Seeking Balance from Bloggers and Media

The courtroom oath, "The truth, the whole truth, and nothing but the truth," is a good test for articles in the blogosphere and in mainstream media.

We have suggested that investors have a difficult task in sorting through the available information.  Today’s trader commentary was a good example.  Bernanke highlighted actions already taken, expressed confidence in the results, and showed awareness of the likely need for more interest rate reductions.  Journalists drew conclusions like "Fed’s remarks cause stocks to slide."  One is left to wonder what he might have said, or what policy critics actually recommend.

An Example

When looking for a critical analysis of important market events, many investors turn to The Big Picture, one of our featured sites.  We do as well, since we think that Barry Ritholtz is a smart guy who has increasing power in the blogosphere, his frequent media appearances, and many citations by major news outlets.

This power carries a special responsibility, so let us check on his current take.  Our question is whether Barry’s approach provides an informative and balanced view of events.  In one of his articles today, Quote of the Day: Liquidity Trap, he offers his viewpoint on monetary policy.

The article begins by asking if the Fed is out of bullets.  Barry quotes a guy selling a book and a system on real estate timing about "forcing people to borrow."  We are not going to link, but feel free to check it out in the original article.

The article next says  "Even more proof ? Consider this article…"  We did not see the first article as "proof" but we wonder how many readers clicked through to check the credentials and possible bias of the author.  It is compelling to sling around a term like "liquidity trap" and it probably scares the daylights out of many readers, but there is not much explanation and even less "proof."

The article cited is from Bloomberg, one of the most respected sources.

Analyzing the Bloomberg Article

We believe that the article is biased — written with a strong viewpoint.  It is typical of many current mainstream media articles which emphasize opinion.  All of the facts are there, but the overall impression is misleading.  The article title is "Fed Interest-Rate Cuts Fail to Lower Borrowing Costs."

The article provides plenty of facts and quotes, so it is the truth and maybe nothing but the truth.  It is not "the whole truth."  Writers with an agenda leave out important facts.  This writer took one brief period of interest rate changes and selectively chose rates that did not respond.  The writer did not mention the dramatic reduction in LIBOR, the success of the Fed’s TAF facility, or the immediate impact of rate reductions on the prime rate.  These are all meaningful rates for many homeowners, banks, and businesses.  The article was misleading by being selective in the time period and the rates chosen.

The article also buried any positive comments in the last paragraphs, often neglected by impatient readers.  The story could have been written as a "good news, bad news" piece, and it would have been more accurate.

Ritholtz Makes it Worse

Here is the quotation that Barry chose from the article:

The Federal Reserve’s interest-rate
cuts last month have failed to lower borrowing costs for many
companies and households, increasing the chance of further
reductions from the central bank.
Companies are paying more to borrow now than before the Fed
reduced its benchmark rate by 1.25 percentage point over nine
days in January, based on data compiled by Merrill Lynch & Co.
Rates on so-called jumbo mortgages, those above $417,000, have
increased in the past month, making it tougher to sell
properties and risking further price declines.

Carefully read, it says that some have not benefited from the most recent cuts — yet.  It does not discuss past cuts, the TAF, or the stimulus package provision to help those needing jumbo rates.  Why not provide readers some balance?

More importantly, the Big Picture article leaves out some other information, including the following:

The lack of improvement may make a fiscal-stimulus plan
passed by Congress last week more critical. The $168 billion
package, to be approved by President George W. Bush today, would
send tax rebate checks to more than 111 million households,
probably beginning in May.   

“It’s a necessary thing given the uncertainties about both
the economy and the power of monetary policy at this point,”
said Harvard’s Feldstein. It will probably add 1 percentage
point to economic growth, he said.

The Feldstein analysis of the stimulus package and the other quotes predicting more rate cuts do not fit with the bearish Ritholtz message to his readers.  The result is not "the whole truth."

The final paragraphs, not cited by Ritholtz and downplayed in the article, were as follows:

The bill will allow Fannie Mae and Freddie Mac to raise the
limit on purchasing “jumbo” loans to $729,750 from $417,000.
The idea is to help struggling homeowners finance larger
mortgages at lower interest rates, especially in expensive
metropolitan areas such as New York, Washington and Southern
California, where median home prices now exceed the $417,000

Yesterday, at a closed-door luncheon with Republican
senators in Washington, Bernanke was “very upbeat” that the
economy would avoid a recession, Iowa Senator Charles Grassley
said in an interview.   

Kentucky Senator Jim Bunning said in an interview that
while Bernanke didn’t comment on interest rates, the Fed chief
said that “they have their eye on inflation and price
stability, and if the credit crunch didn’t ease, obviously they
are going to have to do something about it.”   

Any reasonable person might well draw a different conclusion from these paragraphs.

Finally, Barry offers his own take, something that some might find to be patronizing:

Can you say "The Fed is pushing on a string?"
(Very good children. I knew you could)

Balanced Sources

Graphic phrases like "pushing on a string" have important symbolic power.  They are favored by proud non-economists.  It is much harder work to find and analyze many sources checking out what real economists think about the issues.  We recommend the following:

James Hamilton, consistently explains the commentary from all of the leading sources.  He is far from bullish, but he looks at all perspectives.  Here is his analysis of how monetary policy is likely to play out.  Readers willing to do a little homework can consider his analysis and links and compare to the "pushing on a string" slogan.

The Wall Street Journal provides a nice summary of economic commentary on Bernanke’s testimony.  One can readily see the range of opinion.  Mostly, it is a question not of "whether" but when and how much.

TCA-ETF Update

Turbulence in the financial sectors, mostly influenced by questions involving the bond insurers, has spilled over into many other stocks.  The model gave up on the dividend payers, reacting to technical factors.  This analysis questions the selling in the sector.  Nevertheless, we follow the rules.

We are still in the area recommended by our Gong Model.  As we explained when citing the signal, this is not an exact bottom-caller, but a reflection of risk and reward over several months.  A free analysis is available upon request.  There is plenty of time for a good investment.

While the TCA-ETF model shows only eight out of 44 sector buys, it still represents opportunity.  We also have a report on this model.  The table below shows the update.


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  • Steve February 15, 2008  

    Did you catch Barry’s misleading article on retail sales?
    Didn’t even bother to correct it despite being corrected several times in the comments.

  • RB February 15, 2008  

    In the past you have written that the Iraq war has led to a negativity bubble. I know Krugman is a polarizing chap, so without getting into his political views, I’d be interested to know your take on this post of his:

  • brig February 15, 2008  

    How many page hits does Barry get? How many do you do? You can see what balanced reporting gets you.
    Barry’s got product to move and he knows how to draw people in.

  • Jeff Miller February 15, 2008  

    Brig –
    Barry is, quite obviously, a good businessman. It is very difficult to sell research services. Your clients use it at their discretion, take credit for what works, and blame you for failures! We have seen it many times.
    Barry has found an audience for his message. In the current Internet climate, high traffic is interpreted as strength. He uses many techniques that build traffic.
    This is all good business. He treats his audience well and monetizes the traffic.
    I congratulate him on his business model and his success.
    It just happens that some of my investors spend too much time on his site, without realizing what is going on. It is aggravated by the comments. It takes great strength to maintain conviction in the face of such social opposition.
    Good point, Brig. And I get it.

  • Jeff Miller February 15, 2008  

    RB –
    My view on Iraq and negativity was that business held back in the days before the launch of the war. Why take a chance? It was pretty obvious if you watched it. I do not think that the ongoing Iraq conflict is the cause of continuing negativity. It is a result of a multi-year (and mistaken) underestimate of the strength of the economy.
    I don’t think that Vietnam had a negative effect on the immediate economic prospects. The debt was paid later.
    An interesting question.

  • Jeff Miller February 15, 2008  

    I am thinking of conducting a contest. The prize would go to the reader who could find the last time when Barry saw a government report that was more bullish than it appeared to be on the surface.
    I usually do not read the comments, but occasionally drop by to offer a suggestion.
    Barry does a good job, in general, of responding to comments and occasionally corrects something. He is a bulldog at holding to positions, however.
    I have a problem on this site where he was completely mistaken in interpreting a table. I pointed it out, explaining quite carefully. So did some other readers. He informed me on RealMoney that I had misread the table. Indeed! I doubt it! Few bothered to look at it or really care whether he was right or not.
    Frankly, I would prefer honest and forthright discussions, more like what the real economists do.
    A good question is why the mainstream media and the new MSM blogs scoop up this stuff. They seem to be more interested in getting controversial opinions than getting facts.
    What to do?
    I appreciate your comment.

  • Mike C February 15, 2008  

    “A good question is why the mainstream media and the new MSM blogs scoop up this stuff. They seem to be more interested in getting controversial opinions than getting facts.
    What to do?”
    I’m not sure there is anything that can be done. I realize that much of what is on the MSM and many blogs is “info-tainment” designed to attract eyeballs, not serious, balanced analysis. Most of the political shows on MSNBC, CNN, Fox follow the same formula.
    I’m surprised that you have investors who spend alot of time on blog sites. My client base is very small presently, but all of them spend ZERO time reading and researching investments. They have NO interest in it. That’s what they pay me for. I try to communicate to them proactively, and so far have delivered extremely strong results relative to the broad market.
    Frankly, I’d be somewhat annoyed if they spent considerable time on “research” second-guessing my decisions. If that were the case, I’d encourage them to manage some portion of their money completely on their own, and if after a couple of years they’ve done better then me, they should take it all over, but I would STRESS that it takes away from my research and analysis to be continually responding to issues and concerns they develop from their own reading and “research”.
    I think the burden of “seeking balance” lies on the individual investor and not the blogger. The main reason I regularly read this blog is in the interest of getting a different perspective on issues regardless of whether I ultimately agree or disagree.

  • Jeff February 19, 2008  

    Thanks, Mike.
    The problem is that, IMHO, most investors go to the standard sources and therefore lack any balance.
    It is fine for you to talk about balance, but you are vastly more skilled than the average person who decides to manage his/her own money.
    The key question — even for someone as expert as you — is what to do when the spillover from some complex situation affects the entire market.
    As usual, you are focused on the key issue.

  • Barry Ritholtz February 20, 2008  

    You guys don’t get it.
    At the risk of boring you, and wasting my time:
    1) Jeff — Its not a blogger’s role to be unbiased, balanced, etc. Its to identify, analyze, opinionate, discuss, provoke. You want balance, there’s plenty of outlets for that. You want no holds bar, below the headline, Hunter S. Thompson Gonzo-economics? Not alot of place to go for that, but I try at the Big Picture.
    2) Steve — thanks for the link, but what was misleading about my observation that inflation is impacting the reported sales of retailers?
    3) I manage assets and run a quant software service for a living. Blogging is something I do on the side — I started 5 years ago because it was fun and relaxing and gave me a productive outlet. So far, I have not monetized the blog. That will likely change eventually.
    4) Ironically, the online software service we sell is quantitative in nature. No opinions, no subjectivity, no blah blah blah. Not exactly sure how the blog helps that — there’s not even a link to it on TBP — but thanks for the suggestion, I’ll fix that shortly.
    5) Mike C. — If the media did a better job reporting economic data, there’s be no need — or room — for anyone else to critique and comment.
    6) Jeff — I tend to push back against what I think is the dominant and misleading meme of the day. Its not good or bad news, its misleading commentary and analysis.
    Back in 2003, that was excessive bearishness. See this as an example:
    Contrary Indicators 2000 – 2003 Bear Market
    I’m probably wasting my breath here, but thats the way I see it. Your mileage may vary.

  • Bill aka NO DooDahs! February 20, 2008  

    “6) Jeff — I tend to push back against what I think is the dominant and misleading meme of the day. ”
    ~ Oddly enough, one of the most-trafficked (“dominant?”) sources of independent internet content is pushing back while using misleading memes itself.
    Fighting fire with fire? Pot, meet kettle?

  • Jeff Miller February 20, 2008  

    Barry –
    Once again, thanks for stopping to comment. I read all of your work, agreeing and citing some things, and disagreeing with others. You are never wasting time by clarifying or elaborating on your opinions.
    But I am troubled by the frequent claim that anyone who disagrees with you “does not get it.” I wish that you would engage specific arguments from the article. When you cherry-pick from an article to find certain points that support your viewpoint, it is open to challenge. If you do not like the challenge, then quit doing it.
    The notion that you are a David fighting the Goliaths of the media is simply untrue. You influence the thinking of many investors. You often cite your media appearances and quotes in the big-time press. Why be so modest? You are a player.
    And finally, your work on The Big Picture, hobby or not, has certainly helped you to gain prominence. My own thought is that you could engage in honest debate, make some corrections on occasion, and even see a bright spot or two in the data. I would expect you to gain more readers and respect, but what do I know? You are the marketing genius! Gonzo economics? OK, but it still should be accurate and responsive to alternative viewpoints.
    Thanks again for taking the time to comment.

  • Barry Ritholtz February 24, 2008  

    Hey Jeff,
    Please show me where I make the “frequent claim that anyone who disagrees with me “does not get it.” That is not at all my point of view. If we all thought the same way, there wouldn’t be anyone to take the opposite side of a trade.
    As to factual corrections, Readers often gently correct me in the comments, and I make changes in both the text (see the paragraph about PPI at bottom of this and the comment.
    As the # of comments has ticked up, its become impossible to read them all in real time. If anyone emails me a correction about a factual matter, it usually gets posted w/i 24 hours (– or eventually, depending on my schedule).
    For example, I thought the post about real retail sales that Steve mentioned in the 1st comment above was OBVIOUSLY about growth, and not about total sales. The Haver chart is as clear as can be about that. And it goes w/o saying that if consumer spending fell backwards 5 years, we’d be taking depression, not recession. But what’s obvious to me wasn’t to everyone, and after reading Steve’s comments here, I inserted the word “Growth” in the title for clarification.
    There is a a fine balance: I hate when anyone talks down to me, and I assume the blog readers feel the same way. So I try to balance making things clear and understandable, but at the same time, not “dumb it down” the way some sites do.
    As to influential, I guess it relative. My monthly traffic is barely what the WSJ or NYT sells in a day.