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History Must Direct Market Coverage

Marek Fuchs

I mention this differentiating skill because a funny thing happened on the way to the anticipated gravity-fed collapse of the stock market yesterday. A couple of financial firms reported billions more in write-offs and, when the market popped a modest 390-plus points (perhaps because fund managers were ready to come out of hiding in the first day of the quarter, those naughty little window dressers who don't want to have reeling companies on their books) the business media started a big conversation about how everyone magically sensed the write-offs were now over.

There is one way to test such a cockamamie theory that the troubles of the financial firms were over with this particular batch of $18 billion write-offs, yet few did the exercise. Give us a sense of recent history.

The Wall Street Journal both did and didn't. In "Relief at last? Perhaps," it didn't. We get instead the theory peddled that with these additional write-offs from the likes of UBS(UBS - Cramer's Take - Stockpickr) and Lehman(LEH - Cramer's Take - Stockpickr) we are -- without any other evidence -- in the clear. And without an itemized mention of the several other times we had relief rallies in similar fashion, the theory sounds as good as any. Wait! We do have evidence these write-offs might be the last. That evidence? Uh, the stock market went up.

And you wonder why The Business Press Maven ages at twice the rate of the average American. Read this:

"That banks rose on Tuesday in spite of the additional write-down announcements from UBS and Deutsche Bank could be a sign that the bear market is reaching a bottom, said Martin Slaney, head of derivatives at GFT Global Markets. 'Investors seem to be saying that the worst is over.'"

So, um, investors are saying it. But the financial firms themselves? The only ones who know?

No word from them in the article. But these companies were too busy to chat too much. UBS, for example, was busy firing its chairman and replacing him with a lawyer. (Note to Switzerland, please review performance of one Charles Prince at Citigroup(C - Cramer's Take - Stockpickr), another lawyer named head of investment bank.)

And though UBS' CEO was quoted elsewhere uttering semi-encouraging words, a careful reading of those words shows you that they were drawn wide enough to give another $28 billion in leeway, if need be. "'Our firm turned a page today at the end of a bitter chapter,' said Marcel Rohner," leaves room -- either intentionally or subconsciously -- for another page or chapter. Remember, turning pages is an ongoing process. And one chapter can lead to another. There can be seven chapters ... or 11. He did not, it is important to note, mention the closing of any book.

It was the same many other places. Even a CNN piece entitled "An end to the writedowns?" offered a bit of skepticism, but still the magical declaration that writeoffs were completely over for small and mid-sized financial firms. Whatever.

Though the Journal deserves a wash-down for their work declaring relief perhaps at hand in that one article, they set the standard in others, including a page one job.

We'll start with the appropriately cautionary lead: "Stock markets shot higher after two financial firms at the center of investors' worries took steps to shore up their capital and put the credit crisis behind them. But bankers cautioned that the industry isn't out of the woods yet."

And what does history say about why the caution is warranted, despite the stock market's momentary strength? Look at this! We have a whole section marked: "False Dawn," which brings us up to speed on similar days filled with false hope in our recent past:

"Global investors have been fooled by more than one false dawn since the financial crisis began last year. On Oct. 1, shares of Citigroup Inc. gained 2.2% after it announced a $5.9 billion write-down on its subprime-mortgage exposure. On Oct. 5, Merrill Lynch & Co. admitted to a $5.5 billion write-down, sparking a 2.5% rally in its stock. On Nov. 8, shares of Morgan Stanley gained 4.9% after it announced a $3.7 billion loss on subprime exposure. All of those rallies proved premature, as the falling value of mortgage investments forced the banks to take billions of dollars in additional write-downs."

The article also lays out other theories for the stock's movement, including the aforementioned first day of the quarter action and even takeover speculation. And though past is never perfect prelude, when you read about a trading day that bears striking similarity to a few others, you are more likely to believe alternative explanations to the comforting though completely unsubstantiated confidence that this time (no, really) is the last.

Believe it if you must, but remember all the others who have ... right before falling down a well-hole.

Now as I sign off, let me tell you that if you have about an hour's time to digest thoughts on the administration's financial regulation plan from a National Public Radio show with The Wall Street Journal, Brookings Institute and The Business Press Maven, you can go here and scroll to "Overhauling Financial Regulation of Banks" and realize, as always, why they say I have a face for radio.