Donald G.M. Coxe's investment strategy precepts include what he calls the "rule of page 16."
As he explained in a teleconference with clients in late August, that rule states: "You neither make nor lose serious money by the outcome of a story on page one. You make or lose serious money from the outcome of a story that's now on page 16 but is headed for page one."
Mr. Coxe, chairman and chief strategist at Harris Investment Management Inc., Chicago, believes a page 16 story nowadays concerns the corporate earnings boost companies such as Boeing Co., Chicago, have received from their pension fund contributions.
"These earnings are totally fictitious," he said in an interview.
Companies boost their earnings through financial accounting rules that let them use an assumed rate of return for the pension contribution. "Respectable companies are doing it," Mr. Coxe said, and as a result, "the earnings of corporate America are being overstated.
"The real financial viability of pension funds comes from what they actually earn on their investments," not an assumed rate. "Pension funds are getting into worse shape at the same time companies are reporting an increase in earnings from their pension funds," an increased based on assumptions, not reality.
For other news with potential ramifications, please turn to page 16.