No Positive News?

Last week a colleague asked me with a puzzled tone, “Why is the government still talking down the economy?” As I pondered the question, I had to agree with him that much of the commentary we hear from government officials seems to focus on the “half empty” nature of the glass. Perhaps they are still trying to reduce expectations as to what the government can actually accomplish in the short run. Perhaps the newly elected still think that all current problems can be attributed to the newly evicted. Perhaps in order for the average US citizen to fully buy into the significant, fundamental changes embodied by the government’s “stimulus” plan, we all must agree that our nation is broken, and that “… an era of profound irresponsibility that engulfed both the private and public institutions…” (President Obama from “A New Era in Responsibility”) is to blame. Perhaps the hedge fund industry (which has been conspicuous in the media by its absence) has much greater influence over government policy makers than the average citizen can imagine. One thing for certain, those who can short stocks (like the hedge fund guys) are making more money right now than the rest of us who only buy or hold stocks.

Why the excessively negative tone about economy? Not sure. Granted, much of the official data we see coming out of the government reflects an economy in a serious recession, but the commentary I hear from both government spokespersons and the cacophonous talking heads in the media would suggest something “more serious.” I am shocked and amazed at how often and quickly the media and their “experts” will go to the Great Depression for parallels to the current economy. I will concede that the average person may have little or no understanding of what happened during the 1930s, but I would expect that the “experts” so frequently appearing on TV would. In the 1930s, the US had no SEC, no FDIC insurance, no securities laws protecting investors from fraud and market manipulation, no safety nets for the unemployed, no social security for families without breadwinners and so forth. Regardless of how bad the media says things are now, I find it unfortunate that no one seems to be commenting the few positives which I can see, that may be harbingers of better news to come.

For example, mutual fund flows for both stocks and bonds were positive in January (according to Lipper). February retail sales actually rose 0.5%, the first uptick since September of last year. We have seen a healthy number of new bond issuances, suggesting that the credit market is healthier than it was a few months ago. Even the latest employment report showed some deceleration in the pace of employment trends. The prices of many important manufacturing commodities, including copper, iron and oil, have been rising lately, perhaps suggesting some stabilization of demand – something that would precede a recovery. Even China, whose growth has slowed dramatically of late, has reaffirmed its GDP growth target of 8% for 2009. Consolidation in the pharmaceutical industry (Merck buying Schering-Plough and Pfizer buying Wyeth) should be viewed as positive moves, but the media can only view them as further evidence recession fallout.

I am not saying that all is well and that a recovery is just around the corner. What I am saying is that the US public is not getting the whole picture from the traditional sources of news and information. I think individual investors are being particularly ill-served by the media outlets ostensibly created to serve their needs. I feel especially sorry for those who have sold stocks (particularly in retirement accounts) and are holding cash on the recommendation of someone (Cramer, Roubini, etc.) who does not have skin in the game and who does not possess any special insights that will help these investors get back into the market before it goes up.

Unless “this time is different” (still the four most dangerous words in the investment business, in my view), the stock market will begin climbing the proverbial wall of worry, long before the talking heads will be able to tell us that the recovery has begun.