Maven: No News Flash in Small-Cap Strength

Also, Black Friday analysis continues to ignore the bottom line.
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Life is not easy as the self-appointed, highly self-regarded watchdog of the world's business media. It is my burden, for example, to have to read The Wall Street Journal early every morning so that investors like you won't be misled by what it overlooks and leaves out.

Today it's a number of things, but let's just start with the Market Movers column, entitled "Big Upset: Small Stocks' Gains Defy Experts." Stylistically, The Business Press Maven can make easy work of the groaning lead: "Until the new 'Rocky' movie debuts next month, anyone interested in a story about little guys making a comeback can take a look at the U.S. stock market."

But it ain't style I'm interested in.

The thesis of the article is how wacky it is that small stocks have done so well, considering the conventional wisdom on Wall Street that big names are the best place to be as the economy slows. Nevermind that conventional wisdom on Wall Street is almost always wrong so it isn't so wacky, but the

Journal

then rounds up some reasons for the strength in small stocks, from slipping oil prices to merger activity and lower interest rates, all factors that, well, don't help small stocks any more than they help big ones.

And the

Journal

earns The Business Press Maven's vitriol by leaving out the biggest specific reason for the strength in small stocks lately: It appears as if Sarb-Ox -- which, as we know it, imposes an especially weighty burden of costs to smaller companies -- will be revised.

This is giving investors increasing confidence that smaller companies will not have their profits eaten alive by accounting and auditing costs that bigger companies can absorb a little better than smaller ones. Make no mistake about the import of all this.

After all, don't forget that two pretty bright bulbs in the business world -- The Business Press Maven, plus this guy named Warren Buffett in charge of this outfit called

Berkshire Hathaway

-- are on record saying that Sarbanes-Oxley is the

biggest impediment to profits in the world today.

The rules, which came about after the Enron and WorldCom scandals, are good ones in essence. But they are layered too thick, especially for smaller companies. Washington has given every indication that it realizes this and the rules appear as if they are going to be made a notch saner. That has helped small stocks more than any factor that would also help big.

While we are on the subjects of profit, please hold The Business Press Maven's guiding hand for a moment here so he can walk you through the confusion of post Black Friday coverage. Not only is it confused, but the only factor that really matters -- profitability -- barely gets a mention.

Any investor who ever chases after the reporting of top line numbers without considering what role discounts played and what, if anything, will fall to the bottom line leaves their flank exposed, big time. That's why even before we start sorting this out, The Business Press Maven is in ill sorts.

First, the overexcited headlines: "Black Friday Turned Green at the Malls Before Dawn," yells

The New York Times

, leading with: "The clock struck midnight. Then the mall struck back."

The

New York Post

hyperventilates even further: "Big Spenders Lift Retailers To Blowout Sales."

The Associated Press is more understated, but the takeaway is the same: We're in the money. "Retailers hope pace of sales continues."

Talk abounds about sales numbers, traffic, early openings and even -- approvingly -- the discounts that drove much of the traffic and sales. Which is where The Business Press Maven -- who, as you know, believes we are going to have a

good though not spectacular holiday season -- urges a note of caution.

Sales numbers don't matter in the end unless the sales are profitable. Those discounts can eat into profits pretty quickly, as can those longer hours, with workers paid double time. Let's think in terms of store profits, not sales, as the business media does.

Look how much different this

good effort from

Reuters

reporter Chelsea Emery is. It is titled: "Beware: Heavy store traffic doesn't mean huge sales."

The spot-on lead gets right at this issue of discounting, acknowledging, for good measure, what is not known:

"Consumers packed malls and store parking lots over the U.S. Thanksgiving holiday weekend, leading many to expect this year's holiday sales figures to blow away expectations and lift retail stocks. But early anecdotal data suggest heavy discounting drove demand. If that's true, sales gains could be less than last year and retail stocks could tread water for the remainder of the year."

Profits over sales! Who'da thunk we'd have to rejoice when we read that, but, considering, I'm glad to. Even acknowledged here is what is most often glossed over with this send-reporters-out-to-the-mall convention of spotting fights on line and weaving it into stories about robust demand: We're talking anecdotal evidence here.

For all that, I'm declaring this a Chelsea morning.

(As an aside, while we are on the subject of songs, can

ones like this about the Bank of America/MBNA merger be the reason so many mergers fail?)

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.