The Financial Commentary ‘Peter Principle’
The world of financial commentary now has its own version of the Peter Principle. There are so many outlets — financial television, podcasts, mainstream blogs, individual blogs — that the editorial process has been overwhelmed.
In the old days — that would be a couple of years ago — publication in certain trusted sources would provide some confidence about the general reliability of the sources and the content. No more.
The hunger for content, ratings, and hit count is driving the process.
The Herb Greenberg Example
Tonight’s Kudlow and Company included a typically aggressive exchange between Herb Greenberg and Don Luskin. [link apparently unavailable] Luskin’s point, for which we cannot find any particular defense from Greenberg, is that he makes quite a number of "common man" general assertions without any particular evidence. Since he is a handsome, intelligent, and articulate speaker, he probably has quite an impact with viewers.
And that is the problem. The world of financial media has become very democratic. In voting, this is a good thing. In expertise, it is not so good.
Luskin praises the Herb Greenberg of old — someone we also followed every day.
I remember a decade ago Greenberg was a razor-sharp newspaper columnist
who had a well-earned reputation for blowing the whistle on companies
who were playing fast and loose with financial facts. Back then if you
owned a stock that Herb wrote about, you were in trouble (and so was
the company you were investing in).
That is how we remember it also. What happened? Luskin continues:
Whenever I see him now, instead of talking in
depth about subjects of his own choosing about which he has real
knowledge, he is trying to improvise uninformed responses to ad hoc
big-picture market or economic topics or stocks in the news — and he’s
no good at it. To live up to his "brand image" as the bear, the
skeptic, the curmudgeon, he just spouts contentless generalities — he
raises doubts, he adduces dark possibilities, he emphasizes the risks.
But there is no value in that. Everyone has doubts. Everyone knows
there are dark possibilities. Everyone knows there are risks. Value is
added when you take a stand, express an opinion, synthesize the
possibilities into probabilities.
Luskin does not have comments, but he reproduced an email from one Forbes Tuttle (who seems, via Google, to have made a number of astute comments in various places):
Years ago (10-15), when I wrote research —
on special situations — Herb Greenberg used to phone me up and ask
questions about certain stocks, and stories. He was a good reporter. He
asked insightful questions. He wrote interesting and thought-provoking
stories. Now he is asked to have opinions of the broad market and the
economy of which he has no background in experience or training upon
which to base such opinions. This is the mistake of television news and
opinion broadcasting, where reporters and journalists interview other
reporters and journalists. From a substantive perspective, it is really
A few months ago we noted Greenberg’s own words — his belief that economic expertise really did not matter. He figured that his years as a journalist were just as good as training in economics. We urge readers to review the entire article, where we explain the error in this idea.
Anyone who thinks that it is possible to draw valid economic conclusions without understanding economic methods is like the pigeon at a poker table full of pros. In future articles, we shall provide a few examples.
A Final Thought
Ratings and popularity generate momentum. Since so many are seeking higher hit counts and ratings, no one wants to criticize a big player (like Greenberg). When the popularity is so high, and there is no criticism, the journalistic community pays more and more attention to the most visible bloggers.
The result is a dangerous, lowest common denominator system. Those who cater to the impressions of investors build a readership, but do not serve their readers well. By comparison, the best economic analysis is often a bit dull. It requires data and expertise. It may challenge existing beliefs.
A challenge for investors is that most of the "economic commentary" is noise, not signal.