With the turmoil in Washington have come several calls and emails from concerned clients. Not surprising considering the circumstances. But the one troublesome common thread has been the affect that the media has had on investor psyche. Most callers have questioned what will happen to their portfolios when (not if) the government defaults. Since my position has been pretty consistent that we will not default – no politician wants to campaign on the fact that they caused the latest financial crisis and recession, I’ve pressed our clients about why they are so concerned. In all cases that brought us to the financial media. The news is full of catastrophic domino affects that will happen should the U S default. The trouble is, opinions have been all over the map, mainly because no one really has a clue as to how events will unfold should the debt ceiling not be raised by the end of the month. Sure many things can happen, and there is no shortage of interviewees willing to throw out their version of what a default means. The reality is the talk is meaningless. No one really knows. A U S default has no precedence.
This brings me to a story I heard back in the very early 1990’s regarding the financial media. A little history lesson here. Prior to 1987 there was no financial specific national media. During and after the October crash, CNN noticed that their ratings skyrocketed while they covered the crash and what it meant for investors. I believe that this was when they started CNNfn, a second station dedicated to financial news and thus the birth of the financial media. Remember, at that time there was no internet media. Financial news came monthly from Money Magazine. Publications like Kiplingers and Smart Money came after the ’87 crash. TV financial news was a new frontier. I think a competitor to CNN started a financial network at that time – so a total of two national cable media outlets in the early 1990’s.
I was at a conference at the time, and one of the speakers was Dr. Bob Putnam (Dr. Bob), appropriately the spokesperson for the Putnam Mutual Fund Company. Dr. Bob was a very good speaker and was in demand at such conferences and made regular appearances on the cable news stations. He related the following story.
Dr. Bob has an early 6 AM interview (I’m guessing here) on CNNfn. Which he pointed out required him to get up at 4 AM to make his appearance on time, so he was a little grumpy. During the interview he was asked “Do you think the Fed will raise interest rates today at 11:00AM or wait until the end of their session at 4:00 PM?” Dr. Bob was taken off guard by the question and replied, “I don’t even know whether the Fed will raise rates, let alone whether they will do it at 11 or 4!” (Could you imagine such honesty today?)
After the show was done, he felt bad about snapping a bit at the interviewer and approached her to say as much. “I’m sorry for snapping a bit at your question, but really that was a pretty stupid question”. And here (finally) is the punch line, her response:
“I don’t care whether my questions are good or not. I have 24 hours of airtime to fill. I just need an answer!”
Again, for perspective, this was the infancy of financial media. There were only two cable networks competing for content and no internet news to speak of. Today there are at least 4 national 24 hour cable financial news networks. Another half dozen+ of main stream financial news web sites, dozens of blogs and other miscellaneous financial news sites, and while declining players, the paper editions of The Wall Street Journal and Investor’s Business Daily.
In other words, magnitudes of more content is needed to fill space today then was necessary at the time of Dr. Bob’s interview.
Remember the financial media does not exist to provide good, valuable and actionable information. It only exists to provide content, any content to fill time and to boost their ratings. Period.
As humans we have a psychological weakness to only “hear” information that conforms to our views. Contrary information is either subconsciously ignored, or twisted to be conforming. May I suggest that the next time you are watching your favorite cable news channel; you actively listen for stories that counter your current predisposition. I think you’ll be amazed by how many times, in the same day you will hear completely opposite opinions on the same subject.
This is not to say that there is no useful information in the media. It’s just to say that due to the need to fill very large amounts of time and space, the media has no filter to discern good from bad information. Just because it is a story on the news does not imply accuracy, or necessarily warrant an action. It is what it simply is – content to fill air time.