Friday, August 24, 2007

Spinning bad news into good (and withholding the worst)

Headlines can be misleading.

Today's big news, courtesy of the AP, is a case in point:

Home Sales, Factory Orders Both Rise in Encouraging Signs for Economy

It's only half true, or maybe less. The part about factory orders is pretty much spot on. Companies spent freely in July. Of course, that was before credit woes hit Wall Street and Main Street like a sledgehammer in August.

As far as those new home sales figures are concerned, there's a real double edged sword in play. Sure new home sales were up 2.8% in July - from June, when they were down 4% - so, isn't that still a net loss?

Additionally, the headline writers took the more optimistic of views concerning housing. Sales of new homes are off 10.2% in 2007 versus 2006.

The bit about "Encouraging Signs for Economy" is nothing more than an editorial, which, in strict journalistic terms, is out of place and out of bounds.

A more realistic headline might have been, "Factory Orders Up, New Home Sales Remain Down as Investors Await August Data."

Dow 13,378.87 +142.99; NASDAQ 2,576.69 +34.99; S&P 500 1,479.37 +16.87; NYSE Composite 9,607.04 +128.42

The financial press is as guilty as the mainstream for spinning news stories to suit a political agenda. Nobody wants the economy to falter, just like we don't want more bloodshed in Iraq, but that doesn't give the AP or any other news outlet carte blanche to adjust the headlines. Facts are facts, and they should be reported as thus, without embellishment. If the AP wants to mold the psyche of the American public, maybe they ought to start up a blog, where the rules are less well-defined.

Nevertheless, putting the smiley face on the news did lift investor spirits somewhat on Friday. Those reckless enough to be buying stocks faced little resistance in the market. Sellers were all too happy to give up their shares at a premium as the market advanced. Volume on the the Big Board was downright anemic. Over on the NASDAQ it was just another sluggish session.

Meanwhile, signs that the worst may not yet be over for the nation's largest mortgage firm, Countrywide (CFC), continued, as traders sent shares lower by 1.02 to close at 21.00, on heavy volume. 60 million shares of the stock changed hands. Average volume for the equity is 25 million.

Advancing issues clobbered decliners by nearly a 3-1 margin. New lows continued to hold sway over new highs, however, 125-87, and that metric is troublesome for bulls.

A commodities shot up on the day as well. Oil caught a bid and rose $1.26 to $71.09. Gold gained $9.10, with silver tagging along with a 30 cent gain.
Forex Beginner's Resource Website
Forex Foreign Currency Exchange Trading Beginner's Resource Center.
The commodity moves are foolhardy, just like today's stock market. Within weeks - if not days - these gains will be wiped away as the bad news in the credit sector dribbles out.

The Dow advanced just about 300 points for the week. Despite the impressive move, it should be noted that it was done on slim volume and the index is still more than 600 points below the highs reached in July.

There's a wall of worry to climb, and this market is just getting to the steep part.

Naturally, at 4:40 PM EDT, after the markets had already closed, came news that the Fed had bent their own rules to help member banks in the liquidity crisis.

According to the article, both Citigroup and Bank of America, earlier this week, requested and received an exemption allowing them to loan more money to their brokerage affiliates who were bleeding cash from bad mortgage loans.

Both the timing of the release of this information and the rule-breaking by the Fed and its members smell to high heaven. As usual, the American public is kept in the dark until after the fact. The liquidity crisis, as I've said over and over again, is the most serious financial situation the US has faced since the Great Depresssion.

No comments: