Economic News Biased by Relentlessly Rosy Glasses
Today is one of those days where I read conflicting headlines and reporting on the economy that are so rosy they make my eyes red. The writers of economic news must be guided by some angel of relentless sunshine. They almost gag themselves, trying to swallow bitter pills while smiling.
Examples of news bias in economic reports about Bank of America
In fact, this whole week has been full of examples of biased economic news articles. I’m thinking people are trying desperately to put a good face on the bad events of this week that threaten their hopes, which were gently nursed by the first three months of the quarter. I’m going to start revealing some of this with today’s reporting about Bank of America and J.P. Morgan Chase.
The San Francisco Chronicle, where B of A has its major west-coast office building, reports, “Bank of America Beats Analyst Estimates as Trading Rebounds.” You will agree, I am sure, that is an entirely positive headline. You’d never guess there was any bad news underneath a headline like that. Then the article opens with the following lead statement — also smelling like a field of roses:
Bank of America Corp., the second- largest U.S. lender, posted a first-quarter profit that was more than most analysts predicted amid a rebound in trading and better credit quality. Profit, excluding certain one-time items increased about 40 percent.
I found I had to rewrite headlines today to bring out the true economic news that was buried deeper in stories that present such lovely images. The real economic news for Bank of America was that its profits, once you factor back in those “certain one-time items,” which are anything BUT one-time items, is that BofA’s profit plunged by 68%! Analysts had anticipated it would drop further, I presume because of legal costs in the now-settled mortgage foreclosure fraud case and, perhaps, settlement costs.
Here’s another article on Bank of America from the BBC. Obviously, a London news agency might be little less biased in favor of Bank of America than the San Francisco Chronicle. It leads off…
Bank of America has reported a fall in first-quarter net income to $653m … after making $2bn a year ago. The fall was caused by accounting charges related to its debt.
Rival bank Morgan Stanley also fared less well in its first quarter, because of an accounting charge of $2bn leaving it with a loss of $119m, compared with a profit of $736m a year ago.
That’s a starkly different slant in the choice of words and focus, and a very different choice for where to lead into the story. The accounting charges are not diminished as “one-time items.”
BofA and J.P. Morgan Chase both were top defendants in the mortgage foreclosure fraud case and are both liable for billions of dollars in payouts. Many of the settlement costs will be upcoming events, but the bank surely has made some adjustments in its accrual-based accounting to accord for the liabilities the settlements will bring. Accrual, however, often leaves room for judgment calls on when certain liabilities should be factored into the accounting, and you can be sure BofA and J.P. may have more to account for in the future.
At any rate, neither the settlement nor the legal fees are a one-time cost by any means. Bank of America and J.P. Morgan Chase both face hundreds of thousands, if not millions, of civil law suits over their foreclosure fraud now that they have settled with the attorneys general of this nation. So, while legal costs of one particular settlement can truthfully be called “one-time” costs, they will certainly not be one-time phenomena in this situation. Numerous similar cases will probably be grouped as a class-action civil case, and then there will be individual cases that refuse to join the class action. Meanwhile the attorneys general are deep into another set of charges to be brought against the banks. So one should not one-off these legal fees and settlements as an anomaly. Higher legal fees and settlements will be the banks’ reality for, at least, a couple of years to come.
The Chronicle does mention that overall profits were down 68%, but it downplays this fact to repeat that, after factoring out these mere accounting adjustments, the company’s profit more than doubled. Never mind they are profit adjustments that will come again and again under a barrage of law suits. The article then moves on to focus almost entirely on the divisions of the bank that were profitable and says nothing about the foreclosure fraud and its costs in the first quarter. That case was the single-biggest event for BofA last year and was settled in the first quarter that is being reported this year, yet the article in The Chronicle says nothing about it, except in this shrouded language of “one-time accounting adjustments.”
To be sure, the bank has seen some positives, but the more distant BBC account is the more truthful economic news. I suspect there are a lot of business people in San Francisco (where BofA’s west-coast headquarters and its original bank are) who do business with BofA, have investments in BofA, and who sip martinis with reporters at The Chronicle. Otherwise, it’s hard to imagine there would not be some clearer statement about first-quarter costs of the international spectacle of foreclosure fraud. I kept rubbing my eyes to try to find where it was buried and must guess it is buried in those “accounting adjustments.” If NOT, then it is a lot of bad news waiting to come down the pike in future accounting statements.
That rosy headline should have told me before I even read the article that my eyes would be seeing red, not just from looking through the rose lenses, but from straining to find the greater truth. Of course, because J.P. Morgan Chase is not an S.F.-based company, the news about that bank is not even in the article. San Francisco business people and business reporters are all excited about Bank-of-The-Red-White-and-Blue on California Street.
Naturally, this frothy reporting caused the stock to initially bubble upward today. At the time of my writing, that is where it still stands. We’ll see if there are any smarter east-coast investors later in the day who can see through the froth. That doesn’t seem likely, though. Bloomberg’s headline for the story is “Bank of America Beats Analyst Estimates as Trading Rebounds.” Maybe they get their news feed from The Chronicle.
Sifting to find the real economic news about real estate
The next Bloomberg article I have for you starts off with a more truthful title: “U.S. Previously Owned Home Sales Unexpectedly Fell in March.” From there on, however, it dissolves into another pond of froth. Take for example its lead sentence:
Sales of previously owned U.S. homes in March unexpectedly fell for the third time in the last four months, showing an uneven recovery in the housing market.
“Uneven recovery?” A couple of months of mixed bad and good news is an uneven recovery? Why does this reporter so desperately want to hold on to the word “recovery” when the real economic news is that three out of four months have been bad? Obviously, we’ll have to do the real brainwork ourselves in order to sift this out to see what kind of a economic “recovery” she has in mind.
The first thing we learn is that “The median forecast of economists in a Bloomberg News survey called for an increase” in home sales. Is that any surprise? Bloomberg does some good reporting, but it’s hardly surprising to find that even their economists were thinking the housing market was on the mend and that news would be better. Isn’t that the kind of glory-hallelujah all economists have been singing? I, on the other hand, have been saying all year that housing is going to go down some more.
Next the article says,
Residential real estate remains the economy’s soft spot, challenged by stricter lending standards, lower home values and the threat of more foreclosures.
That part’s all true, but is this the basis for calling it an uneven recovery? Guess we’ll have to scratch further to find the real economic news:
An improved labor market and mortgage rates near historic lows have yet to stoke bigger gains in demand.
Hmm. That’s not it either. First, one could argue that, if labor were improved and housing went down, then housing is clearly dead. Second, the truthful economic news is that the labor market is getting worse, not better. So, this statement is wrong, and the real truth provides part of the basis for why housing is not getting better. Bloomberg seems to be holding on to the old euphoria of the first three months where the job market looked marginally better while economists like theirs were almost ecstatic about labor’s recovery. Today’s unbiased news in another source, however, is coming to grips with the cold, hard facts:
The American labor market showed further signs of weakening as the number of workers filing jobless claims went back up to their highest level in nearly three months. (“Jobless Claims Data Remains Weak“)
Now, if you’ve been following The Great Recession Blog, you’ve known all along that the labor market has been nothing to crow about all year. You’ve been cautioned all along not to think labor is in any kind of real recovery. Yet, Bloomberg’s reporter seems a little surprised that “an improved labor market” has not boosted the housing market, as if they actually believed the labor market was improving. Well, let’s read on to see where she gets her “uneven recovery” because there is no support for it in that last statement.
“The large number of distressed properties combined with a substantial shadow inventory of unsold homes has kept downward pressure on home prices, although they may be stabilizing at a low level.”
Hmm. That’s not it either. I keep reading to try to find those signs of recovery she talks about, but the unbiased economic news looks all bad when you take the rose-colored recovery glasses off. The news on foreclosures, as I’ve said all year is that a huge flood is about to come as a result of the foreclosure fraud settlement. So the downward pressure just noted is going to continue. That certainly is no foundation for assuming the housing market is in recovery!
Even with the March decline, sales averaged 4.57 million homes in the first quarter, the strongest since the second quarter of 2010.
Immediately, I’m having a hard time with the math. The March decline leaves the first January-March quarter of 2012 the strongest since the second quarter of 2010, yet “three of the last four months” fell, according to what she reported in the beginning. There must have been one very, very good month in there because three-out-four falling means two of those three months had to be declining months, as there was only one possible good month in the last four.
Oh, let’s see, February was good. And why was it good? Mortgage interest rates hit the lowest benchmark they had seen in my lifetime (more than fifty years), a crucial fact that sailed right over the reporter’s head when she mentioned it earlier. Well, an anomaly like that in interest rates is bound to spike an anomaly in home sales, isn’t it? I wrote just yesterday that home sales in February would prove to be an unsustainable event as soon as interest rates picked themselves up off the floor:
Moreover, I turn my glass eye (the one that does not choose to see based on what it wants to see…) over to the books from the period just reported and note that new home construction jumped up when interest rates hit their lowest point since the Great Depression. A mere 5% hike … when interest rates across all sectors of housing finance roughly match an all-time record low is not very meaningful. That bump will only last as long as the deep bottom on these interest rates. (“More 2012 Economic Predictions“)
Now, today, here is the news already that that is exactly what happened.
So, this is an “uneven recovery” when three out of four months are bad, and the ONLY reason one month in the three was good was because of a record-breaking drop in interest rates! As soon as the interest rates went back up, the housing purchases went right back down like they had done the month before. The trend, in other words, is down; the up is an anomaly where the only reason this last quarter’s sales were better than 2010 was that once-in-a-lifetime plunge in interest rates. Some recovery.
You see, you have to read the news for the news reporters, even as they report it, in order to find out what the unbiased news is. They’re scarcely paying attention to the numbers that flow out of their pens. You have to take off your pink glasses and screw in your glass eyeball because a dead glass eye will see better than most of these economic reporters.
This is why I started writing The Great Recession Blog last year. I constantly saw the press parroting terms like “recovery” or “end of the recession” that the government was using as if they accepted those terms as fact. I saw it so much, I said, “Someone has to start cutting through all the knots to free up the truth.”
This is like George Orwell’s 1984 where language gets reinvented to make sure the political/economic news sounds as positive as possible. These people have forgotten how to think for themselves. There is no housing market recovery, not even an uneven one. There is a falling housing market that is still falling, which experienced a blip in February. That makes it an uneven decline, not an uneven recovery!
The reporter goes on to write the following summary of other matters,
Mortgage revenue helped Wells Fargo & Co. (WFC) and JPMorgan Chase & Co. (JPM), the two most-profitable banks last year, top first- quarter estimates, the companies reported this month.
She must be smoking the same stuff they’re smoking over at The Chronicle because she’s certainly blowing out the same smoke. We’ve already dealt with that, so let’s move on to other reporting today and see what the nation’s best economists know:
Wherever the news reporters are not biased, the economists are
“Despite relatively weak data on jobs, home building and output in the past month or two, the indicators signal continued economic momentum. We expect a gradual improvement in growth past the summer months,” said Ken Goldstein an economist at the Conference Board. (CNBC)
O.K. Well, you keep trumpeting that horn, in spite of the data then, Goldstein. Stay with the losing ground, or get your indicators fixed. The job data and housing data are now going where I’ve been saying the economy is going throughout the first quarter. I’m sure other data will begin to fall in line, too. So, I’ll stand my ground that there is not going to be gradual economic improvement either before or after the summer months.
Oh, gee, it’s already coming in. Right after reading the above quote and rushing to write it down here, I see in the same article… (You see, you can find this fluff as fast as you can read.)
A separate survey released on Thursday showed that the pace of factory activity in the U.S. mid-Atlantic region waned in April for the first time in five months as new orders fell to their lowest since September.
I’ll bet Goldstein was counting still on the earlier factory data that showed sales of durable goods going up during the first quarter. It’s up; it’s down. That’s our so-called “recovery.” What can you expect from a recession that officially ended in June 2009 even though nearly all of its symptoms continue through to today. The patient was pronounced well long ago when his heart wasn’t beating, just because his arm went up in rigor mortis.
The Philadelphia Federal Reserve Bank said its business activity index fell to 8.5 from 12.5 in March, worse than economists’ expectations for a modest decline to 12.0, according to a Reuters poll. It was the lowest level since January.
A LOT worse, I’d say. (A 25% drop in one month!) Readers of The Great Recession Blog, however, will not be surprised to find that economists were drifting around in the ether, not supported by the underlying economic news. The problem in discerning the truth about the real economy is not just news bias; it’s economist bias. They do too much by math and not enough by economic principles and tend to follow the pack where they feel safe. They also believe too much in the language the government has created, such as the claim for end of the Great Recession based on GDP alone. Furthermore, I suspect they are nearly all bulls at heart, having grown up feeding on fescue in the meadows of the bull-market years. They need to tap their old indicators with their fingers because the gauges are a little sticky.
Notice, too, the information provided today is that this was the lowest reading on factory production since January. Wasn’t I just saying all of this yesterday, just before the news came out today:
If you follow the pack from Tuesday’s market, you’re following the blind masses because they’re listening to the same experts who never saw this recession coming! As I’ve said before, the market is only a gauge of where people think other people are going to put their money from one day to the next … lemmings speculating on the behavior of all the other lemmings.
…I predicted to friends last spring, prior to starting this blog, that all of the euphoria back then over “economic recovery,” as if it was happening, was froth that would settle by late spring and turn into a miry swamp by the end of summer. It certainly did, and I’m predicting the same thing this year. (“More 2012 Economic Predictions“)
I had to rush to get that article of my predictions finished because I was afraid the real facts of the economy would start to trickle in even before the predictions were posted. Things are now moving so fast in the direction I’ve been predicting all year that, if I don’t get my predictions out right away, they almost look like hindsight! This falling apart feels more accelerated than the economy’s disintegration last year.
The bulls seem to lead each year with a few months of tepidly good news in the first quarter, but then economic reality settles in again. If the reporters and experts in San Francisco look toward the Golden Gate, they’ll see the fog is rolling in on their sunny day, and it’s rolling in quickly.
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