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In "Financial Press Getting Very Scary — Good Sign?," the
Wall Street Journal's
MarketBeat blog notes that at least one
"expert" believes bearish sentiment about the economy is at or near
a contrarian extreme.
The financial
press sometimes is ahead of the curve, but it can also act as a contrarian
indicator.
The most famous
incidence of this is the BusinessWeek story in August 1979 that proclaimed the
Death of Equities. This story ran on the eve of what would become a
remarkable two-decade surge in shares, capped by the craziness of the
Internet bubble of the late 1990s.
With that in
mind, Ed Yardeni, head of Yardeni
Research, takes a tour of the recent financial press landscape. He finds
plenty of really scary headlines, including:
- The
Wall Street Journal’s Monday story about how debt is
hampering the recovery. It talks
in stark terms about how debt-fueled binges usually result in a very,
very long recovery period.
- Not
to be outdone, Bloomberg this week features Gary Schilling, an
economist, arguing that China is
headed for a hard landing. In Part
One (a multi-part series?!?!?) he says: “Few countries are more
important to the global economy than China. But its reputation as an
unstoppable giant — as a country with an unending supply of cheap
labor and limitless capacity for growth — masks some serious and
worsening economic problems.”
Mr. Yardeni’s view: “It may be time to be a
contrarian. If the financial press is losing all hope in the long-term
outlook, then maybe the future will be better than expected by the consensus
of doubters.”
While I
generally agree with the view that it's a bullish sign when "the
crowd" is negative, that perspective doesn't just refer to the media or
certain segments of the population. It also includes Mr. Yardeni's
(highly-paid) Wall Street peers, who appear to be lopsidedly bullish
nowadays, as the Associated
Press reports in "Why
Economists See a Stronger Second Half for 2011":
Farewell and
good riddance to the first half of 2011 — six months that are ending as
sour for the economy as they began.
Most analysts
say economic growth will perk up in the second half of the year. The reason
is that the main causes of the slowdown — high oil prices and
manufacturing delays because of the disaster in Japan — have started to
fade.
"Some of
the headwinds that caused us to slow are turning
into tail winds," said Mark Zandi, chief
economist at Moody's Analytics.
For an economy
barely inching ahead two years after the Great Recession ended, the first
half of 2011 can't end soon enough. Severe storms and rising gasoline prices
held growth in January, February and March to a glacial annual rate of 1.9
percent.
The current quarter isn't shaping up much better. The average growth forecast
of 38 top economists surveyed by The Associated Press is 2.3 percent.
The economy has
to grow 3 percent a year just to hold the unemployment rate steady and keep
up with population growth. And it has to average about 5 percent growth for a
year to lower the unemployment rate by a full percentage point. It is 9.1
percent today.
As welcome as
the stronger growth envisioned in the second half is, the improvement should
be modest. For the final six months of the year, the AP economists forecast a
growth rate of 3.2 percent.
It's also worth
noting that contrarian calls really only make sense when the data matches the
sentiment. With the stock market off five percent from its two-year highs and
the year-over-year change in real GDP at 2.3 percent, one could hardly
describe those numbers as being overly negative.
Once again, if
you want to know what's really going on in the economy and financial world
nowadays, pay no attention to those clueless shills who the mainstream media
keeps relying on.
Michael J. Panzner
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