Thursday, January 24, 2008

Market Meltdown or Media Madness?

Controversial financial adviser Robert Kiyosaki in a recent newsletter, has bemoaned what he perceives as the financial illiteracy of some financial journalists.

I sometimes wonder about the intelligence of many financial journalists, both in print and the electronic media...The problem with much of the financial news in print and on the web, radio, and television is that it comes from journalists who may not be investors. When I listen to most journalists whine and cry about the subprime mess, the slowdown in the economy, and the volatile stock market, I can all but tell that they're not really investors.”

I am inclined to agree with Kiyosaki who has made millions by going against conventional financial thinking strategies.

My inclination has come in the light of overly-sensational newsclips by American and foreign correspondents which are being splashed around the world as forecasts of a global recession projected as the inevitable outcome of America's economic woes. In spite of their strong continually expanding economies Asian, European and South American markets are now dipping to levels lower than those experienced in the post -911 tragedy largely as a result of poorly researched, media-generated hysteria. News stories are liberally sprinkled with phrases like “worldwide recession”,“bear market” and “crash” and “global market meltdown”.

Could this be a manifestation of the current media malady that chooses cheap sensationalism, and careless generalizations and over well-researched truthful and balanced reporting?

The irony of it all is that US economists, fund managers and financial experts are yet to reach an empirical consensus that the US is slipping into recession. The myriad views being expressed are based on opinion and intuition rather than fact and figures.

I am aware of the sub prime debacle and the ensuing credit crunch in the US. I am also aware that the Federal Reserve has been slashing the federal fund rate on a regular basis and President Bush has announced a 145 billion dollar stimulus plan to regenerate the US economy but no respected authority figure has been clear about the motives for these measures. Are they intended to stave off the possibility of a recession or is the US already into a recession cycle?

Ken Fisher, CEO of Fisher Investments and Forbes columnist describes a recession as “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real Gross Domestic Production (GDP), real income, employment, industrial production and wholesale and retail prices.”

I am seriously asking myself if some of these financial journalists are even able to define the term “recession” precisely or understand the basic dynamics of economic growth and development.

How many of these financial reporters have done in depth comparative research on GDP statistics in the US or the emerging markets to make such far reaching prognostications about a worldwide recession? Very few would be my guess. Instead they appear to rely on man-in-street hearsay, expert quips taken out of context and the avalanche of speculation and wishful thinking that is acceptable as responsible reporting today.

Investors across the globe, with herd-like docility are panicking and selling off shares en masse to avoid being caught up in the perceived “oncoming global recession.” This artificially stimulated fear reaction is inevitable because consumers are media-conditioned beings whose thought patterns and behavior are shaped and controlled by hundreds of multi-media clips every few hours. To compound matters, they also trade on emotion and the financial media is having a field day promulgating fear and worldwide recession because it makes for a “good” story almost in line with the gleeful frenzy behind a juicy Hollywood scandal.

It would seem therefore that general public consciousness about the health of global economies is molded by a plethora of sensationalized, and largely under-researched, news breaking stories across the media repeated with parrot-like frequency every few minutes.

This is difficult for me to compute at any level.

I am no expert on world economies but I took the time to educate myself on the reality of basic market dynamics. As a small investor, a self-taught woman of colour who took many years to move beyond the safety of 2% per annum fixed deposits and into the high risk world of offshore equity investing I am aware of my nondescript, almost plebeian status within the world of high finance.

Yet, I am audacious enough to ask question and make observations based on my research. In my opinion, there is no real credit crisis in emerging markets. On the contrary, American financial institutions mired in the sub prime mess are being bailed out by Middle Eastern and Asian corporations with an eye on long term benefits. To this, we should factor in a rapidly growing demand from an affluent Asian middle class reality and the fact that with the exception of Japan, emerging markets in the East, sell 43% of their products to non-American markets. An American recession would no doubt result in lowering the demand for products from around the world and slightly smaller returns from equity investments in the BRIC countries, but given the strength and resiliency of these emerging markets, this is hardly likely to lead to a global recession.

I am appalled by the media's sieve -like perceptions of the current economic situation around the world and irresponsible reporting which is exacerbating a situation that really does not contain the fundamentals to become an international crisis Yet, I am more puzzled that no international high profile economic or government expert has taken the collective media to task for this level of irresponsibility. This type of journalism is inflicting unnecessary and incalculable damage to the American and global markets. The legendary Warren Buffett has always said that it is very important for society to have accurate and informed sources of information and he is correct. The repercussions of unreliable financial reporting is today having dangerous and unnecessary repercussions everywhere and media houses must invest more resources in proper economic research or lose their claim to credibility in the eyes of the world.

-Carol Ann Mohamed for The Coup Magazine

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