It is a timeless lesson: Headlines, though showy and attention-grabbing, have all the complexity of bathroom cologne or a frankfurter roast. The problem, of course, is that the underlying reality captured in the article might be somewhat more complex and nuanced than 50-cent perfume or dogs-on-a-stick, especially when it comes to the economy -- which has moving parts upon its moving parts.
But the headline, which portrays the issue in a broad -- sometimes smelly and cloying -- way, can't help but mislead.
What does that mean for you, the investor?
Well, if you are like The Business Press Maven (and, really, who doesn't want to be?), you get a lot of your information through headlines. This was true even in the dark ages, when people got all their news from newspapers. But at least there the articles were laying right beneath the headlines. More readers than not could be tempted, almost by default, to read the body of an article, as all the eye had to do was slip down a bit.
Today, with people younger than 140 getting the majority of their news online, frequently the headline is all that's there. Reading the bulk of the article requires the additional effort of clicking, making the headline even more powerful and ever more likely to move stocks and markets.
With its natural tendency toward oversimplification and misrepresentation, this spells more danger for investors. Or opportunity, for investors who can recognize when a market or stock has overreacted to an errant headline. Take a recent
headline that got a lot of play ... puh-lease. "
Fed's Yellen says economic downturn possible," yelled
The headline is at once declarative and incredibly weak. San Francisco
President Janet Yellen said this weekend that a recession was possible. But, of course, anything is possible -- and possible is a long way from probable.
But The Business Press Maven, who is anything but subtle, is not here to parse words. Besides, we just went through the whole possible/probable debate, thanks to Alan Greenspan's rantings and recantations. I'm looking at the big and undeniable spread between what Yellen said and what
yelled in the headline.
Yellen did say that there was "potential" for a downturn, which
put near the top of the article right next to the -- oy, there they go again -- contention that the economy grew at a 1.3% rate in the first quarter, without mentioning the fact that this number is due to be revised twice and that, in the past, these frequent revisions have raised this first estimate by a factor of 50%.
But I digress.
Here is Yellen's main point, far beneath the alarmist headlines, the tush-covering mention of that "potential" for a downturn (duh!) and that deceitfully incomplete GDP number:
"I do think there are downside risks to the American economic growth, but in spite of those risks, I really think it is quite likely that the U.S. economy is going to pick up steam and revert back to trend growth before 2007 comes to an end," Yellen said.
Got that? She acknowledges downside risk -- any Fed president, with slowed growth (even allowing for a decent revision) and spotty signs of inflation, should be acknowledging this -- at the very least, paying lip service to it.
But she was saying that growth will rise into the year. Which means (even assuming no revision) no economic downturn. Because even if we stay stuck at 1.3% and go up from there as the year goes on, well, that ain't two straight quarters of negative growth, the requirement for an official recession. Dang, dawg, that ain't even one.
But that headline! It said ... aw, forget it. But again: The problem is that totally misleading headlines like this one have intensified as news delivery has migrated online.
As a result, savvy investors must never make a decision -- or even base a thought -- on a headline, no matter how tempting.
Speaking of temptation, don't you want to give in to the thought that the housing market in upscale areas like Manhattan, Los Angeles and San Francisco might skirt any semblance of the downturn? The Business Press Maven lives in a town where the only people who buy are those moving out of New York City. As long as they are buying with monopoly money, our prices will hold pretty well. But when New York City goes, this three-floor beauty I knock around in is toast. As in: burnt.
That is why it is tempting to trust this headline as giving a full picture: "
Wealthy Housing Markets Shrug Off Subprime Woes."
Unlike the previous headline, this one is not -- technically -- wrong. For now, these big-money, big-city markets have shrugged off the troubles, though some of the froth has come off the markets, to be sure. But read the body of the article. It mentions the high-wage workers that live in these areas, the Wall Street bonuses and all that good stuff.
But the weak dollar is not mentioned. Foreigners, of course, have been buying up real estate in these cosmopolitan, international cities at bargain-basement prices, a function of the weak dollar. A firming of the dollar can lead to a weakening of prices in these rarified areas, the sort of common-sense complexity not captured in the headline.
At the time of publication, Fuchs had no positions in any of the stocks mentioned in this column.
A journalist with a background on Wall Street, Marek Fuchs has written the County Lines column for The New York Times for the past five years. He also contributes regular breaking news and feature stories to many of the paper's other sections, including Metro, National and Sports. Fuchs was the editor-in-chief of Fertilemind.net, a financial Web site twice named "Best of the Web" by Forbes Magazine. He was also a stockbroker with Shearson Lehman Brothers in Manhattan and a money manager. He is currently writing a chapter for a book coming out in early 2007 on a really embarrassing subject. He lives in a loud house with three children. Fuchs appreciates your feedback;
to send him an email.