Anyone who has been reading this column regularly knows by now that I am no fan of the financial media. I watch with amazement each day as one promoter after another either tells outright lies or invents rationale for whatever premise he/she wants viewers to believe. Now that the stock market has slid back to match its early 2006 level, you would think that investors should have caught on, but all this â€œhappy talkâ€ by stocks and mutual funds sellers continues to catch friendly ears and is, again, proving costly.
When I say that the stock market has gone nowhere in the past two and a half years, I mean that, of course, in nominal terms. In reality, with the dollar getting hammered, any purchasing power left in investor portfolios has suffered dramatic losses. Yet the financial mediaâ€™s â€œhappy talkâ€ continues, and many listeners continue to believe.
Over time, I have suggested some alternative sources of financial information. Investorsâ€™ review of more objective reporting can not only offset the â€œhappy talkâ€ nonsense, but it may well offer advice to help generate gains in the markets — while domestic markets languish for what could be years to come.
Such sources have been highly valuable to me. They have helped steer me to better opportunities to profit in the markets. Yet, readers might be shocked to learn how different this information is than what we hear on CNBC, where, I think, lying has been elevated to an art form.
I wonder If any of you saw a piece written by Martin Wolf in the July 3,2008 issue of the Financial Times newspaper? In it, he paraphrases a report issued by the Bank for International Settlements, otherwise referred to as â€˜â€™the central banksâ€™ banker.â€™â€™ The quote reads:
The current market turmoil in the worldâ€™s main financial centers is without precedent in the post war period. With a significant risk of recession in the U.S., compounded by sharply rising inflation in many countries, fears are building that the global economy might be at some kind of tipping point. These fears are not groundless.
Of course, with the U.S. housing market tanking, car sales following suit, and job losses mounting for the last six months, can I be the only one amazed that financial promoters are still assuring us that our economy is not in recession? Oh, and speaking of jobs, the Government announced last week that the domestic economy lost another 62,000 jobs in June. Meanwhile, readers of Barry Ritholtzâ€™ excellent blog (bigpicture.typepad.com) learned that the Bureau of Labor Statistics simply assumed in that report that 177,000 jobs were found and added them to the final number using the â€œBirth/Death Model.â€ This magic trick saves the Government embarrassment over announcing a far larger loss of jobs.again.
In addition, readers of John Williamsâ€™ excellent web site (www.shadowstats.com) saw his alert, showing that our true unemployment rate is now 9.9%. Actually, this figure can be found on the same page of the BLS report, three lines below the â€œofficial estimateâ€ of 5.5% touted by the media, but, of course, the financial media consistently fails to report it.
Another source — Doug Nolandâ€™s weekly article on the Prudent Bear web site (prudentbear.com) — recently offered a telling quote from Tim Bond, chief equity strategist at Barclayâ€™s Bank. Bond said, â€˜â€™Weâ€™re in a nasty environment. There is an inflationary shock under way. This is going to be very negative for financial assets. We are going into tortoise mode and are retreating into our shell. Investors will do well if they can preserve their wealth.â€™â€™
And readers of the weekly and monthly commentary issued by the biggest bond fund company on the planet, PIMCO, would have seen these recent comments from its co-CEO, Mohamed El-Erian:
The problems endured by the U.S. financial markets over the past year or so arenâ€™t just random blips, but signals of a much greater sea change that investors must pay attention to if theyâ€™re to thrive in the future.
Events that were once â€œunthinkableâ€ became â€œthinkableâ€ in the past year, he said. Bank runs occurred in the United States and United Kingdom, for example, and the banking system worldwide raised $350 billion in capital, only to have it wiped out by write-downs, he pointed out. Part of the capital raised came from emerging markets, he added.
â€œThe markets are telling us something,â€ he told conference participants in a wide-ranging speech late Wednesday. â€œToday, what has suffered is the credibility of the most sophisticated financial system in the world,â€ he said.
“The market of tomorrow, El-Erian said, reflects a global shift as wealth redistributes from the United States to the rest of the world. Markets including China and India are no longer just producers, but consumers that are creating an inflationary price effect across the globe, he said. And foreign countries are also contributing more to global growth, he added.
â€œThe world has gone from having the U.S. as a major engine of growth to having lots of small engines that are still maturing called emerging markets,â€ he said. It might have been unthinkable in the past, but now thereâ€™s a flight to quality to areas outside of the United States, he said. The shift is causing the markets to believe that Brazil and Mexico represent safer investments than U.S. companies like Goldman Sachs and Citigroup, he said.
Wow! Did he say that investments in Mexico looked safer to him than those in the U.S.? I think he did!
And finally, readers of Bill Fleckensteinâ€™s excellent web site (www.fleckensteincapital.com) would have seen in one of his â€˜â€™Daily Rapsâ€™â€™ last week his reference to a friend who works in the credit markets and knows, first hand, their actual condition. He writes:
By midday, the Dow and S&P were lower by better than 2%, with the Nasdaq 3% lower. All that, as GM traded to the lowest price in roughly 53 years. About that time, I received a phone call from the Lord of the Dark Matter, who began the conversation: â€œItâ€™s about to blow!â€ He then repeated himself.
He went on to say that behind the scenes, many parts of the credit/mortgage market were â€œoffered only.â€ He said it had nothing to do with month-end or quarter-end. Instead, he believed it had to do with the enormous amount of inventory that would be looking for a home in the next quarter.
He believed that the equity market was â€œmiles behind what was occurring in the mortgage-backed/credit markets.â€ Though he noted that heâ€™d said it before, he repeated: â€œItâ€™s never been this bad.â€
So, have you been hearing anything like this alternative information from the financial media? Or from your local newspaper, which, too often, gets its information from Government or Wall Street sources? Iâ€™d guess that you have not.
Certainly, no shortage of information exists for investors to consider. The hard part is sorting through much of that information, which is useless at best — and quite harmful at worst. You can only help yourself by broadening your scope of information providers. Consider what all sides are saying, and try to square it all with what looks and sounds right to you in terms of the reality you are living. Being fully informed — rather than listening only to â€œhappy talkâ€ — can pay off big, if and when our markets continue their downward spiral.