Wall Street Truthiness: A New Series

Here at "A Dash" we are always interested in things that become part of the conventional wisdom with little supporting evidence.

To find the right terminology for this concept, we turned to a leading source, Stephen Colbert on "truthiness."  Here is the Wikipedia definition:

Truthiness is a term first used in its current satirical sense by American television comedian Stephen Colbert in 2005, to describe things that a person claims to know intuitively or "from the gut" without regard to evidence, logic, intellectual examination, or facts.

It is important at the outset to be very, very clear about our intention.  We are not saying that the CW is wrong, just that the evidence does not support the conclusion.  Also, the CW is not totally bereft of facts; it is more the lack of a true scientific method.

As always, evidence might not matter.  The CW drives the market, and the market often becomes the reality.

Eventually, of course, truth will out.  But in the long run, we are all dead.

Having exhausted our set of pithy quotes, we are confident that you have the drift.  Our objective will be to do the following:

  1. Identify a widely-held belief or conclusion where supporting evidence is sketchy;
  2. Raise this topic for further discussion and analysis;
  3. Consider what facts, if any, might prove the conclusion to be incorrect.

Reader Participation

This is a game that is open to all.  We do not necessarily disagree with the propositions advanced, but obviously we lean that way.  Anyone can join in with evidence, but it must be real evidence, not just an opinion.

Starting Agenda

We have a few topics in mind.  Here are things that we hear almost every day.  The "truthiness indicator" hits the red zone when some TV pundit sounds off on the following:

  • The recession is already a year old, so it is nearly over.  Look at the last five recessions.  (Our short take – -not enough cases in the universe.  This recession could last much longer.)
  • We have many years of economic distress in front of us.  It will not be a "V" recovery.  (Who can know this?  Some programs will kick in and attitudes will change.  How long?)
  • Hank Paulson dumped the original TARP idea because he learned that all of the financial assets held by major institutions were worthless.  (He does not know, you do not know, and neither do we.)
  • The economists at the NBER, the official recession-dating group, are clueless bozos.  They are way behind all of us smart folks in knowing that there was a recession.  (Their mission is different.  Traders do not understand research purposes.)
  • Warren Buffett has lost it.  (Get real.  When something very unusual — a black swan — intervenes, normal metrics are thrown off.  It does not mean they will not be proven right.  Think about long-term records).
  • The Baltic Dry Freight index is in a multi-year funk, with little hope of recovery.  (Who knows?)
  • None of the government "bailout" initiatives have worked, and none will.  (This is complicated.  Bernanke tried to explain it, but no one was believing).
  • President Obama will hike taxes and kill the economy.  (There is some good evidence of moderation for those trying to be objective).

Conclusion

For each item, we want to identify the conventional wisdom and the evidence.  The list is open for nominations.  Please join in!

We will take up each in turn with more detail, and revisit as indicated.

It is important for everyone to realize that this is a time of extreme stress, and therefore a time of opportunity.  The point is to look forward.  This is difficult to do when no investment seems to work.

A strong approach would be to examine the propositions with a view toward what information might provide a refutational catalyst.  Our preliminary assessment is that the catalysts are still many weeks or months in the future, but more study is needed.

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4 comments

  • RB December 3, 2008  

    How about: Fannie and Freddie are the root cause of the current crisis.

  • Mike C December 3, 2008  

    “It is important for everyone to realize that this is a time of extreme stress, and therefore a time of opportunity.”
    IMO, definitely opportunity.
    “Warren Buffett has lost it.”
    This one allowed me to pick up some Berky B shares at 2700ish recently. I suspect with the passage of time that the recent drop below 3000 will look just like the drop to 1400 in March 2000 which was the last time Buffett had “lost it”.
    Here is an item and I think the conventional “wisdom”.
    Crude oil at 150 was a bubble JUST LIKE the NASDAQ hitting 5000 in 2000 or the Nikkei hitting 40,000 in 1989 and are levels that won’t be seen for 10, 20, 30 years. The speed and magnitude of the recent decline in crude is “proof” of a “bubble bursting”.
    Certainly there was some “speculative premium” in crude oil prices but maybe some of the recent drop is NOT just a bubble bursting but a fundamental reaction to demand destruction that may not last forever, and perhaps we will see $100+ crude oil much sooner then conventional wisdom expects if the long-term peak supply argument is correct, and marginal plays like the oil sands continue to get delayed, slowed down, or canceled entirely due to the current price which is below the marginal cost of many of these newer supply sources.
    Long-term opportunity here in crude oil and energy related stocks?

  • VennData December 3, 2008  

    The government is “socializing” America.
    The Fed has “spent” five trillion in “bailouts.”
    The dollar will soon be “replaced” as the world’s reserve currency.
    Obama’s Thanksgiving week announcements “caused” the stock market to go up.
    More regulation is coming.
    The Credit Default Swap Market has failed.

  • Jeff Miller December 3, 2008  

    My commenting friends —
    Thanks for the valuable suggestions. They are all great and I will add them to the list.
    It is a list that will grow faster than I can write!
    Thanks to all.
    Jeff