Same Old Song and Dance

Story Highlights

• After two minor days of short term downside volatility, myriad defunct worries have again reared their heads across headlines
• Common worries that never before sank stocks during the current bull market are widely known to investors and therefore don't have much power today—no matter how much media coverage they get

Question: What do these headlines from today's news have in common?

1. The Consumer Buying Binge Is Over
By Geoff Colvin, CNNMoney.com
https://money.cnn.com/2007/10/15/news/economy/colvin_buyingbinge.fortune/index.htm?postversion=2007101609

2. Wall St. Worries about Oil, Rates
By the Staff, CNNMoney.com
https://money.cnn.com/2007/10/16/markets/markets_1030/index.htm?postversion=2007101610

3. Housing Decline Expected to Last to 2009
By the Associated Press, Kiplinger

4. Bernanke Has Warning for Wall Street
By the Staff, CNNMoney.com
https://money.cnn.com/2007/10/15/news/economy/bernanke_speech/index.htm?postversion=2007101522

I. They're written by journalists and editors with a motive to capture the readers' attention and sell newspapers and advertising

II. They highlight economic negatives and diminish the overwhelming positives in today's economy

III. In an attempt to explain two days of minor downside market volatility, the headlines draw faulty connections to common investor worries amid perfectly normal stock market volatility

IV. None of the fears cited are new and therefore are likely fully reflected in stock prices and lack surprise power to move markets meaningfully

A. I only
B. I & II
C. II & III
D. I, II, III, & IV

(Answer: D)

To our minds, today was a purely archetypal day for the financial press during a bull market—filled with big worries that in fact have little potency to sink stocks. Two days worth of minor downside volatility is very normal. In fact, it can be dangerous to try and assign concrete reasons to daily market action—false correlations and bogus anecdotal confirmations can ruin a portfolio's return very quickly.

Nothing sells like fear. It's imperative to remember most major media outlets are driven by profit and are in fierce competition with one another. The best way to get attention and keep those eyeballs riveted to the newspaper page is with fearful stories. See this past commentary for more:

Anecdote Is no Antidote (6/21/2007)

We're continually amused at the media's creative ability to spin just about anything into a negative. A classic example is today's supposed "warning" from Fed chair Bernanke. Maybe it's just us, but we gleaned an entirely different tone from his exact words: "Rather than becoming more crisis-prone, the financial system is likely to emerge from this episode healthier and more stable than before." The reality is Bernanke's tone was at the very least sanguine, if not downright upbeat overall. The world is filled with far more positive news than negative, but it'd be impossible to tell from the headlines today. For more, see this past commentary:

Grumpy Journos, Happy Market (8/28/2007)

But the main lesson for investors is the idea that widely known information is reflected in stock prices and therefore lacks power to move markets significantly looking forward. Each of the headlines highlighted above constitutes stale fears—brought up again and again throughout the bear market. We're pretty sure investors are aware of the risks posed to consumer spending and high energy prices by now. This past MarketMinder commentary details the concept further:

Market Efficiency and the Bard (8/15/2007)

It's particularly bullish when the media can't find anything new for us to fear, instead resting on the laurels of old and tired market worries. Getting the same old song and dance from the media is frustrating, sure, but it's also the stuff of great stock returns.