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.