The Madness Of The Media

About a week ago, the cover story of Newsweek magazine dispensed happy talk to its readers, namely a firm declaration that the recession was over.

On Wednesday, more happy media talk as the front pages of the New York Times, the Wall Street Journal and USA Today proclaimed to its readers that the three-year housing horror show appeared to be over.

Maybe so, but it seems unlikely that the army of 14.7 million unemployed Americans, and counting, and the former owners of an estimated 2 million foreclosed and abandoned homes, and counting, will share their exuberance.

"Media madness" is the reaction of one top Morgan Stanley trader, who contends the economic facts of life are suddenly being replaced with economic fiction. "It reminds me of the lyrics from an old Johnny Mercer song," he says; "you've got to accentuate the positive, eliminate the negative." And that's what the media is doing, he says. "First, they accentuated the negative, and now they're eliminating it."

Charles Biderman, the 62-year-old skipper of West Coast liquidity tracker TrimTabs Investment Research, which is partially owned by Goldman Sachs and boasts among its readership many of the country's top hedge fund managers. seems to agree, ridiculing what he characterizes as the media's current bullish nonsense. "The Newsweek cover," he predicts, "will become an historical cover as a contrary indicator."

A one time Barron's reporter, Biderman has frequently taken pot shots at the press, knocking it for what he regards as its excessively rosy views of both the economy and the stock market. In effect, he's suggesting that the media's desire to want things to be better may be clouding its editorial judgment. One example may well be its mounting characterization of economic data as "less bad" when, in fact, it's still downright negative.

Biderman's thinking on this score should not be pooh-poohed. I've seen a number of examples where some in the media have gone off half cocked in their ultra-sunny economic market assessments. And then a day or week later, lo and behold, they turn out to be totally wrong. A recent example of the preposterous can be seen in the comments from one talking head on the usually reliable Fox Business Network, who told viewers that both the Bush and Obama administrations deserved a pat on the back for their economic actions. That's utterly absurd since under watch of the current and previous administrations--blame whichever party you'd like or both--we've experienced the worst economic downturn since the Great Depression, with the national debt, the budget deficit, bankruptcies and unemployment going through the roof.

Uncle Sam just reported that the economy, turned in better than expected numbers, shrinking at only a 1% pace in the latest quarter. Biderman is not impressed. It's not a year-over-year number, he points out, but sequential, quarter over quarter. Further, he notes, the number is only a very preliminary estimate, which in the past has been so dramatically revised that it has become meaningless.

Meanwhile, Biderman seems to offer some compelling arguments that the media's housing and economic bulls could be skydiving without a parachute. Recently, there has been good news on the housing front. Namely, new home sales in June rose 11%, while existing home sales for the month rose for the third consecutive month. More recently and considered even more relevant, a survey of 20 metropolitan areas by the well regarded Case-Shiller folks showed that home prices rose in 8 cities in May, versus 4 in April.

In response, Biderman notes "the bulls are putting lipstick on the housing pig and it won't work." The reason, he says: the bad news on the housing front outweighs the good. For starters, he points out that as of the end of May, 11.3% of the 41 million total U.S. mortgagesoutstanding were delinquent, up from 8.5% or 3.5 million at the end of January. Likewise, he calls attention to some 5 million home owners who are no longer making their mortgage payments. As for the Case-Shiller news, he notes that on a seasonally adjusted basis, using month over month comparisons, home prices actually declined in June. He also argues that the housing bulls are ignoring a potential tidal wave of failures in option ARM and Alt-A mortgages.

(Option ARM mortgages are adjustable rate mortgages that allow you to choose among several payment options each month. Alt-A mortgages, more risky than conventional mortgages, are something of a step below loans for people who have better credit than sub-prime borrowers, but credit which may not qualify them for the best loans and lower rates.)

With job losses continuing to rise -- Biderman projects they'll top 400,000 in July--he sees a new downleg in housing starting in the fourth quarter or in early 2010, spurred by an additional wave of foreclosures, chiefly among higher-priced homes. "How are people expected to pay their mortgages if they lose their jobs?," he asks. "The answer," he says, "is they can't."

One of the damaging offshoots of the continued housing slump, as he sees it: "Banks will be hit with a tremendous increase in non-performing loans."

Lately, Biderman has been negative on the stock market and he's been decidedly wrong, given the robust resumption of the March-June rally. To make matters worse, his model portfolio has been recommending a number of short sales (a bet stock prices will go lower).

"The rally has been painful," he says, but he's convinced "it's fake and unsustainable." For the past 35 years, he notes, money managers have convinced themselves you buy stocks on dips, and it has worked. But that game, he believes, will come to an end because reality should soon come home to roost.

On the liquidity side, he notes that buying by corporate insiders is way down, while insider selling is way up. In addition, there are virtually no corporate stock buybacks.

"You have unemployment going up, wages and salaries dropping more than expected, falling consumer confidence, and many people have stopped paying their mortgages," Biderman says. "The only real improvement is in the stock market, and common sense tells you it can't last."

The economy, he predicts, will get worse, not better, and he believes the Dow Industrials, currently at around 9150, should return to their March low (6547).

Accordingly, says our bear, investors should now be aggressive sellers of stocks. Or put another way, when it comes to the market, it's a good time to be a wimp.

Email Dan Dorfman at [e-mail] .

Comments

[disgustedwithall]

What most miss is the INSIDE, the NE Triangle, roughly a area inside a 60 mile wide line drom DC-NYC-Boston, where real journalism, money and moral-ethics go to never be seen again, the revolving door center for education, finance and power. All is generally well.. for that "elite upper 3-5% that own and control 90% (or more) of USA real wealth, not the "paper valued" wealth as they kind of pushed such stuff on to the "alien 95% of the Hinter Lands".
The other 95% that the Triangle uses to collect votes, kids for their wars and for their garnishments.
taxes-fees for schemes they manage, but never loose any personal treasure. They even lend to each other and hold the numerous revolving doors open for each other, as "good manners and open corruption are the handmaidens of the elite of the Triangle..
So all you aliens, indentured servants of the Triangle's elite, stop you worries about recessions, jobs, health and such, the Triangle has already found solutions to these pesty items. they will of course advise you of some as soon as the Triangle's entertaiment divisions tell their news depts what to say.

[juskidding]

corporate media = wall street = neo-con war-mongering thieves

[marijam]

When they tell you to sell, it's already too late.

[ProfessorDuh]

"...on the usually reliable Fox Business Network." Had me, then you lost me.

[katielady]

They can afford to celebrate, along with the companies they enabled.. What jerks.. They sent millions of jobs out of the country, calling it globalization and sharing markets. Then they praise the robbers in the investment companies and banks..
And the media goes along like lemming to the sea.. am so sick to death of the 'blame Obama for his beer party' crap.. Obama said the effects of the last years of deregulation and war mongering were going to keep this country in a recession that would likely not recover for .... DRUMROLL..­.....2 YEARS!!!!! HE HAS BEEN PRESIDENT FOR SEVEN MONTHS.. even pregnancies last longer...
get over it...

[urweatherman]

Yeah, last years of deregulating F & F, championed by Barney Frank, and selling homes and giving credit to those that lied or could not afford it, sure did collapse our economy. Obama is just exascerbating the situation now, with the results continuing to come in for years to come. Its over, time to head for the hills! Unemployment over 15%, jobs continuing to accelerate overseas..­..thats what we have to look forward too! Should have kept the change!

[ProfessorDuh]

No, some houses for poor people did not collapse the economy. Trillions upon trillions of dollars in financial fraud, rigged through derivatives and credit default swaps, collapsed the world economy. Economies are destroyed by thieving billionaires, not poor people.

[larry278]

The Newsweek story of the recession, really the mother of all depressions, makes Newsweek, a cousin of the Washington Post & Slate, as reliable as Changing Times, an off shoot of the old Kipplinger Letters, was & is, if Changing Times is still published, on economic issues. While Barrons & the WSJ, at times, make wrong calls, Changing Times should be printed on tissue to make it easier to recycle & not stop flush toilets. Newsweek is as accurate as Forbes.
I'm waiting to hear somebody say that there's, "...light at the end of the recession/mother of all depressions tunnel". I mean LBJ, Gen Westmoreland & Rob't McNamara are dead. South Viet Nam was defeated by Uncle Ho & Gen Giap's forces in the early 1970's, Hanoi is the capitol of a united Viet Nam. Saigon was renamed to honor Uncle Ho. Younger people may not remember or even know of the catch-phrase & buzz word, "...light at the end of the tunnel..."­, that was used by LBJ, Gen Westmoreland & sychophants to fool people into thinking that the USA & S Viet Nam were on the long road to victory over N Viet Nam if we just held on & stayed the course.
If you see light at the end of the current & deepening mother of all depressions tunnel, stop using meth, ecstasy & special K, a doggie tranquilizer.

[jason77]

Any way to find out where the Wall Streeters are putting their grabbings from our money?

[JBS]

US Treasuries.

[disgustedwithall]

Check Congressional and political "campaign and related funds" status for 1% of it".. and then add in 1% "sign on bonus for retired congress critters "Entering" corp world as CEO and 1% for their familiy-friends hired by same. This would be a big sum as one has to include all state capitals as part of the "Flow of the robber baron economic stream".