The Maven: The Tape Makes the News

Coverage of IBM's earnings shows old axioms never die -- they're just turned on their heads in this age of rapid-fire journalism.
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In addition to putting investor money at risk, this week's coverage of

IBM's

(IBM) - Get Report

earnings, which were flatter than "The Business Press Maven's" feet, proved once and for all that the old Wall Street maxim "the news makes the tape" is good and gone.

In this day and age? "The tape makes the news."

Here's how it works. The number that holds most importance to IBM's long-term prospects is its top line growth, aka revenue. (This is doubly true for its service division, the company's largest.) If the boys and girls from Armonk, N.Y., can't get most of the units in their behemoth growing (especially that big one), then no amount of cost-wringing will save the day in their

uber

-competitive environment. Shaking down retirees and watering down the coffee will go only so far.

Fast forward to Big Black and Blue's fourth-quarter report, in which the company fessed up to ... pretty crummy revenue growth. At first glance, revenue fell 12% -- an unmitigated disaster. But allowing for the sale of its personal computer business, revenue was "only" down in the low-single digits.

Note: Whenever there is even a simple accounting adjustment in an earnings report, you are wise to place a hand on your wallet and carefully go over the coverage, which generally written by liberal arts majors who would rather be on the culture desk.

Here, quite a few reporters were probably so relieved that revenues weren't killed (only maimed) that they went right to the bottom line -- which looked OK thanks to the sort of cost-cutting that can't last forever.

Moreover -- and here's why we have to stand that old maxim on its head -- in the very micro short-term space of a few after-market hours between the earnings release and reporter deadlines, traders did not initially react so badly to the results.

The end result?

We got headlines like: "Respectable Results at I.B.M. Win Approval From Investors" on

The New York Times

Web site, which nodded approvingly in its first sentence about how the cost-cutting was bearing fruit -- but not much about how fruit rots before too long.

Even articles that had a slight bead on the foreboding nature of the revenue picture and worked it higher up into the article were thrown by market reaction, placing the "Net Rise" before the "Revenue Falls" in the headline, separated by a semicolon -- as if the first would always be separate and safe from the second.

It is beyond human understanding to see how headline writers could ignore that most important long-term factor in IBM's growth or lack thereof. How did things go in that half-of-all-sales service division?

I'll give you a hint. This is what

The Business Press Maven's

headline would have been: "Big Blue's Biggest Sucked Eggs." Subhead: Revenues in only division that really matters down 4.9%. (Sub-sub headline: Put that in your cost-cutting pipe and smoke it.)

Actually, we all know what is going on here. Instead of putting on their knee-highs and wading into the numbers that they tend to be less comfortable with than subject-verb agreement, the reporters,

pressed by deadlines and their spouses to be home to tuck the little journalists in, pay more attention to initial market reaction than reality. As the news cycle continues, other journalists pick up on the tone of this early trader-determined coverage and it all becomes a constant self-approving cycle.

In sum, the tape makes the news.

Energized by the Possibilities

But all is not lost in the world of business journalism, merely misplaced. A touch belatedly, The Business Press Maven wants to call your attention to a Jan. 9 story in

The Wall Street Journal

by David Luhnow and Geraldo Samor, who gave some space and long-term thought to the future of the energy markets.

For several years now, The Business Press Maven has had his knickers in knots over how unilaterally fixated journalists have been on the

demand

side of developing countries like China and India and the oil markets. This makes some sense: it's been true in the short run and, anyhow, some of these same reporters were burned in the 1990s by focusing all too prematurely on how a resurgent Russia would flood the oil markets with

supply

.

Reality proved a touch more complicated, but Luhnow and Samor aren't talking oil supply here. They are talking about alternatives. Plenty of reporters take periodic looks around America for them, but a country with a government captured by the oil industry ain't going to make it easy to come up with a gas alternative, says this scribe.

But look at Brazil, say Luhnow and Samor. Ethanol made from sugar cane actually powers cars for less than gasoline. And India and China have been sending officials to run up expense accounts in Reno to learn all about it.

The Business Press Maven will end on that note, dreaming of a day when he can ferry the three little Mavens around on cheap sweets, and thankful that there are at least two journalists out there who will stick their necks out a bit. It's a nice change of pace from all those heads in the sand.

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 website 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.