Money Sage (archive)

In the current financial imbroglio, the media are gorging on their own tripe, in our view. We find the sight disgusting. We have always believed in a very generous interpretation of the constitutional mandate of freedom of the press. Lately, however, we have been having our doubts. The liberty of free expression in print (and on the airwaves) is being corrupted into something else: LICENSE. This license is driven by the pecuniary self-interest of the media. Nor is the media making full, partial, or even minimal disclosure of how the hysteria it generates subserves its financial self-interest. For the reader of the financial press, it is crystal clear that the term "journalistic ethics" is a contradiction in terms.

What passes for "reporting" on the current global market downturn is heavily colored by adjectives and nouns which are deliberately employed because they fan the flames of fear. Fear, as we have said repeatedly, sells newspapers (or TV viewership, as the case may be). The sham of current financial reportage has several hallmarks:
--overuse of highly colored and highly misleading verbiage;
--overstatement piled upon overstatement, and misstatement piled upon misstatement;
--ignorance of basic economic and financial truths concealed behind a torrent of meaningless snippets of misinformation, verging upon disinformation;
--a hodgepodge of random quotes;
--a near-total absence of placing current developments in any sort of historical framework, which would provide a sense of perspective so woefully lacking in financial reporting and the pathetic excuse for what passes as "analysis".

As always, basing decisions upon stuff strutted by the media carries a virtual guarantee of financial hara-kiri.

To put matters in some perspective, we offer the following observations:
--The sell-off in the US equity market is still very modest in comparison to bear markets we have experienced over the past century, and particularly over the past several decades;
--Foreign markets have risen, in the case of certain Asian markets, by astronomical amounts; a 30, 40, 50, 60% decline in some of these markets would still leave prices a MULTIPLE of what they were 10 or even 5 years ago: such a retracement would hardly constitute a calamitous collapse;
--The economy, while faced with a serious problem in the financial sector, aggravated by an inept Federal Reserve, remains very vital; a mild, or even severe recession will hardly send us back of the stone age. The business cycle is a central and ineradicable feature of a market economy. Now we are in the down cycle. To which we say: big deal. The problem, we think, is that we have been spoiled by the unnatural mildness of recessions and slowdowns since the 1981-1982 recession, and now we are overreacting to what thus far has been a slowdown, but not even a downturn as of yet.

The essential problem is NOT that we may be in a bear market, that European and Asian markets are in bear markets, that economies are weakening, perhaps some moving into actual contractions. The problem, as we have noted repeatedly, is the DEBT OVERHANG of the HOUSEHOLD SECTOR. Despite the infinity of alarums, the government has actually managed its debt issue quite nicely, without having to take drastic measures. The corporate sector has done even better: it has not merely managed its debt overhang, but has significantly reduced it, refinanced it at lower rates, and used debt to enhance its productive and profit-making capability.

For the household sector, while a few of the chickens may be coming home to roost, we doubt that the debt bubble will, in fact, be punctured. Even if it is, the government will have recourse to its second-most valuable asset: YE OLDE PRINTING PRESS.

Yes, there is a real crisis in the banking system. Yes, it has POTENTIALLY severe implications. Although the FED is not too swift, it is not completely retarded. The central bank has, after all, PLACED THE BANKING SYSTEM ON LIFE SUPPORT. The central bank will supply at least the minimally necessary liquidity to prevent a breakdown. Its seeming timidity and incoherence actually reflects a wish to AVOID HAVING TO ACT. THIS IS NOT THE SAME THING AS AN INABILITY TO ACT, OR A LACK OF NECESSARY KNOWLEDGE AND IMPLEMENTS. The FED and the U.S. government will do what is necessary. They have before their eyes the example of contemporary Japan, and they have the historical memory of our very own GREAT DEPRESSION. It will not recur.

As for the media, and those who feed it stories and ideas (it being completely incapable of thinking, analyzing, or creating anything of its own), it is useful to recall what mediaspeak was like a mere 6 months ago. All we heard, endlessly drummed into our ears and eyes was: ECONOMY TOO STRONG. INFLATION, INFLATION, INFLATION. Was this sound FOREWARD GUIDANCE, or was it merely the media's specialty: harping on history and projecting the past into the future. And now: same deal.

Some months ago we said in several posts that real estate stocks, bank stocks, consumer stocks were: RAT POISON. Today we say: DITTO THE MEDIA. For the most part they are traffickers in fear, ignorance, and hysteria. Their prognostications are INVARIABLY WRONG. Attend to them at your own risk.

We dedicate this post to our dear friend Jim, a fine, honorable man whom the media is converting into a nervous wreck.