 16.4 percent last year, says Rosealea Yao, research manager at Beijing-based GK Dragonomics. “There is a big question mark on all of this now.”

The financing for social housing is also a concern, with the total bill expected to reach 5 trillion yuan by 2015. In March, Beijing announced it would increase central government funding for low-income housing by 23 percent to 212 billion yuan this year. But the vast majority of costs are likely to be borne by local governments, which depend on land sales for much of their revenue. With China’s real estate sector booming until September, the money rolled in. “Local governments earned 3 trillion yuan last year from land sales,” says UBS’s Wang. Yet the funds allocated to social housing were much smaller, she says. “It’s not that they don’t have the money, it is they rather would spend it somewhere else rather than on social housing, given its small margins.”

Concerns about corruption in social housing have grown in the wake of Chinese media reports showing officials improperly benefiting from programs. Some 80 percent of units are going to well-connected officials and state enterprise managers rather than low-income people, estimates GK Dragonomics. Some question whether China’s urban areas are really meeting their social housing targets. Officials have used a very loose definition of what constitutes social housing, allowing cities to include slum redevelopments and sometimes even factory dormitories and hospital beds in the tally. China’s housing ministry itself conceded that 30 percent of social housing starts last year were not actually new projects. “They may send a bulldozer out and scrape off a little earth and say we have just started 10,000 units. Then they can say to Beijing, look, we have met our quota,” says Lardy.

Attempts to circumvent official targets will likely grow as the real estate sector slows and local land sales drop, points out Lardy. In social housing, “it would require a ramp-up of major proportions to offset a downturn in China’s real estate market,” he says.

The bottom line: A 5 trillion yuan program to build affordable housing faces so many obstacles that it may not boost the real estate market as hoped.

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Estimize, a Crowd That Beats the Street

Every three months, Wall Street performs a ritual dance known as quarterly earnings. It goes like this: A company undersells its own expectations. Analysts at brokerage firms, not wanting to alienate a corporate client, follow its lead and give out lowball estimates. Then reported earnings top estimates and the stock price rises, at least temporarily. Since 1994, according to Bianco Research, more than half of the companies in the Standard & Poor’s 500-stock index have topped the median analyst estimate (as collected by Bloomberg LP, the parent company of this publication) in every quarter but four. So far, for the first quarter of this year, 79 percent have “beat the Street.”

Leigh Drogen is out to change the routine. The 26-year-old Chappaqua (N.Y.) native has created an online clearinghouse for earnings estimates called Estimize. The site gathers estimates from all corners of the investment world, from the so-called sell-side analysts at the banks, who have been calling the tune for the past three decades, to their buy-side counterparts at hedge funds and proprietary trading desks, to independent investors. While estimates have been crowdsourced since before there was such a word, Estimize, says Drogen, is a new form of crowd control. “We are able to put forth the guys who are actually the best analysts,” he says, “vs. the guys who are just the loudest or have the biggest names behind their desks.”

Anyone can contribute to Estimize by signing up for a free account. More than 4,300 people have done so since Drogen launched the site in December, with about 77 percent self-identifying as independent, 20 percent as buy-side, and 3 percent as sell-side. Once inside, members can look up a stock and then move toggles to enter their guesses for earnings per share and revenue. There is also a space to include analysis. Estimize aggregates the entries and posts them next to a “Wall Street” number taken from Zacks Investment Research, which uses the “average of all the current estimates made available by brokerage analysts.” So far, says Drogen, his ragtag crew is besting the usual suspects. In the first quarter of Estimize’s life, the crowd’s estimates have been closer to reported results 63 percent of the time. This covers 120 sets of earnings for which Estimize had at least four estimates.

The Estimize crowd anticipated Research In Motion’s (RIMM) underwhelming fourth-quarter revenue, predicting $4.48 billion while Wall Street guessed $4.54 billion. The BlackBerry maker came in at $4.19 billion. And it expected Intel’s (INTC) better-than-expected results for the fourth quarter. Estimize predicted 66 cents in earnings per share; Wall Street, 61 cents. Intel came in at 64 cents. Admittedly, this is cherry-picking from a small sample size, but that, says Drogen, is part of the point. Estimize can not only help correct for corporate spin, or “guidance” as it’s known in the business, but, by opening its doors to all comers, it can help spot unknown talent. The site provides an analyst leaderboard for each stock and a track record for each analyst. Drogen points to Rob DeFrancesco, or TechStockRadar as he is known on Estimize, who has been more accurate than the Wall Street consensus on 11 of his 13 estimates so far and the most accurate analyst on the site for seven of them. “His ability to do this is pretty ridiculous for a guy who just runs his own book,” says Drogen.

Estimize is not the first attempt to bridge the gap between the official consensus and what the financial community really thinks about earnings. For as long as corporations have been gaming the system, analysts (including the very sell-side gang responsible for the deflated numbers) have been circulating another, usually slightly higher, figure called the “whisper number.” Drogen participated in this traffic when he worked at the hedge fund Geller Capital from 2006 to 2009, and later at his own fund Surfview Capital, where he crafted investment strategies around the reliably “skewed set of expectations” produced by the sell-side. Drogen left Geller to work at Howard Lindzon’s social finance pioneer StockTwits, where he noticed that many in that community were already sharing earnings estimates. He offered to build a platform for aggregating the numbers inside StockTwits. Lindzon passed but gave his blessing for Drogen to build it on his own. So Drogen raised $200,000 from a handful of investors and started Estimize.

WhisperNumber has been publishing unofficial estimates since 1998. The New Jersey-based company gathers its numbers from a group of anonymous investors who register with the site, runs these figures through “a proprietary algorithm,” and shares the results for free with its 85,000 users. (The company also sends tips based on its data about how stocks are likely to move on earnings to a smaller set of users who pay about $800 a year.) WhisperNumber’s president, John Scherr, says he has seen plenty of upstarts come and go. “I think he’s a bit late to the party with this,” he says of Drogen’s Estimize. “It’s a nice attempt, but I don’t think it’s going to fly.”

Drogen says he’s not out to topple WhisperNumber or anyone else in the business so much as roll them all into one big, transparent bag of numbers. “What we’re trying to disrupt here is the idea that the whisper number is a whisper number,” he writes in an e-mail. “We want it to be open and transparent where you can see exactly who it’s coming from and how the sausage is created. We actually pull their estimates into our site. We want people to know about them. They are just another data point.” (Scherr has since asked Drogen to remove the WhisperNumber data from Estimize. Drogen says he’ll comply.)

Estimize does allow users to remain pseudonymous, which Scherr suggests undercuts Drogen’s rhetoric of transparency. “If you’re going to go the transparency route, you’ve got to use real names,” he says. “If you’re right, you want to be known, but most people aren’t right. Most people are wrong. And nobody wants to be known as the guy who has a 50 percent accuracy rating.” But the pseudonymous Web, says Drogen, is the future. “We don’t care that you don’t identify yourself as who you are in real life, as long as you create a track record,” he writes by e-mail. “It allows 18-year-old kids who are amazing traders to share their ideas, and be recognized for the quality of what they are sharing,” which is why the site is now hosting a $10,000 challenge for the best estimators.

If all goes according to plan, Drogen will eventually make himself obsolete. As estimates get closer and closer to results, the trading opportunities disappear. “If we’re successful at this, we take a massive amount of volatility out of the market,” he says, “and we’ll be happy if we disrupt ourselves, we’ll be really happy that we succeeded.”

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