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"I Wonder". . . If the Media Has Accurately Represented the Risks
  (March 1, 2007)

The media is constantly being challenged as politically biased (liberal), but no one ever seems to mention its blatant Bullish bias. Do you have any doubt that the financial press (newspapers, web portals and TV coverage) is consistently, obviously and rigorously Bullish?

After a day (Tuesday) which should have set off alarm bells that something was wrong with the global market and perhaps the global economy, the mainstream press--both the light-weight sites like Yahoo Finance ad CBSMarketwatch and the respected financial press like the Wall Street Journal and Barrons were full of fluff "reassurance" stories: Fed Chairman reassures markets. . . Asian shares rebound . . . stocks which are now bargains . . . Greenspan backpedals furiously, saying, U.S. recession "not probable". . . and so on, ad nauseum.

As an occasional free-lance journalist, I know that editors demand a skeptical or "well-rounded" perspective--one that seeks out opposition or what might be wrong with a happy-happy picture. Features (main stories) which cling too closely to a "party line" of any kind are sent back for re-write.

Except, it seems, when the subject is the economy or stock market. As a journalist, if this were a political event, I would be asking: who benefits from trying to maintain the status quo, and by repressing skeptical or investigative stories? What efforts at "damage control" are being made, and by whom? If there's an orchestrated feel to the media campaign, then who's doing the orchestration? And if it appears the media has rolled over and become a lapdog on this issue, refusing to ask the hard questions, then why?

Just as a "for instance": my first question would be: are there any parallels between Tuesday, February 27, 2007 and the weeks leading up to the stock market collapse in 1929? Did you read any stories like this yesterday? No, but you should have, for the weeks prior to the final meltdown in 1929 were rife with just the sort of wild ups and downs between fear and reassurance which we are now experiencing.

Everyone with a nominal interest in technical analysis knows that for the past 50 years, stocks hit 4-year cyclical lows in October of mid-presidential cycle years like 2006. The market blew right past the 4-year cycle, thumbing its nose at that tradition as it rocketed higher for 7.5 straight months. But an objective inquiry should be asking: what if that important cyclical low was simply put off for five months?

How many articles have you read in the mainstream press about Elliott Wave analysis or Kondratieff cycles? How many about the "business cycle has been repealed"? There are cycles in finance, just as there are in the rest of nature, and it clear to even a cursory review that we're at the end stages of an exhaustion: of easy borrowing and liquidity, of the housing boom and equity lines of credit, of the easy savings from having everything made in China, of foreigners buying Treasury debt to finance the U.S. government's deficit, and perhaps even an exhaustion in the culture of the "hot new toy" driving massive waves of consumer spending: to wit, Microsoft's Vista operating system and Apple's iPhone.

Yet how many stories do you read in which a bearish or skeptical view is mentioned in passing only to be knocked aside by reassuring "experts"? As I mentioned here previously, I scanned the media Monday after posting my own warning, looking for any dissenting voices honest enough to suggest "the end is at hand" for the stock market's euphoric rise. I found warnings about subprime mortgages and so on, and some warnings of a possible recession later in the year, but none saying something which goes against the grain of the happy-happy confidence/complacency such as "the recession has started" or "the market will collapse in March" or something suggesting a near-term blow-up.

While these critical issues are ignored or glossed over, we are treated to an analysis of Milt Romney's hair. Yes, if you read voluminously within the mainstream press, you can pick up stories on page 19 (buried) which suggest all is not well in the market and in the economy--but you have to piece it all together yourself and place it in context, which is actually the job of reputable journalism.

Here's another example, one of dozens: did anyone suggest in print that the 2.2% rise in Q4 GDP was not "growth" at all, as PCE personal consumption expenditure price index. i.e. "core") inflation is running at 2.3%? No, you didn't. All you read was reassurances the "moderate growth" (actually a net decline in GDP if you account for inflation) will support a rising stock market and everything is really fine and dandy, nothing to worry about, just move along, folks.

How much did you read about margin calls landing on "investors'" desks, requiring then to sell to cover their debt? Did anyone actually mention the uncomfortable truth that margin calls have to be covered within three trading days, i.e. by Friday, and that if the market didn't recover from its 3% swoon, then addiitonal selling wasn't just possible, but guaranteed? If you didn't read this, then you have to ask why? Was the prospect of selling pressure verboten and off-limits, because it threatened the bullish bias?

Where are the stories which call into question the "party line" about how everything is just peachy, stories which challenge the "party line" that the subprime mortgage meltdown won't affect the larger economy, that stocks can rise indefinitely, that deficits can rise indefinitely, that consumer borrowing can continue indefinitely, that the savings rate can be negative indefinitely, and on and on? These are obvious questions which any reputable journalist should be tasked with pursuing. But these questions aren't even being asked.

Yes, you can read bearish analysis on prudentbear.com and other websites and blogs--but the mainstream press is my focus. You shouldn't have to depend on blogs for analysis of the financial issues which profoundly affect every single citizen.

Frequent contributor U. Doran suggested this topic, and summarized the level of indoctrination which has been achieved within the general public:
All my friends who are intellectually capable say: "I do not want to hear about all this gloom and doom, do not speak to me about this again." Reality?? It is just the cycle. Credit bubble cycle, free computer money for cars, houses, etc.
In other words, the business cycle cannot be repealed forever. Credit expansion is followed by credit contraction and a recession. Stock markets which rise on hopes and dreams and which ignore lousy GDP growth, profit contraction and a tumbling housing market eventually fall--not for a day, but for weeks or even months. But did you read that in the mainstream financial press on page one? If so, please send me the link.

The truth is that we as a nation have been lulled into believing a completely biased coverage in favor of Bullishness and reassurance is actually "fair and balanced" coverage. Nothing could be further from the truth.

For more on this subject and a wide array of other topics, please visit my weblog.


copyright © 2007 Charles Hugh Smith. All rights reserved in all media.

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