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|Subject: Re: Mandelbrot & Taleb on News Hour||Date: 10/22/2008 3:26 PM|
|Author: elan19||Number: 35079 of 41313|
General press coverage of the stock market is almost always terrible and just adds to the extremes of optimism and pessimism. I actually have a lot of respect for Taleb and what he does but why wasn't he getting more interviews two years ago, when the stock market was hitting new highs monthly and volatility was at an all time low? Here's my take on the press:
When stock market is way down:
The press starts writing about or interviewing those who currently have a bearish view far more often than those with a bullish view.
The press places a much higher emphasis on the bad news rather than the good news (How many articles have you seen lately talking about the rapidly improving trade deficit? Now think back to how many you saw about the rapidly deteriorating trade deficit back in 2003).
Worst of all, the press (and I most assuredly include things like Marketwatch with the "press") invents all sorts of reasons for why the stock market is down in the last hour, or last day, or last week.
When the stock market is way up and has been up several years in a row:
The press starts writing about or interviewing those who currently have a bullish view far more often than those with a bearish view.
The press places a much higher emphasis on the good news rather than the bad news.
Worst of all, the press (and I most assuredly include things like Marketwatch with the "press") invents all sorts of reasons for why the stock market is up in the last hour, or last day, or last week.
It's really simple: The stock market goes down when investors get more pessimistic and fearful. The stock market goes up when investors get more optimistic and confident. If you want to buy low and sell high, you buy when fear is high and sell when fear is low.
But aren't there problems and risks right now? Yes, of course there are. The stock market might go down another 10%, 20% or 30% before it ultimately bottoms.
But there are all sorts of positive things the press is under-reporting right now, such as:
1) Valuations by most long term measures put the stock market at the cheapest they've been for the last 13 years, perhaps longer. This is great news for those below the age of 50 because it means that means a no-nothing approach of dollar cost averaging into a couple of market indexes is likely to lead to returns of around 6% or 7% better than inflation over the next 20 years.
2) Energy prices are way down - helping to reduce the cost of living for most people.
3) Home prices are down. This is great for people who are about to become first time home owners.
4) The trade deficit is very rapidly improving and will improve even more rapidly in the next couple quarters thanks to dropping oil prices.
5) The internet revolution that was supposed to transform our lives for the better in the late 90s is actually really transforming our lives for the better now, and the price just keeps getting lower. Google essentially makes 70%+ of the functionality of MS Exchange server available to individuals for free, allowing email and calendar to be available anytime, anywhere, and shareable within your organization. You can buy 10" laptops for under $400 and desktops for less. The internet has greatly lowered the cost of mobile telecommunication. The list goes on. You saw this in the news all the time in 1999 when it was really just a dream. Now it's happening and (unless it's related to iPhones or iPods) doesn't get much press outside of tech-oriented magazines and web sites.
6) Global cooperation in dealing with this crisis is unprecedented. In the early 30s, there was little cooperation which led to collapsing economies in many parts of the world - and some believe that this created the conditions which led to WWII. You can argue that some measures are not very smart, or that governments are doing too much or too little - but the global coordination is incredible and will perhaps mean that this global economic bust will not lead to another world war as happened 60-80 years ago
I could go on, but my point is made. I could also go on about all the negatives right now - of which there are a bunch - but you've already read about them ad nauseam in the press, and you'll keep reading them until the market goes up a lot - then you'll start reading about all the positive things again.
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