Market Analysis

The Could Headlines

With the faux credit crisis quickly becoming yesterday's news, the financial press is scrambling to find the next great fear-mongering and speculative story.

Story Notes:

  • With the supposed "credit crisis" tragedy averted, the financial press is already scrambling for new fear-laden stories to grab and hold public attention.
  • It's bullish for stocks when the media has nothing much to say about current news and must resort to speculation on future economic woes to fill headlines—just as we're seeing today.

Media quidnuncs love to spread the latest gossip about the global economy. (See Aaron Anderson's past MarketMinder column, "The Paparazzi Economy" 7/20/07 for more.) Any juicy dish—scandal, credit constipation, or hedge fund implosion is fair game.

But with the credit crisis averted, the media just lost its prime financial story of the year. (Note: MarketMinder doesn't believe there ever was a big credit problem to begin with.) The gears are already shifting. Less than 72 hours ago all anyone cared about was a fix to the supposed credit crunch and the Fed's decision on short term interest rates. Now that Super-Ben Bernanke has come to the rescue (see yesterday's commentary: "Ben to the Fake Rescue!" 9/19/07" for more), credit contagions are yesterday's news and the media has officially begun scouring the land for any new signs of woe to excavate.

To wit, this week big US financials companies have reported much stronger results than anticipated, making the anticipated subprime meltdown seem more like a minor ding to otherwise robust profitability. For instance, Goldman Sachs today reported a 79% surge in quarterly net income and record revenue at many of its segments. Others like Morgan Stanley and Lehman Brothers also reported better-than-expected strength. That's great news for the US economy! But the headline we get proclaims:

Fed Rate Cut Could Burn Goldman Later
By Scott Patterson, The Wall Street Journal

Ho-Hum. Such overly dour headlines are all the more uproarious when we realize these are third quarter results. You remember the third quarter as the one where subprime and credit crises were set to unleash Armageddon on Wall Street earnings. This is also the period well before the Fed took any action to aid markets. Once again, the ordained Apocalypse didn't materialize—with or without Fed help.

In fact, Fed chief Bernanke and Treasury Secretary Paulson said today in testimony to Congress the financial system remains in a "relatively strong position," and that new regulation to "fix" mortgage problems would likely cause more problems than they solve. (What great advice! We hope Congress listens.)

Congress Is Warned: Go Easy on Lending Fix
By Jeanne Sahadi,

Call these the "Could Headlines." When the media has little to report on today's action, their only recourse is speculation on a bleak future. You can find "could" headlines in just about any major periodical these days—it's persisted since the inception of this bull market. We delight in the qualifiers used to substantiate the headlines. "Economic growth is fine…for now," or "Thus far, inflation hasn't been a problem, but that could all change soon." Here's another:

Data Instill Calm, But Weak Dollar May Fall Again
By Dan Molinski, The Wall Street Journal

Scary! Let's be clear: We're not advocating using backward-looking metrics to predict future stock market movements. Rather, we're simply pointing out the vast majority of today's fears are predicated on baseless speculation. Here are some other fun "could" 2007 topics that never materialized:

  • Economic recession
  • Rampant unemployment
  • Subprime and credit contagions
  • Tapped out consumers
  • Runaway inflation

Over in the derelict "fact" category, we have the following:

  • Global corporate earnings are trouncing expectations so far this year
  • Economic growth has been stellar worldwide
  • Long-term borrowing rates are cheaper today than they were in the summer and still near historical low levels
  • Consumer income and spending levels are strong
  • US productivity continues to grow at healthy rates
  • Inflation is lower today than it was over the summer and remains contained
  • Foreign investment into the US is strong; US investment in foreign lands is also surging

But what we'd really like you to see is how far media fantasies can be taken. Erroneous speculation can actually solidify in folks' minds and lead to further wrong conclusions:

World Economy in Flux as America Downshifts
By Michael M. Phillips, The Wall Street Journal

What the? Let us get this straight: The US economy is already slowing, US consumers are already tapped out, and the dollar is sinking through the floor. Therefore, the US trade deficit is narrowing due to the onset economic weakness. This premise, reasoning, and conclusion are simply unfathomable to us. There's nary a scrap of news here—it's near total speculation based on wrong assumptions.

Speculators and fear percolators will always be spouting could've, would've, should've, ought to, might have and maybe. But savvy, dispassionate investors only move on the facts.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.