The Hunger for Content and the Effect
Financial media outlets of all types hunger for content. They are driven to find an audience, since their business models depend upon it. Any financial program needs guests. Prominent journalists need to write stories that will attract readers. Bloggers who depend upon advertising or promotion need to find and satisfy an audience. What effect does this have?
Quantity versus Quality
The rise of the blogosphere has generated diversity in content. Anyone with a point of view can start a blog and offer opinions. A few months ago we noted that some outside surveys questioned the credibility of financial blogs. The definition of a financial blog was open to question, since it included mainstream media efforts to reach out to a new audience.
Competition and expansion of financial television has had the same effect. Every program needs guest spots and the focus is on the issue of the day.
No one seems to ask whether the guest, or columnist, or blogger really has the right qualifications to be offering advice on the topic at hand. The omnipresent question is the prospect for a recession. Financial television asks the recession question daily to anyone and everyone. Most people getting a TV opportunity, are not bashful about answering the question.
For all but a few, we are consumers of economic forecasts. We have no independent ability to make projections, so our role is instead one of deciding who knows, and who does not. At "A Dash" we believe that the democratization of the media — emphasizing the Internet — has made the task of the consumer more difficult. Appearing on television or having a big-time blog confers a sense of legitimacy that may be completely unfounded.
Most people do not realize this. In particular, individual investors do not make this distinction.
It is an expensive mistake.
Are Bloggers too Negative?
There is a New York-centric debate going on among several prominent commentators (all professed pals), highlighted in the New York Times, about whether bloggers are too negative. None of the participants dares to question the qualifications of any of the others, so the debate is rather lame. Paul Kedrosky (at one of our featured sites) raised the question. He did so assuming facts not in evidence about the existence of a recession, and on the eve of a significant rebound in stocks (which we predicted the following evening). Barry Ritholtz (at another site we recommend to our readers) offers a response. Herb Greenberg also weighs in.
We are especially intrigued by the following comment in the Greenberg article:
I don’t make market calls or offer investment advice. But via the media
world, I’ve also morphed, for better or for worse (depending on your
perspective), into somewhat of a financial commentator. I figure my
opinions, based on more than 30 years of writing about this stuff, is
as valid as others who were formally schooled in economics and the
stock market. (And who, by the way, seem to get it wrong as much as
they get it right.)
Readers should note that Greenberg concludes that any formal training in economics is irrelevant. It is enough to be an observer of the scene. Does this really make sense? This is an important subject, to which we shall return in future articles. Most real economists are too polite to point out the errors when on a program with non-economists. The guests all speak in generalities.
Let us apply a little common sense to this situation. On the one hand we have people, very intelligent people just as smart as Herb Greenberg, who spend many years acquiring training and experience in certain methods. These people then apply the methods in specific situations and make forecasts, some right, some wrong. It is easy to disparage their work by picking out those who were wrong and focusing on the mistakes.
On the other hand we have someone who does not acquire the training and knowledge, but concludes that it is irrelevant. That is what the consumer of information should consider. Anyone who does not realize the value of expertise is in for a big surprise.
Current Market Mistakes
Because of the various challenges — the general economy, the housing market, the credit market, the risk in CDO’s — there is–right now– an especially important interface between economics and government. It would be wise for investors to seek out genuine experts in both subjects.
Most current commentators have expertise in neither.
Current issues include the following:
Fed policy, where those who maintained that the "Fed was in a box" have been proven wrong. Have any of them admitted this? Have they simply switched arguments to some future problem?
Inter-bank lending, where many predicted incorrectly that LIBOR rates would not fall. They underestimated the effect of the Fed’s innovative TAF approach, something we highlighted.
Bond insurer issues, where people with absolutely no experience with government policy making — none whatsoever — make daily arguments about why any effort will fail. The key argument is that the Treasury SIV approach failed, so a bond insurer effort will also fail. We think that this idea is both shallow and erroneous.
As far as we know, we are the only Internet source that takes a genuine public policy perspective to identifying experts and trying to predict government actions through knowledge. If one is looking for an investment edge based upon true expertise, this is the place. Most of the Internet gatekeepers, even the very best, just cite the stories from popular blogs and rely upon the caveat emptor principle.
This puts the burden upon the reader. The gatekeepers are quite honest about this, but how many readers have the critical skills and insight to analyze what they see?
We shall return to the bond insurer versus the SIV question, but we hope that readers will first consider the challenge we posed. It is essential in understanding the conclusion.