Wednesday, November 2, 2011

The Media and Confidence

This morning's Seattle Times headline screamed "Greek Debt Vote Rocks Markets" . The article went on to proclaim that "U.S. stocks plunged as investors fretted that Europe's problems, believed largely resolved, now appear far from settled and threaten a week recovery." The Dow Jones fell nearly 300 points.

Today, the market has already made up over 2/3 of yesterday's loss buoyed by good news of private sector job creation.

Hmmm. Do you think that the uptick will make the Times headline? Did the Times headline last week's good news on GDP growth?

The point is that people tend to take in news with the emotional part of the brain not the rational part. The constant outflow of bad news accumulate into declining consumer confidence. Any good news is generally off the media radar screen.

In reality, a recovery is very slowly building and markets have been relatively stable on a monthly basis over the past year. But consumer confidence has lagged. We are mere mortals who forecast the future primarily on the mood of today, when things are good, they are good forever. When they are bad, they are bad forever. The Seattle Times is merely doing it's job, but the effect is to tamp down consumer confidence.

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