"To be sure, Mr. Grubman was not the only analyst who was bullish on AT&T in 1999. This column quoted one in May 1999 who incorrectly projected a positive future for the company and its shareholders. What a bad call of mine that column was!"

Now why would Gretchen Morgenson go out of her way to confess having quoted an analyst being positive about AT&T? Why was doing that such a "bad call"? Simple -- just go to the New York Times online archives, pay your $2.50, and you'll see for yourself: the analyst who "projected a positive future for the company and its shareholders" was none other than Gretchen Morgenson herself.

The column in question was published on May 9, 1999. Titled "An Internet Play for Widows and Orphans," she quotes one analyst, Dave Powers of Edward Jones in St. Louis (who…? I don't know, either!). Powers gets 72 words in the column -- the other 489 were all Morgenson's.

Morgenson -- not Powers! -- says, celebrating the acquisition of several cable TV companies that have since had to be spun out, "The vision that [AT&T CEO] Mr. Armstrong, 60, has for his company is vast... In the meantime, AT&T, unlike technology upstarts, had $53 billion in revenues last year, $6.4 billion in earnings and -- what's this? -- a dividend. … his biggest act yet may be turning stodgy AT&T into a top-performing technology stock that even a conservative investor can love. The stock has risen almost 20 percent so far this year. But at 28 times trailing earnings, it is downright cheap for an Internet play."

Yep, "what a bad call," indeed. But the "bad call" was not quoting an analyst who turned out to be wrong -- it was Gretchen Morgenson herself being wrong, in a column that quoted an analyst almost incidentally, and in the manner of citing an authoritative source to lend credibility to a view that was clearly the property of the columnist herself.

In her column yesterday, Morgenson puts a price tag on Weill's request that Grubman reconsider his less-than-bullish stance on AT&T: "Mr. Weill's request of Mr. Grubman draws him into the circle of people that investors can consider at least partly responsible for losses they incurred by following the analyst's advice. Between his upgrade of AT&T when the stock was at $57.43, and his downgrade, at $28.88, some $80 billion in market value vanished." But when Grubman upgraded AT&T, all he did was adopt the same "bad call" that Morgenson herself had made months earlier, when the stock was higher. Morgenson's May 9, 1999 column was written when AT&T was trading at 60.44, within a couple points of its all-time highs. If Weill and Grubman are in for $80 billion, what does that put Gretch in for -- $100 billion?

And at least Grubman admits he made the upgrade -- in fact he subsequently retracted it. And at least Grubman never said that AT&T was "for Widows and Orphans." But Morgenson just says it was a "bad call" for her to have quoted an analyst.

Obviously, even if Morgenson were to take responsibility for her own "bad call," she'd defend herself by saying that at least she was completely honestly motivated, while Weill was after underwriting fees and Grubman was after help getting his kids into pre-school. In yesterday's column she writes, "The story so far: in early 1999 Mr. Weill asked Mr. Grubman, a man whose job it is to monitor by the minute what is happening at telecom companies, to "take a fresh look" at AT&T. Mr. Grubman, who had been negative on the stock, coincidentally upgraded it to a buy in November 1999. A few months later, Mr. Weill's firm helped AT& T sell shares in its wireless division to investors, reaping bountiful fees. And Mr. Grubman got help from Mr. Weill securing spots in a prestigious Manhattan nursery school for his twins."

For one thing, Morgenson is now ignoring her own reporting from August 24, when she cited facts showing that Salomon's underwriting business from AT&T was not actually affected one way or the other by Grubman's ratings: "the bank was not shut out of AT&T's deals. In February 1999, for instance, while Mr. Grubman was still lukewarm on the company, AT&T sold $8 billion in bonds, at the time the largest corporate debt offering in the United States. Salomon was one of that deal's lead underwriters along with Merrill Lynch. After Mr. Grubman became negative on AT&T in October 2000, AT&T included Salomon in a top role in five of its six subsequent major stock and debt sales."

But however nefarious Weill's and Grubman's motives may indeed have been, why should we think that Morgenson's are any less nefarious? Can she say she writes her column free of any taint of any purpose other than to convey the best investment advice to her readers? Well, she can say it (and undoubtedly would), but it wouldn't be any more true than when she said yesterday that she had made a "bad call" because she quoted an analyst.

The reality is that Morgenson's -- or any reporter's -- motives are as tainted as any analyst's. Morgenson is writing to sell newspapers. And she's writing to burnish her own reputation. She was undoubtedly serving both those tainted purposes in May, 1999, when she made her "bad call." At that point, with a bull market in technology stocks still going strong, she and her colleague Floyd Norris were both looking very, very wrong for their relentless bearishness and their nasty disdain for Internet stocks. Pitching AT&T as "An Internet Play for Widows and Orphans" was probably just what she thought her career needed at that point. It wasn't just the headline, either. Morgenson wrote, "C. Michael Armstrong… has morphed the 114-year-old behemoth into the kind of hot technology concern favored by day traders on the Internet. Widows and orphans, say hello to the Motley Fool."

Morgenson and Grubman aren't really so different... except in one critical way. Grubman just wrote about stocks. But Morgenson writes about stocks -- and Grubman -- and herself. Think of it this way: they're both tainted -- but Morgenson has so much more to be tainted about. And, in the end, so very much less accountability.

Posted by Donald L. Luskin at 2:27 AM | link