by Archie M. Richards, Jr.
August 21, 2006

Be careful about what you read in newspapers, especially on economic matters. I'm not referring to the newspaper you happen to be reading. In every way, this one is a superior member of America's journalistic community. I refer instead to a lot of the other papers.

One problem: When the government says it's being helpful, most editors believe it. This perpetuates difficulties. When you read about government solving big new domestic problems and raising tax rates to do it, the time has come, no matter what reporters and editors say, to take your money and run for the hills.

Another problem: Editors don't earn much money. When they learn about corporate executives taking home millions of dollars, class envy cannot help but arise in their hearts. It doesn't occur to them to learn about the dreadful Williams Act of 1968, which is a big factor in the outrageous executive incomes of today. (The Act made it difficult for good companies to acquire bad ones. The good ones are prevented from forcing the replacement of executives who do lousy jobs for their stockholders but still line their own pockets with gold.)

Thirdly, editors aren't in business to make money for you. They want to do good for the world, of course. But their primary focus is to make money for the paper. Who can blame them? All of us are out primarily for ourselves, just as it should be.

Here's the main reason why I bring all this up: On the very morning of this writing, my favorite newspaper carried the following headline: "Companies on a Borrowing Binge."

Scary, right? The headline brings up visions of foolish corporations accumulating huge debts they'll be unable pay. They'll go bankrupt, causing interest rates to rise and stock prices to plummet.

The headline captured my attention, I can tell you. But that's the whole purpose of headlines - to capture attention, attract readers, make money for the newspaper, and raise the editor's salary out of the basement.

But halfway through the article, the picture changes completely. It explains, correctly, that rising debt is a problem only if companies can't repay and corporations spend the money on projects that don't pay off.

"For now, there are few signs of those problems," it asserts.

In the first quarter of 2006, the article continues, corporate revenues and profits far outpaced the growth in debt. The debts of U.S. non-financial companies as a percentage of the nation's gross domestic product are close to the lows of the last five years. Although corporate debt is rising this year (I continue to paraphrase), corporate cash has doubled in the past decade and the level of corporate debt is historically low.

Kind of a different picture from the headline, isn't it? The headline attracted attention, all right, but the impression it gives is opposite to the essence of the article.

The truth is, corporations have relatively little debt and are loaded with cash. (This is me talking now, not the article.) They're increasing their debt this year, as indeed they should, because they're gearing up for the next round of high production and growth. Stock prices are not going down; they're going to soar.

Most financial news is unlikely to help your investment results. (Well, you might keep an eye out for this column.) Financial info we're often concerned about - deficits, the dollar's price against other currencies, oil prices, gold prices, corporate earnings - none of these things have any predictive value regarding the future of stock prices. By the time that kind of financial info appears in the paper, it's old hat for stocks. Stock prices are looking ahead to discount information that no one, not even the editors, yet know about.

But if you insist on reading the financial pages and come across an arresting headline, read the entire article. You may come upon a nugget that's truly revealing.