Report report report, Potash edition
If you want to hone your financial-media reading skills — if you want to be an active, critical reader of the financial press — then here’s an exercise for you: find an important study of some kind which has been reported in many different places. Read the study, and then read the different stories reporting on it. Then, ask yourself about the degree to which the reports accurately sum up the contents of the study. The result is what I like to call a report report report, and it’s a great way of keeping readers alert.
There’s a great example right now: the Canadian conference board’s report on the effects of a takeover of Potash Corp. It’s been widely covered, and a look at that coverage is if anything even more illuminating than the report itself.
The first thing that jumps out at you is that no one actually bothers to link to the report. (Very honorable exception: The Canadian Press.) The NYT does provide a link where it talks about “the Conference Board of Canada”, but hilariously the link leads to a page of NYT stories about the Conference Board of the US. It’s not that the link is exactly hard to find: it’s splashed across the top of the board’s home page. But for some reason the place where readers can find the report on the internet is not considered important information by anybody covering it.
But how’s the journalism itself? I think the Canadians have acquitted themselves best on this front. The Canadian Press report, out of Regina, does I think the best job of summarizing the study, as well as being the only place with a link to the study itself. Here’s how it begins:
A successful takeover of Saskatoon-based PotashCorp could slash the province’s revenues by at least $2 billion over the next decade while having little or no net effect on employment, according to a report commissioned by the province.
Rob Gillies of the AP in Toronto also produces a good straight-down-the-line summary:
BHP Billiton’s potential hostile takeover of Potash Corp. would have few negative effects on the province of Saskatchewan but could reduce the government’s revenues by at least $2 billion over the next 10 years, a Saskatchewan government-commissioned report released Monday said.
But the minute that you start looking at the foreign press, things start getting messy. The WSJ throws three reporters at the story, and manages to produce a lede which is simply wrong:
BHP Billiton Ltd.’s bid for Potash Corp. of Saskatchewan Inc. could be beneficial to the province, especially in the long term, while a potential offer for the fertilizer giant from a state-owned Chinese company would pose a bigger threat to the local economy, according to a report commissioned by the provincial government.
Well, the “bigger threat” bit is right — but the thing about bigger threats is that they tend to be compared to smaller threats. While the WSJ makes it sound like the BHP bid isn’t a threat at all, and in fact “could be beneficial to the province, especially in the long term”.
I have no idea where the WSJ finds that conclusion in the report: I certainly can’t find it. The word “beneficial” appears nowhere in the report, which explicitly comes with an end point of 2020, ten years away. Over the course of those ten years, the report finds that a takeover by BHP would reduce tax revenues by $2 billion; beyond those ten years, it can’t really say. It’s possible that BHP investment in something called the Jansen Lake project will pay off for the government in terms of new economic activity — but that won’t happen until 2026 at the earliest. That’s very long term. And there’s nothing at all in the report, that I can see, that stresses any long-term benefits of a BHP takeover over a non-takeover option. All of these bars point downwards:
I don’t know about you, but my reading of this chart says that tax revenues will decline over the short, medium, and long term if BHP buys Potash Corp. (That’s the blue bars.) And they could decline even further if BHP becomes desperate for revenue and starts running Potash at full production. (That’s the red bars.) BHP promises it wouldn’t do that, but as the Globe and Mail points out, promises from big foreign miners are often broken.
Yet somehow the WSJ concludes, in the words of its picture caption, that “a report found that BHP’s bid for the company could be beneficial for Saskatchewan”. Very odd. Yes, there are silver linings — a BHP takeover would prevent an even worse Chinese takeover, for instance, and being open to foreign takeover bids “would ensure that Saskatchewan’s turn in the spotlight encourages the sustained investment in the province that is vital to Saskatchewan’s long-term economic prosperity”. But there’s little if anything which says that the takeover itself would help the province.
I think that the problem here is that the financial press is looking at this as a deal story, and from that perspective the report makes a deal slightly more likely than it was before the report was released. Ergo, the report must be positive!
The Reuters story makes this connection very explicit, saying that the report favors a BHP deal over a Chinese deal, and highlighting the effect of the report’s release on the Potash share price. Meanwhile, Marketwatch comes up with the dreadful headline “BHP’s bid for Potash has ‘few negatives': study”. That headline clearly implies that it’s quoting the report on the “few negatives” front, but that phrase never appears in the report, and I have no idea where it came from.
It’s instructive to compare these finance-based stories with the much more downbeat NYT story, which leads with the potential revenue losses for Saskatchewan, and which I think does a better job of conveying the report’s substance.
Of course, very few people have the time or inclination to read the original study, let alone all the stories reporting on it. But once you start reading these things critically, red flags start appearing. The WSJ lede about the study’s upbeat conclusions, for instance, conspicuously fails to be backed up by any quotes from the report or even any paraphrase of what the long-term benefits of a takeover might be. That’s a giveaway, really. Journalists hate leaving opinions unsupported, and when you see an opinion unsupported like that, it’s often a sign that it’s unsupportable.
Which raises the question of what it’s doing in the paper at all. But that’s a bigger story, which has something to do, I think, with the constant pressure on journalists to “add value” in the form of analysis and conclusions. Sometimes, you won’t be surprised to hear, they’re not very good at that.