Economic Sentiment Watch: 'Let's Get Negative!'

On occasion our business takes us out of the world of investments and face-to-face with management. It is a good reality check. So many of those in punditry are convinced that they would do better than those in Congress, better than those managing auto companies, and better than those teaching at major universities.

Readers would be well advised to examine the credentials of those making such claims!

Our Experience

Here is what we have learned.

A highly-respected colleague -- an economist -- thinks that our profligate spending has caught up with us and forecasts a GDP loss of as much as 10%.

A highly-esteemed business associate, engaged in top-level sales in a cyclical business, sees a prolonged period of economic distress.

A respected colleague with broad experience in financial markets and connections to many corporate boards thinks this is the worst economic situation in his lifetime (back to WWII era). He notes that many of his companies are cutting back on spending.

Fortune magazine collects the views of some mostly bearish pundits, designed to scare the daylights out of readers. After all, that is the story!

Many observers focus on any corporate announcement that discusses bad times. FedEx (FDX) reduced estimates and the stock got trashed. Jamie Dimon said that November was bad and December had not improved.

What Does it Mean?

A few years ago we challenged a young colleague to bring us a piece of information that we could not read in tomorrow's Wall Street Journal. The point is clear enough. If it is in the WSJ, it is in the market.

The biggest challenge is to figure out which pieces of evidence are concurrent economic indicators and which (if any) provide a glimpse of the future.

Hint: FedEx is completely concurrent and always wrongly interpreted by the market. The company has frequently stated that they have no great future insight. Jamie Dimon also denied any ability to see into the future, and even complained a bit about the question. Hat's off to him for observing that he was asked to step out of his "happy zone."

It is pretty clear that the negative sentiment about the economy has become even more pervasive. At some point it becomes a self-fulfilling prophecy. If businesses choose not to invest in new technology, the economy will get even worse.

If an investor thinks this is fresh information, it is time to sell. If it is a time when all others are fearful, maybe it is time to buy.

Comments

[socrateazz:]

credentials give a person a better chance of being right. Be careful to note whether one's credentials are based on beliefs and propaganda about what has been from bias views. Usually trends follow beliefs. As most trends become established. More people believe those trends to be true and the trends continue even past where those trends should have changed. The longer those trends have been established, the longer the trend persists beyond where it should have changed. New information often changes trends. If the information is persistent enough the long term will eventually change. If it is temporary then the long term trend will only be affected temporarily. Everything is in flux over time. What is believed to be true today proves to not be absolutely true tomorrow

2008 Dec 12 07:48 AM

[patio:]

I guess your article's thesis is that the negativity is just for negativity's sake?
Vanna, can I buy a clue for $100, please?

2008 Dec 12 08:31 AM

[Jim Bob Jones:]

I look for good news every day. Being an optimist 95% of my day requires that I stay focused on what I believe is good news but for some time now I have seen no really good news to stay up on so I look for good stuff in blogs such as yours so that I can confirm what I already know and that is that there is'nt any good news or info. By the way, can I see your credentials please?

2008 Dec 12 06:59 PM

[jepittman:]

The good news is that there isn't any. Markets bottom well before the news turns good. By the time good news arrives the market will be much higher.

2008 Dec 12 07:32 PM

[investor88:]

Chart action says time to buy on dips especially if the Dow 8100 holds and eventually crosses 9000. Beyond a month or two it is hard to say, rather uncertain.

2008 Dec 13 09:51 AM