Woefully Inadequate Financial Reporting
Sept. 18, 2009
SPOKANE, WA News stories from leading financial publishers appear to be poorly-researched and woefully inadequate of late. The cacophony of shallow news reports is of no help at all to those trying to make sense of the market's moves.
Without naming the source, consider this recent news-bite: "Last week, the dollar swooned as stocks and commodities rallied. That trend reflected a somewhat improved appetite for risk despite the lingering effects of the global recession." Clearly the author of this news-bite refers to the global recession as if it were a thing of the past. But nothing could be further from the truth because the global recession has not even started to show its real effects. Although the recent run-up has improved returns on stock market investments, nearly everyone has lost their appetite for risk. Banks, sovereign funds, private equity firms, hedge funds, venture capitalists and asset managers are still reeling from the massive losses accumulated over the past two years. Stocks, which have been rising on thinning volumes, do not reflect fundamentals. Unlike the general market's rise, real profit projections have not rallied 50 percent over the last six months. If they had, insiders would not be selling at the torrid pace that they are nowadays.
Additionally, unemployment benefits had thus far helped keep consumer spending afloat, albeit at reduced levels. But with unemployment benefits beginning to expire for thousands in the weeks to come -- indeed millions across all 50 states -- it is only a matter of time before the economic malaise creeps into full public view. While painting such a scenario brings no joy it is important to recognize reality and prepare for what is likely to be a long and difficult period ahead.
Washington spin does not help either. In his speech marking the one-year anniversary of the banking fiasco President Obama hinted at a "return to normalcy." Fed Chairman Ben Bernanke is taking cues from the same playbook as he publicly talks-up the so-called "green shoots" of the recovering economy, often spurring irrational rallies. One can't help but wonder how out-of-touch the President's economic advisors are if they believe normalcy is around the corner. While the President is expected to play cheerleader to boost morale he should not underestimate the American peoples' capacity to evaluate these events for themselves. Consequently, when the recession finally does actualize the President's distortions will resurface to damage his moral and political credibility.
Thankfully there are those who still call it as they see it. Nobel Prize-winning economist Joseph Stiglitz believes that the banking problems today are far worse than before the crisis in 2007. He is on record stating that "the too-big-to-fail banks have become even bigger," and that "we're going into an extended period of weak economy."
Though challenging, if one is to prepare for the future it is essential to filter out the establishment noise when analyzing the facts. While the pundits speak of a recovering economy, the data points to bleak times ahead. Clearly the market is supremely capable of defying gravity for extended periods, however fundamentals always win over in the long-run. So, despite media-fueled optimism, in the face of such weak fundamentals it may be wiser to cautiously hedge one's portfolio than to dive headlong into the market.