The Financial Media are Like Bad Weathermen

October 24th, 2006

October 24, 2006 -

Some people have asked me, the Dow just keeps going higher and higher, people seem not to have a worry in the world about the U.S. markets, the VIX levels are extremely low, expert analysts are predicting 16,000 marks for the Dow and $20 a barrel oil, so why are you still worried? Well for one, great financial analysts are few and far between. Most are like bad weathermen. They tell you it’s sunny today, but you could have discovered that yourself by simply gazing outside your window. And then if it starts raining, only then do they change the forecast from sunny to rainy.

If you can think back to just this past May, when the DJIA and S&P 500 plunged, almost every financial newspaper screamed that a bear market was upon us. Where have all those analysts gone today? When oil jumped to over $70 a barrel, every financial newspaper screamed that oil was going to reach $100 before the summer was over. Now, many financial newspapers are screaming 16,000 for the Dow and $20 oil, just five months later.

How can this be?

Because many analysts waffle more than politicians. Because so few ever dig down the surface but just depend on future contracts for November and December to predict the price of oil, or look at futures in the stock market to tell you where the stock market is going for the next three or four days, they never find the larger, more significant trends that tell them how they should be planning their portfolios past a seven day time span.

And when the corrections come, they will all be caught off guard. So no, I’m not changing my position. Every problem that I uncovered with the U.S. economy that led me to believe a correction was coming soon is still in place. Sure the political manipulation of the economy (that I’ve covered multiple times here on various blog entries) has covered up some of these problems that I’ve discovered, but everyone knows that in the end deeper-rooted forces will win out long term over short-term manipulation.

To support my point of the general worthlessness of many financial reports in the major media, I tracked the online headlines at martketwatch.com for the past couple of weeks. Here they are below:

Oct 12
Morning:
Bulls on the Comeback Trail

Afternoon:
Dow Hops to New Highs

Oct. 13
Morning:
Bulls hope pause refreshes
Dow’s at record, within hailing distance of 12,000

Afternoon: Stock Rally Runs Out of Gas

Oct 16
Morning:
Downgrade Damage on the Dow

Afternoon:
Dow Tiptoeing toward 12,000

Oct 17
Morning:
Inflation Jitters Shake Street

Oct 18
Morning:
Dow Pierces 12,000 Level

Oct 19
Morning:
Wall Street Weighs Apple, Citi
Stocks Stroll South at Start

Afternoon:
Stocks Reverse Course, Rise

Oct 20
Morning:
A Case of Slowdown Jitters, Cat’s (Caterpillar) Scratch Damages Dow

Oct 23
Morning:
Tiptoing into a New Week
Ford Dents Street Sentiment

Afternoon:
Ford Dent Repaired on the Street
Wal-Mart Powers the Dow

All of the above headlines are tantamount to watching the waves roll in on the beach and reporting on their activity.

“A big wave is coming in. It’s growing to a two meter swell. The wave just broke. The sea level is rising as it is now high tide. The sea level is now falling as low tide is upon us.” And so on. They add nothing to your ability to know how to invest.

Personally, I believe that headlines that tout the “Market is trading down on Ford’s Woes” or “The Market Bounces Much Higher on Walmart’s Earnings” are ludicrous. Certainly during great past bull runs, there were days when major giants missed earnings estimates yet the market still rose higher that day. And there have also been days when companies have significantly surpassed the street’s earnings expectations, yet their share price dropped that day because overall sentiment surrounding the market was negative, and even record earnings were not enough to convince the bulls to enter the market.

If anything, since huge firms like Merrill Lynch, Goldman Sachs, JP Morgan and so on, control such a high percentage of the daily trading volume on Wall Street, it would be far more accurate for these financial publications to report on the actions of the big four Wall Street firms as their actions influence market movements to a far greater degree than earnings disappointments or surprises of one firm.

So yes, because I dig deep down the surface and pay no heed to any of the silly, non-substantive headlines that dominate financial media today, I am sticking to my position. I think these U.S. markets merit a lot of caution.

Entry Filed under: Investment Psychology, The Biggest Investment Myths, U.S. Stocks, Wealth Literacy