Financial Media and the Faith Based Economy

I had the good fortune of spending some time in upstate Maine for the past week.   I also got to drive across the incredibly beautiful states of Vermont and New Hampshire.   I saw a moose.  The main benefit of my time in Maine was that I watched no TV, read no blogs and had no contact with the outside world for five days.   Prior to leaving for vacation I had been spending a lot of time educating myself about the financial markets.   I was learning about things like the Yen Carry Trade and the Fed Discount Rate.   Of course I've been reading the excellent work of Bonddad as well as other fine financial blogs (see bonddads blogroll).   So, I consider myself to be a self educated investor.    I'm not an expert by any means but I have a very good grasp of the basic facts about the economy as well as being well versed in real estate investing.    But to be clear, no one pays me for my financial advice.  

On the way home from Maine we stayed in a hotel that had cable.   The TV ended up on one of those ridiculous financial channels where they spent the morning ranting and raving about whether the market would go up or down in the next hour.   They made some overt "democrats are bad for the economy" comments and it was business as usual.   I hadn't ever really watched that stuff before and was amazed about how content free the whole thing was.    It was enjoyable to hear them all denounce the head of CountryWide Mortgages for predicting a recession.    Here is the head of one of the largest mortgage companies in the country, who perhaps knows about things we aren't yet privvy too, using the dreaded "r word".   They couldn't ridicule him fast enough.  Made me think of Richard Clarke and some other predictions we've seen ridiculed.    Speaking of the "r word", here is a nice bit of snark written back prior to the last economic downturn in 2001.

Our modern prayers for prosperity are blasted all day long on CNN, CNBC and Bloomberg, as well as their on-line equivalents. It is there that reporters, pundits, economists, investment bankers and corporate executives collectively willed the economic boom into being, breaking only for commercials selling wireless gadgets that let you trade on-line any time, anywhere. Think of it as the corporate-world equivalent of the Natural Law Party, which believes that if enough people simultaneously bounce up and down on yoga mats, peace, enlightenment and prosperity will follow.

That's why, during the boom, there was never much time for bad economic news inside the prayer circles on CNBC. Market agnostics were not invited to point out stagnant income levels for low-wage workers or widening disparities between rich and poor. There was scarce talk of increasingly casual employment relationships, or soaring rates of U.S. incarceration, both masked by low employment rates. There was simply no room for such heresy: In a faith-based economic boom, it takes uninterrupted hand-holding and visualization to keep the boom alive.

And it worked, for a while. The satellite-beamed incantations and temples of Internet trading have brought more people into the market than ever before. Investing has become an international pastime, Buffettology a global religion.

But in recent weeks it has been revealed that there is a flip side to this faith. If incantations can bring us into a boom fuelled by vastly overvalued stocks, then incantation of another sort -- the recitation of the dreaded R-word -- can trigger a bust as well. And not just on the stock market, but also at the mall, as consumers stop shopping because their portfolios have collapsed.

So, what is my point, you ask?   Wasn't this a rant about the media being lying idiots?  Yes.   After watching this cable tv froth we got in the car and I tuned in NPR for some real "news".    Their marketplace people started talking about the "good" economic news.    There was some comment on durable goods numbers looking good and then they said that new home sales were up "2.8%" in July.   This got my attention.   But even the supposedly reasonable people reporting "news" on NPR didn't bother to give any more info on that.   Just told us that it was suprisingly good news and perhaps things were going to be alright.   Now, I've worked in corporate America and I've seen marketing people lie without lying many times.   So, I yelled at the NPR guy "Up 2.8% from what?!   From YAG (year ago, I yell in acronyms)?!   Or up from last month which was a ridiculously bad month in housing."    June 2007 wasn't a month in housing that we should be happy to be "up" from by a number that looks like a margin of error. Compared to 2006, June 2007 sales were down over 22%!  That is a very big number.   In most lines of business a 22% decline vs. YAG is the kind of thing that makes you think long and hard about finally taking some time off to work on that novel or learn pottery so when you do get laid off you can say, "this is a good thing, now i'll have time to learn pottery".   So June 2007 was a horrible month.  Which is why I was wondering if the "good news" we were being fed was to say that new home sales were up 2.8% from a ridiculously bad month.   Turns out that is exactly what all the financial talking heads were so cheery about.    Here is another way of looking at yesterday's news which does actually show up in the 7th paragraph of this Forbes article.

Even with the overall increase in home sales for July, sales are down a deep 10.2 percent from a year ago, underscoring the toll of the housing slump.

Down a deep.   Slump.   Toll.  Those are not happy financial words.   Doesn't sound quite so cheery, does it?   Could be why the CEO of Countrywide is predicting a recession.    Could be why builder confidence (you know, the people trying to sell new homes) is near the record low.

With interest rates moving higher, a glut of homes sitting unsold, and the problems in the subprime mortgage market worsening, U.S. home builders' confidence in the housing market plunged further in July, according to a monthly survey released by the National Association of Home Builders.

The NAHB/Wells Fargo housing market index dropped four points to 24 in July, the lowest since the 20 recorded in January 1991 and the third lowest reading in the 22-year history of the survey.

Two years ago the builder confidence number was in the 70's.    Which is why last month we were treated to this quote that seemed to be long forgotten history to all the talking heads lying to you yesterday when they were saying talking up that "good news".  

"The bottom of the housing market appears nowhere in sight," wrote Patrick McPherron, an economist for Moody's Economy.com.

The financial media is lying to you.   Even the so-called liberals at NPR.   Some may not consider it lying but I do.   These are supposed to be the experts.  And they were all talking about the "good news" yesterday.   Yeah, and the surge is working.   Keep the faith.  

•  I got a letter from Countrywide today.

  They wanted to help me rid myself of my 5% fixed rate and get into a "good" rate.  I guess instead of Occupant, they are starting to address these things to Stupid.

  by Grannus on Sat Aug 25, 2007 at 03:46:51 AM PDT

  •  i got one recently

    telling me i was preapproved for a $100K home equity loan.   All i had to do was sign the paperwork and return it.    However, they did a really bad job of trying to spell my name so I'm not sure it would've worked out.    Is it any wonder these industries are a mess?

    i'm not saying the countrywide guy is good, but if someone like that is willing to use the r word, it is worth paying attention.

    by onemadson on Sat Aug 25, 2007 at 03:55:30 AM PDT

•  I find those financial channels fun to

  watch, in a perverse kind of way. If you watch for more than 15 minutes you will hear someone contradict what was just said. Sometimes they will have a bunch of talking heads yelling at each other for minutes on end-five different experts with eight different opinions on what is happening or what will happen what should happen.

  There is even drama. I was watching one day when the DOW was having wild swings, after several really bad down days. When the DOW briefly went positive the traders on the floor started cheering. Maria Bartaromo was very moved.

  by yellowdog on Sat Aug 25, 2007 at 04:13:32 AM PDT

•  Notes

  1. Economists and financial analysts are all clueless.  Put 100 in a room, they'll give you 100 different answers to the same simple questions.  It isn't willful  prevarication, but simple ignorance of how things really work.  There is something to be said about Darwinian economics, which is to say, everything is random and based on a combination of luck, and survival of the fittest.  When "the fittest" get that way because of friends in high places, the government and economy are in for trouble.

  2. These guys make their living whether the markets go up, or down.  Where they get into trouble, is when the markets fail to generate churn.  Nothing hurts the brokers more than no trading, and no investments on margin.  You could lose every penny you've got, they'll still make money on commissions and fees.  But if you strike it rich and stop playing the game, they're out of luck.

  by Dcoronata on Sat Aug 25, 2007 at 04:15:12 AM PDT

  •  George Bernard Shaw.

    If all economists were laid end to end, they would not reach a conclusion.
    George Bernard Shaw
    Irish dramatist & socialist (1856 - 1950)

    by irate on Sat Aug 25, 2007 at 05:30:36 AM PDT

•  Groveling to king dumbya.

  Pretty tough blaming the recession on Democrats when it starts 18 months before the end of your term.
  bushco already blamed the recession that he created in 2001 on Clinton.
  What a blameless son of a bitch he is, when the "liberal" media cowtows and covers for every blunder.
  There are just so many blunders that some inevitably slip by even a vigilant watchdog media, and get reported.

  by manwithnoname on Sat Aug 25, 2007 at 04:20:41 AM PDT

•  Re Mozilo: "Talking his book"

  I saw the CNBC discussion you reference in your diary.  I had a different take.

  Big Players know that their words can "move the market" and can also put pressure on the Fed or the government to act.  Bill Gross did this a few weeks ago, when he said bond yields could go to 6%, and they immediately moved up from about 5.1% to 5.3%.  Of course, Gross also said they could go down, and there was nothing in his comments contradicting his company (PIMCO) buying truckloads of those bonds at 5.3%.  Gross was "talking his book" -- trying to get things to move in his direction.  He did it again this week, calling for a bailout of subprime borrowers.  Apparently, as it turns out, PIMCO owns a slew of those subprime mortgages - so who was Gross really trying to help?  Again, "talking his book."

  So now, turn to Angelo Mozilo who used the "r" word on financial tv. Here's something I said in a diary I posted while your were on vacation:  One has to wonder if the Fed wasn't "pwnd" by a few canny players on the Street.  The WSJ piece says that the Fed's actions were prompted by banks' refusal on Thursday to roll over garden-variety corporate backed bonds.  But also on Thursday, there was a mini-bank run on Countrywide Bank, an FDIC institution that is part of Angelo Mozilo's Countrywide Financial empire.   The very same Angelo Mozilo who has cashed out of over $500,000,000 of Countrywide stock this year!   The same Angelo Mozilo who moved markets with a Jim Cramer-like performance in February about subprime mortgage meltdowns.  And just as the "Brooks Brothers" riot in Florida, a fictitious grass-roots event, spooked courts, so did a synthetic(?) bank run on Countrywide spook the Fed?

  Imo, Mozilo wants to spook the Fed and the government into bailing him out.  He was "talking his book."

  by New Deal democrat on Sat Aug 25, 2007 at 04:30:00 AM PDT

  •  thanks for the follow up

    good points about why mozilo wants us to think there is a recession coming.  

    speaking of talking the book.   Do you have any info on the hedge fund guy who got in trouble for saying that the market was easy to manipulate?  It happened last year I think.  He had to apologize and say he was kidding or something like that.    Of course he wasn't.  I haven't been able to find it in recent searches.

    those shows are ridiculous.  

    My main point is all the headlines and talking heads were saying this housing news was good news when it was nothing of the sort and that the financial media talking points are worth as much as the war on iraq and iran ones.

    by onemadson on Sat Aug 25, 2007 at 05:54:51 AM PDT

    •  That was Jim Cramer

      and obviously, nothing happened.

      Re: "good" news.  Financial market players are always trying to anticipate, to look ahead.  So when they expect "catastrophic" news and it turns out to be merely "awful" news, relatively speaking it is "better" than what they anticipated before, so the market rallies.  That's what happened with the housing data this week.  Google "The mess that Greenspan made" blog, and you'll see a confirmed housing bear make this point.

      Durable goods, a leading indicator for the economy, was an unalloyed positive.  Manufacturing has not been doing that well, so a big if one-month surge in manufacturing activity contra-indicates a recession.  If we do get a recession, it will be consumer-led, so I am most interested in retail sales (still weakly positive year-over-year) and weekly jobless claims (currently running at about 320,000/week.  For a recession you'd have to have about 350,000+/week on a consistent basis).

      Cheers.

      by New Deal democrat on Sat Aug 25, 2007 at 06:07:08 AM PDT

      •  housing data

        yeah, but none of the reporters put this in perspective of the big picture.  this was really bad news.   New home sales in the northeast are were off 25% even in this good news.  

        i just find the lack of ability of any reporters on any subject to ask a question of any substance infuriating.   Or I used to.   Now that i've learned the media is worthless I plan to use it to my advantage.    

        by onemadson on Sat Aug 25, 2007 at 07:13:12 AM PDT

•  Allow me to play the role of Mandy Rice-Davies.

  When you hear Mozilo predicting recession, say to yourself:
  "Well, he would, wouldn't he?"

  Countrywide's in the tank. As a face-saving exercise, it's essential for Mozilo to blame his company's troubles on wider events beyond his control. Self-serving twaddle, and the journos were right to jump him for it.

  by ticket punch on Sat Aug 25, 2007 at 06:16:46 AM PDT

  •  true

    its doesn't hurt him to predict one and NDN has already pointed out why he is motivated to say this, but everyone else on the shows acted like there is no chance of a recession.   That is not a very rational position.   They were saying things like "the market has already priced in any additional risk that the subprimes pose".    There is a shit load of subprime ARMS that are going to default in the next 18 months.    Here we are on a show where they are watching stock prices on an hourly basis and they want me to believe that the efficient markets have already accounted for all of the unknowns for the next 18 months.   Right.  Anyone who says that is either an idiot or lying.

    not sure what your sig line means but turkeys can fly.    they aren't good at landing though.   When they land in trees it quite a sight and certainly looks more like a crash than a landing.

    by onemadson on Sat Aug 25, 2007 at 07:17:54 AM PDT

    •  Sig is a quote from "WKRP in Cincinnati,"

      first season, episode 7, "Turkeys Away."

      I remember Dick Cheney talking up recession and worse to anyone who would listen, in the period just before and again after the 2000 selection--in order to get signoff for tax cuts.

      Skepticism is a good thing, as long as it's evenly distributed. I don't take much of what those polyannas and panglosses say at face value either.

      by ticket punch on Sat Aug 25, 2007 at 07:28:17 AM PDT

•  tag cleanup

  i removed "countrywide financial" and "recession;" neither are found in the list of 900 common tags. i inserted "finance." librarians are working to normalize the db before release of dkos 4.0. please refer to the following resources on tag selection. you may want to add the name of a political agent(s) -- of economy, finance, or debt for example -- found among the list of 900 common tags so to modify further your diary's content.
  -----------------------------
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  Tagging Tips
  list of the most common tags, alphabetically
  Great Tag Search Tool

  ------------------------------
  thanks for your cooperation.

  by MarketTrustee on Sat Aug 25, 2007 at 07:37:23 AM PDT

  •  I had added those. n/t

    by ticket punch on Sat Aug 25, 2007 at 08:10:15 AM PDT

    •  i sentence you to ...

      400 hrs tag cloud clean up + retyping ain't i cute? 20x + 3 cans of spinach.

      mwahahahahaaaaa ...

      by MarketTrustee on Sat Aug 25, 2007 at 08:16:31 AM PDT

      •  The tag cloud will always lag the topic cloud

        but can and should follow it.

        by ticket punch on Sat Aug 25, 2007 at 08:25:27 AM PDT

•  The financial shows are geared to day traders

  and they almost became a viable part of the economy just before the "Tech Stock" melt-down .... As a fun trivia exercise, it is amusing to watch the timing of the programs like Wall St. Week on how soon they move to the couch. In a week heavy with financial news, it takes longer ....

  by jfdunphy on Sat Aug 25, 2007 at 07:48:53 AM PDT

•  it's been a long, long time

  since NPR was any good...my patience with them finally gave out when they were jumping on the Clinton impeachment bandwagon morning, noon and night...of all the times when we needed somebody to step up and say, "You know, this whole business is a crock!"

  by glaser on Sat Aug 25, 2007 at 08:20:05 AM PDT

•  It is odd how the financial shows

  base stock earnings.  Next week's earnings will be from the 2nd quarter.  Yet, they turn around and say the price of stocks are based on the future. What happened to 'now'?

  It is kind of pathetic when grown rich men get on TV and cry when they get their salaries cut or their stocks go down, yet they applaud layoffs.

  The financial people know the more people they can get to be dependent on the market, the more they can demand for the market and have control of the peons.

  Some of the congregation are losing faith in this faith based market. Basically, what the stock market does is take profit from everything sold making everything cost more when a person buys it.  If prices keep going up, we will have $20 hamburgers in a few years.

  'Faith based market' is a great line.

  by relentless on Sat Aug 25, 2007 at 08:33:13 AM PDT

  •  Stock market causes inflation? Hmm,

    I'll have to think on that one.

    by ticket punch on Sat Aug 25, 2007 at 08:52:55 AM PDT

    •  Stockmarket causes inflation?

      IANAE (I am not an economist) but I have been thinking about that one.

      It seems to me the way the stock market could cause inflation would be if it increased the money supply without proportionately increasing production of useful goods and services. Does it do that?

      It seems to me that the housing bubble did cause inflation because it did increase the money supply. The bundling and re-bundling of morgages, and derivitive instruments based on mortgages, and then derivitive instruments based on derivitive instruments based on mortgages, etc ad infinitum, with every step being highly leveraged, has resulted in the people at the top of this fragile pyramid being considered Very Rich. To me, that looks like there is a tremendous amount of money at the end of that chain, far in excess of the useful value of the houses at the beginning. So, doesn't that mean that a lot of money was created that was not "secured" by anything of use in the real world?

      Others in this thread can answer that question better than I. I'd appreciate hearing your views.

      Regardless of whether the housing bubble and/or the stock market create money and thus cause inflation, they do cause the ownership of large amounts of money to be assigned to people who neither produced anything useful, nor caused or facilitated the production of same. To me, this looks like a mechanism to allow the already wealthy to capture for themselves the benefits of productivity increases of real workers. And indeed, we do see that despite steady, substantial increases in productivity decade after decade, workers' inflation-adjusted wages have stayed flat, while net worth of the top 1% has enjoyed stratospheric increases.

      In other words, the stockmarket and the housing bubble are both processes for the upward transfer of wealth.

      by DBunn on Sat Aug 25, 2007 at 09:37:24 AM PDT

      •  The stock market doesn't boost the money supply

        so that's question 1. When mortgages are securitized, they are sold in the bond market. They're instruments of debt, not equity.

        Through careful thrift, I have saved some money. I have some of it invested in stocks. If I own a company that is doing well, I expect to see some of that reward. I don't think that makes me any less of a Democrat than one who has saved nothing.

        by ticket punch on Sat Aug 25, 2007 at 09:43:43 AM PDT

        •  Less of a Democrat?

          In no way did I intend to suggest such a thing. I'm just trying out my primitive ideas on economics, and trying to increase my understanding.

          As people and Democrats, it seems to me we have to do two thngs at the same time. As people, we have to play the game we are actually in, according to the rules presently in force. As Democrats, we try to modify the rules of the game so as to create more winners, and to reduce the number of folks who are unnecessarily or unfairly forced into the loser category.

          I don't think those things are at all contradictory.

          by DBunn on Sat Aug 25, 2007 at 10:23:59 AM PDT

          •  I learn something new every day

            I have been told before that the market doesn't cause prices to go up.  I never thought of prices going up because of the stock market as inflation. I am no economist either.  To be honest, I am not sure what inflation is. If money has to be printed to cause inflation, then I suppose you can't call the market influence inflationary.

            It seems that to keep stocks going up, prices charged have to keep going up or wages decreased or lay offs or cost cutting increased. Has anyone noticed how many jars and packages of food are getting smaller?  That is selling less for the same price, a new way to cut costs and raise profits without raising prices.

            Prices can go up even if there isn't more money printed.  I could ask $2 instead of $1 and there would still be buyers of my 'handy dandy item'.  You know, like oil and insurance companies do.

            I guess the difference is when more money is printed, then there are more people with 'the new off the press money' that can buy product X, where when the price (to keep the market happy) goes up without newly printed money then there are more who can't buy product x.

            My husband and I invest in the market too with a 401k.  I have a couple of stocks outside of the 401k.  Sometimes I have made money from the market while swimming or taking a nap.  It is easy money.
            You don't have to get up early, get dressed, dress the kids, feed them, gas up the car and take them to a very expensive day care while they cry to stay with you, then you spend 8 hours doing many things you may not like to do, making enough to just pay the basic bills.

            We used to be slaves to kings, but in some ways we are slaves to money, now.  Not much you can do without money. It is better than being in real slavery, but the "Wild West Capitalism" that Bush is pushing can only end badly.  More of those profits should go to those who produce the profits by working.  There are too many who are working very hard but not earning a living wage.

            The reason the market is going up is partly due to the money that Bush loves to print.  I have heard if they lower the interest rate next monththat means they have given up on inflation. Katie bar the door.

            The problem I see is too much money is going to too few people.  Something like the top 5% make the same as the other 95% combined.

            The mutual funds and stocks are helping many keep up with inflation, except when there are down times like we had in the recent weeks.  But a lot of people have suffered so "the market can be competitive with those overseas".

            by relentless on Sat Aug 25, 2007 at 04:59:14 PM PDT

            •  No, if interest rates are going up,

              that means the money supply is tightening, not expanding. Speculation accounts for some of the rise, but business conditions are pretty good right now for the companies tracked in the Dow Jones Industrial Average.

              Walk over to the NASDAQ for a very different picture.

              by ticket punch on Sat Aug 25, 2007 at 05:32:21 PM PDT

        •  I don't think it makes you less of a Democrat

          either.

          I invest and have finally made some money.  I would have done just as well, maybe better had I put it on 5% interest for the past 15 years, but that hasn't always been available.

          I enjoy investing.  I do think it is going up too fast and we need to preserve some of our profits, but not all money markets or banks are safe at this time.  

          The markets will fail if we keep having blatant dishonesty, like the latest mortgage chaos.

          by relentless on Mon Aug 27, 2007 at 04:45:26 AM PDT