CNBC, Bloomberg News, The Wall Street Journal, Investors Business Daily,Yahoo Finance, CNN, Forbes Magazine, Fortune Magazine….it goes on and on and on…, and all of these media outlets are vying for your eyeballs. They do this by publishing attention-grabbing headlines. In my opinion, this has led to greater volatility in the markets. Two things happen when these headlines hit the news wire.
1) People have a knee jerk reaction both positive and negative, depending on the tone of the print.
2) Traders play on the anticipation of people having a knee jerk reaction and exacerbate the affect.
Every show and newspaper has an expert who says the world is going to end or Dow 20,000!!!!. These pundits are Ivy League Professors in economics and finance or very prominent investors. But why do they all have differing opinions? There is an old joke that states “Economists have forecast 9 out of the last 5 recessions”.
If its not exciting, its not news. The media is looking for a big story and the more sensational the claims or forecasts, the more attention it will get. I myself have been quoted by many newspapers, and I could tell that the reporter was trying to spin my statement into something much more than it really was.
Pundits are looking to help their careers too. By making sensational forecasts, they make headlines and become famous. If they are wrong, they are one of hundred who were wrong; but if they are right, they can say “I told you so!!!” and gain credibility.
Example: Meredith Whitney, a banking analyst, predicted “hundreds of billions” in defaults for tax-exempt municipal bonds in 2011. She made this prediction on 60 minutes at the end of 2010. On October 3, 2011 Bloomberg news had this headline.
Tax-Exempt Debt in Longest Winning Streak Since ‘02: Muni Credit.
Year-to-date defaults were about $1.1 billion, NOT hundred of billions. Interestingly, Meredith Whitney previously gained credibility for predicting that Citi Group would cut its dividend. Some people just like the lime light, but it doesn’t serve anybody to listen too closely. That is why at Karagosian Financial Services, we do our own research and try to think independently.
Unfortunately, no one knows the future. Economics is a social science and there are no perfect equations in order to form a definitive answer. Within economics, there are opposing theories which is often why opinions differ. If Economists are wrong so often, then why do people listen to them? One person once asked,
“Why do economists give forecasts?”
The answer: “Because someone asked.”Tags: media hype