Choosing what to read?

There is so much to read and so little time.

At "A Dash" we are building a guide for the intelligent investor.  Most of our audience is still reading the mainstream media and watching the vanilla business shows on TV.  Those who do go online still read mainstream opinions, sometimes disguised as "blogs."

When these new readers go online, what will they read?  Will their choices help them improve investment returns, or will they fall into a trap:

A little knowledge can be a dangerous thing.

The Cost of a New York Times Subscription

Getting access to the New York Times can be free, or a small fee for Times Select (which we buy).  Many of my investors are intelligent thoughtful people who stay current with issues by following the New York Times.  They need to be critical readers.  Too often, the Times columnists steer them astray, costing them much more than their subscription price.  Consider this article written by Conrad de Aenlle (recommended by Barry Ritholtz in his popular weekly linkfest.)

Let us examine this from the perspective of how a journalist can be helpful.  In particular, we should be sensitive to the overall impact of the article, whether assertions are supported by facts, and whether the writer draws out information from experts or offers his own opinions.

The Title and Lead

What to Own if Economy Turns Sour

That is what the headline screams.  The lead sentence is as follows:

CONCERN about a recession seems to have swelled in recent days with
each speech made by a Federal Reserve official enumerating signs of
economic weakness.

Readers should examine the entire article.  None of the quoted sources currently predict a recession.  In fact, some of them say they do not expect one.  No Fed officials are quoted.  We are not going to do a speech-by-speech analysis here, but regular readers will note the variance from the conclusions cited by most market pundits and bloggers.  They are mostly worried that the Fed does not agree about economic weakness.  The bloggers are correct.  Fed statements continue to cite a range of indicators –unemployment rate, ISM, consumer confidence — that show general strength.  The speeches give recognition to single data points like the recent non-farm payroll numbers, while emphasizing the need to look at overall data.

Briefly put, the article cites no speeches and offers an inaccurate summary of their thrust.

The Advice

The article proceeds upon a theme that the author obviously chose before consulting his sources.

Their aim may be to telegraph the Fed’s intention to cut interest rates
next week in a pre-emptive strike against a recession, but if you doubt
that one can be staved off, there are steps you can take to inoculate
your portfolio.

Once again, there is a reading of these speeches that conflicts with standard Fed behavior — avoiding a tip-off of incipient policy.  Fed Chair Bernanke has been particularly scrupulous on this point.  Individual Fed members avoid discussions of policy.

Despite this, the author plunges on in a quest to get worried investors to alter portfolios.  The biggest problem is inviting readers to draw their own conclusion about recession probabilities instead of looking at expert forecasts.  This kind of careless writing is part of the explanation for the vast deviation between the recession forecasts of experts and average people.

A true recession, typically defined as an extended period in which
the economy shrinks, is rare, but when one comes along, it almost
always decimates stocks. Earnings fall sharply, and share prices tend
to fall even further as investors anticipate slowed growth.

every stock will fall in a recession, but very few will rise. Investors
who hold a significant portion of their wealth in stocks through a
recession risk seeing their net worth diminish.

These two paragraphs are completely unsupported by evidence and quite incorrect.  Recessions are not rare.  At any given time there is a 20% chance of a recession during the next year.  Whether recessions "decimate stocks" depends upon the valuation going into that part of the economic cycle.  In particular, the 2000-01 era saw major declines at the same time we had a very mild recession.  Other recessions have seen rather mild reactions in stocks.  Since bearish pundits have been warning of recession for several years, does the author believe that this is now fresh information, not reflected in market prices?

The quoted advice, from three different sources, does not support a recession forecast, despite the scary headline.

Another Example

Here is an article from The Chicago Tribune, with more scare headlines.



Economic fears sharpened


Disappointing retail, industrial numbers called more warning signs of an approaching recession

A careful reading of the entire article finds references to "slowing trends" and "early warning signs."  The only reference to recession probability comes from the author’s own conclusions.  We wonder what his own track record is at predicting economic cycles?

More from Floyd Norris at The New York Times

Double Warning That a Recession May Be on the Way

Norris pieces together his own versions of the inverted yield curve (mistaken signaling recession for many months) and employment data.  (Another Barry Linkfest source.  Does he ever see any good news?)

It is a typical mistake of inexperienced forecasters to find an indicator that almost worked and then tweak it with some other information.  Whenever we see indicators like an eight-month difference in employment, a red flag goes up.  What if the difference were ten months?  Or twelve?  Or six?  This is the hallmark of someone back-fitting data–someone without a successful trading record.

There are many people doing recession forecasting.  We track these predictions regularly.  What are the special credentials of Floyd Norris?

These journalists are all making predictions, but dodging the normal responsibilities of a forecaster.  There is no way to quantify or track their advice or to falsify it.  It is not scientific.

Solid Information on Journalistic Comments

The problem is that many more people read The New York Times and the Trib than read the diverse commentary on investment blogs.  This is the reason we have tried to highlight the importance of diverse sources and qualifications.  Journalists have the larger audience.  The reader must be sure that they are reporting expert opinion — not assuming for themselves the expert role.  It is tempting to think that one who reads a lot of information knows what is right.  This is the mistake highlighted in the story of The Three Amigos.

It takes an expert to recognize an expert.

Some of the best current advice on market journalism is available — for free — on  Marek Fuchs media reporting regularly helps investors in meaningful ways.  One of our pet peeves is the need for journalists to fill space by "explaining" every market move — once the outcome is known!  As we have observed, this is often just nonsense.  But let us listen to Marek:

But I want to take a step back this weekend to point out to you the
main difference between a summary of market action that’ll inform you a
bit about what went on that day and one that runs the risk of leading
you down the wrong path. The difference, in the end, is between
thinking big thoughts and small.

Normally, in life, it pays to think big and draw inferences,
conclusions and then extrapolate. But daily movements of the market can
be so meaningless or so tethered to fleeting events that you are better
off gravitating toward the small. When it comes to a daily stock market
move, even the what (say a 100 point move on a 13,000 base) can be so proportionally tiny as to basically be imperceptible.


Do not get caught up in any single data point or a single day’s trading.  Look for broad themes, but make sure that those themes have solid evidence.

Finding that information is a challenge, but there are some clear indicators for finding solid information — a theme to be continued.

You may also like


  • RB September 17, 2007  
  • Ward September 17, 2007  

    In Leslie Stahl’s interview with Greenspan last night she made off hand reference to “one million people out of their homes” or some such nonsense meant to support her importuning of the former chairman over what he may or may not have done to cause it. All superficial crap intended to sell airtime, and of course to sell books for his part. No genuine discussion of substance.

  • Jeff Miller September 17, 2007  

    RB –
    Thanks for the ECRI update!

  • Jeff Miller September 17, 2007  

    Ward –
    Good point on the Greenspan interview. I also had the impression that some of his answers were cut off at awkward points. For example, the idea that he could not do much about subprime lending. People do not realize that a lot of this activity is non-bank and not under the Fed’s purview. Legislation would have been required. That never came out, but I’ll bet he said it in the original.

  • Bill aka NO DooDahs! September 17, 2007  

    I was too busy laughing to hear most of the Greenspan interview. The last thing I heard (before my maniacal laughter, of course) was his statement that he managed the Fed during a “disinflationary time.”

  • Tim September 17, 2007  

    I am not sure when it started, but I believe half a dozen news cable channels with airtime to fill might be causal, but I find the major thrust of all MSM reporting to be fear mongering. They take every story and push the fear on their viewer/reader. Shark attack news is accompanied about dire warning to the average reader of going in his pool. The financial articles listed above follow the same vein, find something scary, fill the article with ideas that “sound” smart, finish with scary headlines & conclusions. Thanks for the few in the blogosphere like Jeff and others that have been mentioned here who are in the markets and share good information.

  • jim September 17, 2007  

    You’re comments today, and always, are spot on. Sadly, I don’t read the Times anymore as one gets the feeling that most of their journalists are kids right out of J-school with no experience, or wisdom.