"Any society that would give up a little liberty to gain a little security will deserve neither and lose both." ~ Benjamin Franklin

Stupid Headlines of the Day

>> Tuesday, January 22, 2008

Just as an FYI, the economy has expanded every quarter for the past 6 years and the past 25 years have been one long, steady expansion with small dips and bumps. Read this guy, before continuing. Really, it sets the stage....

Done with James Pethokoukis? Good, now lets examine today's headlines.

Global Stocks Plunge as U.S. Crisis Spreads
Why it's a stupid headline:
  1. The fear of massive defaults, not anything tangible, is being blamed. Since any ARM keyed on the Fed is either the same or LOWER than a few years back, many adjustable home mortgage holders WON'T be paying more when they adjust.
  2. That leaves the silly people that bought over their means. But even that isn't a crisis - more like the status quo. It's not an entire market segment that's affected, just people that would have been in trouble with or without the "Subprime Crisis (TM)" that sells newspapers.
  3. In the middle of the passage is probably the key - "Many market analysts argued that stock markets in developing countries have appeared to be overvalued for some time, which would suggest that some of the market declines were necessary." Except that isn't as big of a headline. Put the word 'Crisis' in the headline and you sell newspapers.

Fed Cuts Key Interest Rate as Asian Markets Drop for Second Day
Okay, this is a decent headline, but this caught my eye: "Oil dropped below $90 per barrel on fears that a recession would stem demand." Hmmm, oil drops below $90 a barrel on "fear of recession", but that's not page one news. Last week it was page 1 news when it went over $100/barrel. Do you think the opinion writers will change their talking points because of this? I don't think so either.

The Des Moines Register really had a strange one....Here are two headlines, both on page 1, above the fold.
Stocks plunge on recession fears and Stop shortfall of vocational workers, say educators. Again with the "fear" of recession. A recession is defined as 2 consecutive quarters of negative growth. We didn't have as much growth last quarter as forcasted, but it still grew. Not meeting projections doesn't make a recession, just like a 6% increase isn't a cut, even when you asked for 8%. An increase is still an increase. But I digress. So we have one headline saying doom and gloom and hide under your bed and another saying that we don't have enough workers. Which is it? Are we going to need more employees, because the economy is expanding, or will people be laid off because of a recession?

Did you catch something in these? Notice that there isn't any hard data to support these fears? The only thing that is close to a hard data point is that investors overextended themselves in the home mortgage sector. Gee, sounds like the investor overextention of the tech "bubble" in 2000, doesn't it? Here is a tip that I hope is not a surprise to anyone. If you don't understand the business plan, or you don't understand how a business can make money, then don't invest in it. It really is that simple.

The important thing to remember is that you want to buy low and sell high. Sounds simple, yes? But how many of you reading this were considering selling a stock or changing retirement fund allocation because of the blaring headlines the past couple of weeks? If you sell now you are locking in the loss.

Let me say that again - If you sell now you are locking in the loss. Ask yourself this question, what do you think this stock will do in 2 to 3 years? Why do I ask this? Because now isn't the time to sell stocks. Now is the time to buy. But like everything, you have to do your research. You have to know what the company does, how it makes a profit and who the executives and directors are. You have to know it, not just your broker or the guy at the water cooler who sounds like he knows what he's saying (myself included).

Do you have a retirement plan? This affects those funds too. Pay attention to the rate of return. Check the prospectus, they are usually available on-line. Go to a plan that makes sense to you. It's your money. If your plan/employer/fund doesn't let you make changes, it's time to get a new one. Talk to a broker, they can help you move your money to an account that suits your tastes.


Iowa Bob 4:36 PM  

What a great post, you've really done your homework here. I was going to do a post today about the self-fulfilling predictions of the doom and gloomers, but now I think I'll just link over to yours. I couldn't have done a better job.

It's just like what I was talking about yesterday with the advancements in Civil Rights that we have seen in this country. When you get 95 things right out of 100, all the left want to do is focus on those 5 that still need work. Hey, I'm not saying we need to focus on those five, but how about a little recognition for the other 95.

I'm glad I belong to a party that focuses on what is right with America rather than what is wrong. And the funny thing about the Dem's is, they love to focus on what is wrong yet conveniently skip the fact that THEY are what is wrong with our great country.

Doug H 5:31 PM  

Thanks IB! Let's see, what starts a recession? Hmmm, could it be a bunch of negative headlines with little basis in fact and a lot of speculation and wishful thinking?

Individual stocks go up and down based on performance and investors' opinion on the value of the company. Anytime you see the entire market being blasted, that "usually" indicates a BUYING opportunity.

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