Don't Believe the Media Bull...

Contrary to what you may hear on TV and the financial channels (I like to refer to them as the “sensationalist talking heads”), American companies are NOT in as great of financial shape as we are led to believe. Federal Reserve data show that American company debt has been rising, not falling (note: this is debt of non-financial companies).

“But, companies are holding records amount of cash”, you’ll hear. Yes, it’s true – they are sitting on mounds of cash. But guess what? They borrowed out the wazoo to get that cash on hand! Total American company debt (again, debt of non-financial companies) is at a record $7 trillion. Depending on the sources you read, non-financial company debt translates to approximately 50% of GDP. That’s an incredible number folks.

So why are we being told in the media that companies are in great shape? A few thoughts:

1. “Record cash” is a great story. “Liabilities” are not. Just like the prophets of old telling of the disasters to come who were largely ignored for the favored false prophets telling of peace and prosperity ahead - such is the case with the media and the public when it comes to financial news. We want the hot sound bite: “piles of cash” and will ignore that pesky “liabilities” line on the balance sheet of the same company.
   
   
2. Bottom line, Wall Street needs your money to get paid. Think about it: if companies aren’t in good shape and have taken on more debt than normal (commonly referred to as “overleveraged”), they are a more risky investment. Risky investments tend to scare people away. For-commission brokers and firms peddling the products that hold those companies suddenly don’t have customers. No customers means “no pay.” They need you to “play.” Their livelihood depends on you investing. Seems a little convenient to me (for the for-commission crowd) to tell the rest of us a half-truth making us believe that companies are in great shape. Thus, we have a conflict of interest.
   
   
3. We’re nearing elections. A “strong America” is a great story. Optimism, not doom and gloom, inspires people. I fully expect to hear more about this from both sides of the aisle the closer we get to elections – in spite of the data that suggests otherwise.

So, my soapbox statement for today: consider the source when you hear ANYTHING from the media or financial channels about the economy and the strength of American companies. It’s highly likely there’s a huge hidden agenda. Personally, I don’t even watch the stuff anymore…unless I want a good laugh.