A story reported in the New York Times recently talked about the failure of Integrity Bank of Alpharetta, Georgia. The Times reported that integrity Bank was the 10th US Bank to fail so far in 2008.
And buried a little further in the story is the fact that another bank — Regions Bank — is assuming all of the insured — and uninsured — deposits held at Integrity Bank. Typically, when a bank failure is involved, the FDIC will step in and “broker a deal” between the failed bank and another bank willing to step into the fray. The surviving Bank is under no obligation to assume any uninsured deposits. So this is a very nice deal for the depositors of integrity Bank, in my opinion.
As a reminder, are you holding deposits at one particular bank that may exceed $100,000? Why would you do such a foolish thing?
Integrity Bank closed Friday afternoon at 3 p.m., as usual and will open on Tuesday (because of the Bank holiday Monday) at 9 a.m. as Regions Bank branches. For many Bank customers, they will hardly notice the difference.
This is not a story. But it grabbed the headlines in the New York Times.
What kills me though, is the last line of the article in the Times: the number of bank failures has shot up this year amid continuing mortgage defaults. Way to stir the pot! In the typical media scaring everyone routine, the writer carefully crafts a closing line that will most likely get picked up on the news report elsewhere…which will further stir the pot.
Let’s put this in perspective. In the recession of the early 1990s, hundreds of banks failed. Hundreds! And, although the book is not completely written yet on this economic phase, it’s important to point out — to stress — Integrity Bank is just the 10th bank failure this year.
In the last few days, much has been written about the executives at Fannie Mae losing their jobs. Why is this news? Most companies would replace chief executives for continuing poor performance.
Years ago, I used to work with a manager who would always lament, “there are far too many retail brokers in this town. Something has to give — either this town doubles in size or we lose half of the brokers.”
You could apply the same thinking to the media: there are far too many reporters milling around with nothing to talk about. So they try to make stories where there aren’t any.
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Tearing Apart the Headlines
by Thomas Mullooly on March 7, 2009
Did you know General Electric (GE) posted record revenues last quarter? That has not really helped their stock, has it? Remember always, price is the ultimate indicator, which is why I rely more and more on charts. Fundamental analysts and company management can pontificate all day long about market share, earnings and revenues. If the market doesn’t like it, the stock is going down.
I don’t think I’ll ever get tired of reminding people that the job of the media is to sell advertising. The fact that you get informed — or get information — is a side benefit.
I’m not saying the media dispenses incorrect information. What I’m saying is they tend to focus on some really dumb things, and then pound it over and over and over. Just keep reminding yourself: their job is not to hang around and “fill you in” on the news of the day. The media is there to sell ads. So their teasers and headlines will often be filled more with drama than facts.
And often, the drama persuades you into doing precisely the WRONG thing. My friend, Tom Dorsey has often said “Remember everything that is written or said in the media about Wall Street is made to make you do the wrong thing.”
Example of “News” headlines:
One of the headlines on CBS MarketWatch is Freedom Bank (Georgia) is the 17th bank failure in 2009. OK, look, in the previous recession, there were over 700 bank failures. Some will be spectacular. If we have less than 700 bank failures during this recession, now THAT will be news.
Here’s another:
General Motors shares trade near Great Depression territory. Face it, the stock trades for about a dollar, it’s not coming back. Sure, it might get to two dollars. But will this ever be a $30 stock again? I don’t think so, under its present structure. Now if they were to file bankruptcy, wipe out the common stock and reorganize (where the debt/bondholders become the new stockholders), anything is possible… see Kmart.
I am far more interested in learning what will happen to General Motors and the bondholders in a bankruptcy proceeding. The government has poured $13 billion into General Motors in the last few months, and company management is back at the trough asking for another $17 billion. Amazingly, the market capitalization of General Motors is less than $1 billion ($900 million currently — one third the size of Burger King). Where did all that money go?
And another:
This past week, the financial media focused on how the banks were killing the Dow Jones Industrial Average. This is total nonsense. Citibank trades for $1 per share, Bank of America trades for $3 per share. If these two companies filed for bankruptcy tomorrow (or were nationalized — essentially, the same thing), this would move the Dow Jones Industrial Average a total of 50 points. I wonder how long it will take Dow Jones to remove Citibank, Bank of America, General Motors and General Electric from the Dow Jones Industrial Average.
Another favorite topic:
Unemployment rate reaches 8.1%. Okay, lots of room for debate on this topic. Historically, the average unemployment rate hovers around 5%. Did you know, for the past 15 years, the economy has averaged an unemployment rate between 3% and 4%? This is actually a pretty spectacular news item, but no one was writing headlines about that. During economic recessions, the unemployment rate often reaches 10%. So be prepared for that, and don’t be surprised when that news arrives. In fact, there have been several times where the unemployment rate surges in the latter stages of a recession — and the first phase of recovery. You read that right — many times the unemployment rate will rise, as the economy is improving.
And lastly:
GDP numbers. The stock market fell out of bed last week when it was announced that fourth-quarter GDP came in at -6.2%. First of all, this should not be a shock to anyone. Secondly, the media never really puts it in its proper perspective. So let’s look at this number. It measures growth (or shrinkage) of the economy in the fourth quarter 2008. The quarter ended December 31, 2008.
The original estimate was released January 31, the preliminary number was released February 27, the final revised GDP for fourth-quarter 2008 will be released at the end of March. The final revision may be a completely different number — for better or worse. But by the time we get it, that information is petrified like a redwood. Irrelevant.
By the way, at the end of April we will receive the original estimate for first-quarter 2009 GDP. What do you think THAT number will be? I expect it will be absolutely dreadful. And the media will go crazy. Be prepared.
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