Tag: herd

The Revolt of the Media

Guest Post by The Zman

Way back in the olden thymes, “the media” was the local newspaper, news radio and the evening news on the television. My father would read the paper every evening after dinner, while my mother would watch the evening news. Once in a while my mother would put on the radio and listen to the news channel, but that was rare. If the people in charge wanted to get the attention of the peasants, they had to do it in those small windows when people paid any attention to the news.

We live in a different age, but it is a very new age. We are saturated with media. Young people have no frame of reference so they just assume it has always been thus, but our modern mass media culture is one of those rare things that is truly new. It really was not so long ago when it was easy to be entirely uninformed about the world. It took great effort to be well informed. That’s not to say we are all worldly cosmopolitans, but the world is literally at our fingertips. More important, media is everywhere and it hard to escape it.

This newness means that the people in charge have struggled to put it to their uses. Buying off a few newspaper publishers was easy. Controlling the three TV networks required hardly any effort at all. A free wheeling mass media with millions of bloggers, podcasters and small outlets is a different task. Rounding up the farm’s bull is a hard job, but rounding up all the barn cats is actually much tougher. The former can get you killed, but the latter has a maddening number of variables.

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THE HERD IS HEADING FOR A CLIFF

You would think investors (muppets) would be grateful for the extended topping process of the stock market, as it has given them the opportunity to exit before the inevitable crash. As CNBC and the rest of the mainstream media spin bullish stories to keep the few remaining mom and pop investors sedated and the millions of passive working Americans invested in their 401ks, the Wall Street rigging machine siphons off billions in ill-gotten gains, while absconding with fees for worthless advice.

Does the average schmuck know the S&P 500 stood at 2,063 on November 21, 2014 and currently sits at 2,056, thirteen months later? Based on the media narrative, we are still in the midst of a raging bull market. John Hussman provides the counterpoint to this narrative with unequivocal factual evidence based upon a hundred years of stock market data and valuations. Anyone investing in today’s market should expect ZERO returns over the next ten years and a 40% to 55% plunge in the near future. And as a cherry on top, a recession has arrived.

The summary of this outlook is straightforward. I view the equity market as being in the late-stage top formation of the third financial bubble in 15 years. Based on a century of evidence relating the most historically reliable valuation measures to actual subsequent market returns, neither a market plunge of 40-55% over the completion of the current cycle, nor the expectation of zero 10-12 year S&P 500 nominal total returns, nor the likelihood of substantially negative 10-12 year real returns should be viewed as worst-case scenarios – they are all actually run-of-the-mill expectations from current extremes. Based on the joint behavior of the most reliable leading economic measures (particularly new orders plus order backlogs, minus inventories), widening credit spreads, and clearly deteriorating market internals, our economic outlook has also moved to a guarded expectation of a U.S. recession.

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