It was the rumor you could not totally believe set against the denial you would be crazy to trust. In the annals of every lamebrain thing spoken and written about financial markets and companies good and bad, there has probably been no better case of how words can be such an imprecise measurement of fact than in what caused yesterday's reeling, lurching movement of Countrywide (CFC) stock.
With stomach malfunctioning at the mere prospect, the Business Press Maven is going to try to decipher what happened. But as befits the circumstance, let me perform some rough justice on any discussion of rumors on Wall Street. When the choice is between wanton rumor and denials from a company that has proved a congenital liar, you should save your bacon by making the essential choice of: none of the above.
Headline: They Just Don't Get Rumors!
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Stay clear of Countrywide -- as a long or short -- until the words that are splattering the stock or the ones designed to revive it earn something more than your chronic mistrust.
But for our larger understanding of how these things work, why did the word "bankruptcy" get thrown around Countrywide's neck so tightly yesterday, specifically? Why was the word used in relation to Countrywide with such furious energy on Jan. 7 that the company was forced to issue a denial? Why not Jan. 6? Or Dec. 6, for that matter?
I'm going to dismiss the put action that has been bandied about as a possible cause, as it is next-to-impossible to determine whether that was a cause or effect of the rumors. And I'm also going to dismiss the prospect that analyst comments on companies in the industry, including
, needing cash desperately had the precise effect of harnessing the word bankruptcy to Countrywide.
The rumors, in this case, could of course and simply be completely true. But there have been comments many days without the rumor mill working overdrive. As The Business Press Maven has pointed out time and again, you believe Countrwide's claims and denials at your own peril, but here is my other theory (rank speculation):
The New York Times
ran a good story yesterday by Gretchen Morgenson, one of the best, about Countrywide's involvement in a bankruptcy case. The bankruptcy case was not their own, it was a loan holder's, but I can't think that in this current environment, with the word "bankruptcy" associated with Countrywide in an article that also spoke about court records showing the company to have falsified documents... Well, rumors that have swept the market have been built on less.
Your thoughts? Please let me know. I always answer, though due to volume that can reach into the hundreds on topics like people losing their homes (or the coolness of the iPhone), I might take a bit to get back to you.
Cutting Through the Cuts
We been through the job cut spin before, but I want to show you a good example from Tuesday, when
announced more job cuts. Here's the reality with job cuts: They don't often save as much as the companies says they will.
It makes sense, right? Think of your favorite failing newspaper or financial institution. Buyout offers are offered to employees but not enough of the great unwashed bite. Who wants to retire at 51 with so much more to contribute to civilization by editing crossword puzzles and television listings and a package that'll keep you off cat food until 54? But when the new offer comes out to keep you off cat food until 55? Whoa, where are the moving boxes? Who can resist, right?
Problem is, from the companies' perspective, that extra-sweetened offer cost them more than they expected, which is a term we use loosely, so sure enough, they come out with an announcement that the jobs cuts will cost more and save less than they thought, another term we'll be loosey-goose about.
Unfortunately, the business media constantly plays along with unawares, confusing investors in the process.
Check out this example about Avon, a classic of the dark art form. Now Avon, the woman's beauty product company, has already said that it would lay people off and, now, that it will cost more than it first expected. But:
Here is the lead of an
story. Notice how even while acknowledging that the job cuts will cost more than originally expected, it is buying into an exact notion of future cost cuts without giving it a critical look:
"Avon Products Inc. on Tuesday said it will cut 2,400 jobs as part of its multiyear restructuring plan, which will cost more than originally expected and ultimately save the beauty-products maker $430 million annually."
After starting with a rumor you can't believe but can't dismiss, perhaps it's a comfort to end on a prediction you simply can't believe.
At the time of publication, Fuchs had no positions in any of the stocks mentioned in this column.
Marek Fuchs was a stockbroker for Shearson Lehman Brothers and a money manager before becoming a journalist who wrote The New York Times' "County Lines" column for six years. He also did back-up beat coverage of The New York Knicks for the paper's Sports section for two seasons and covered other professional and collegiate sports. He has contributed frequently to many of the Times' other sections, including National, Metro, Escapes, Style, Real Estate, Arts & Leisure, Travel, Money & Business, Circuits and the Op-Ed Page. For his "Business Press Maven? column on how business and finance are covered by the media, Fuchs was named best business journalist critic in the nation by the Talking Biz website at The University of North Carolina School of Journalism and Mass Communication. Fuchs is a frequent speaker on the business media, in venues ranging from National Public Radio to the annual conference of the Society of American Business Editors and Writers. Fuchs appreciates your feedback;
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