Defending Financial Journalists - and Bloggers

Robert Teitelman has a heartfelt essay defending financial journalists from accusations that they were in dereliction of their duty to call the bubble and the subsequent bust:

Many of the folks who argue that financial journalism "failed" believe in some sort of single trigger or cause for the meltdown. They focus on personalities and explicable, if often fantastic, conspiracies. They see in black and white. And they read history, and the markets, backwards. The fundamental relativism of the markets unsettles them, even if they reject free-market politics. If we could just have investigated adequately, we could have ferreted out that cabal (of evil bankers, traders, lenders) that brought the innocents down. If we could have stamped out subprime, the rest of the system would have been fine. How could we miss American International Group, which was "clearly" a scam?

This is absolutely true. It's not the job of financial journalists to predict the future: it's not the job of any journalists to predict the future. So insofar as financial journalists didn't predict the meltdown, that's not prima facie evidence that they weren't doing their job. And in fact financial journalists are nearly always more bearish than the market as a whole.

I do take issue with three throwaway words of Teitelman's, however:

Finance has grown dramatically more complex, opaque, global over the past few decades. And despite that complexity, the rise of financial television and financial blogging has simplified coverage to an equity horse race, with an omnipresent pressure to predict.

The rise of financial television? Yes. The rise of financial blogging? Absolutely not. Blogging is the best medium yet when it comes to embracing the complexities of the financial markets and the idiocy of trying to make date-and-level predictions. And indeed nowhere has the criticism of CNBC mindlessness been more forcefully put than in the blogosphere (at least until Jon Stewart came along).

In the financial press, certain franchises, foremost among them the FT's Lex column, struggle daily with what Teitelman calls the "pressure to predict". Do you go for the simple up/down, buy/sell note? Or do you write something intelligent instead? In the blogosphere, however, I can't think of a single blogger who has a great reputation on the strength of making correct equity-market calls: this stock's going up, that stock's going down. We bloggers are part of the solution, not part of the problem. And yes, I include The Deal's own bloggers in that. Different media have different levels of sophistication: radio will nearly always be smarter than TV, I don't know why, and blogs in general are definitely at the smarter end of the spectrum, if only because it's generally the smarter blogs which tend to gain traction.

So by all means pile on to CNBC -- god knows they deserve it. But leave the blogs out of it.

Comments

[Donald Johnson:]

Just read the Portfolio article. Well done. If the geniuses on Wall Street couldn't predict the bursting of the bubble, why should we expect journalists or individual investors to get it?

Question: Where were Morningstar, Value Line, S&P, Zacks and the other advisory services? Morningstar still seems to be overly optimistic about the fair values of the stocks they follow. I don't read the others that much, but I don't see them advertising their forecasts of the Obama Bear Market.

Jon Stewart apparently spent a lot of money producing that skit. I mean, how many hours does it take to screen CNBC's archives and find the worst examples of its work? As usual, I guess, a cheap shot.

Mar 06 11:56 AM

[FRANKLIN32:]

What is up with the current administration trying to strong hold anyone who say's anything remotely negative about the actions of the new administration? CNBC has been a great disappointment and example of the current administration trying to mussel their comments!

Mar 06 12:31 PM

[Tristan Yates:]

You can't expect financial journalists to accurately predict next year's S&P 500 level. However, they should be able to detect fraud.

Mar 06 02:31 PM

[PainfullyAware:]

All information, other than personal experience, is filtered through others.

The source and motive must always be considered.

It is easy to come to any conclusion if you limit your data.

Blogging is like prospecting - you have to sift a lot of dirt before you find gold. Where you find gold there is usually more.

Television has become almost totally "Entertainment"; Radio is similarly filtered. With Good Blogging there is usually little filtering of view and position. Those with substantial rational and reason withstand the counter point and alternate view storms that are required to vet reality. (some are even exposed to things they did not consider before, and are thus greater prepared for contingency) Those with little consideration to their conclusions suffer dismantling of their paradigms. (painful but beneficial in the long run.) Thus, through the community of Blogging does the "spin" stop.

All views are worth discussing; only the most salient and cogent survive the process.

Debate Is The Distillation Of Reality.

Mar 06 02:40 PM

[CJJ:]

Wow. Felix's argument basically could be summed up "Others are stupid but not bloggers".
I'm not putting bloggers down, however, I'm not sure there is more of an agenda whore medium in all of the world.
Any person with any agenda(from their economic ideals, political ideas, down to their favorite foods) can go out and find someone in the blogosphere who agrees with them and they can latch onto.
To say the blogosphere is some higher realm society that only brings good things to light and crushes bad things is quite egotistical.

Then you have the lowest common denominator of the view expressing medium...comment boards...Anyone who feels these breed positivity overall are clearly high on drugs.

Mar 06 06:13 PM

[William Cowie:]

My portfolio is:
Subscriptions to WSJ, Barrons, Fortune, Forbes, BW: zero
Subscription to SA: one.

Exactly what do the paying readers get that we don't?

Mar 06 09:21 PM

[Ergo:]

Blogs allow for Group Intelligence and provide a communication medium without any pressure to arrive at preconceived or approved messages.
Financial journalism at CNBC or CNN is pretty much the opposite.

Mar 07 10:25 AM

[Lilguy:]

I agree that financial or other journalists--MSM or blogosphere--should not be forecasting the economy or markets. BUT--They have an obligation to identify events, patterns, and trends that are well outside the norm of economic or financial activity.

Things like (as Donald Johnson reports above) the bubble nature of last year's oil prices, the pattern of abusive mortgages, the evidence of Ponzi scams by people like Madoff and Stanford, the extremes of leverage in bank & other financial statements, the poor methods used by ratings agencies, etc.

This is investigative reporting, the kind that adds value to journalism as opposed to the re-writing of corporate or government PR statements.

With a very few exceptions, MSM failed miserably. The blogosphere did a much better job, but (a) missed some important developments, (b) too often has an ideological or marketing agenda that poisons its reporting and analysis, and (c) still doesn't reach the truly mass audience that MSM does (especially biz TV).

That said, I think the future of good financial/economic journalism lies in the blogosphere. Newspapers simply do not have the resources to tackle the issues. The issues are sometimes too complex for the general audience MSM tries to reach. And, most importantly, economic & business bloggers are usually not hamstrung by corporate or political agendas.

We need more Felix Salmons, Joe Picernos, Yves Smiths, Barry Ritholzs, Simon Johnsons, CRs, etc., etc., to keep us informed and provide insight on directions in the economy and the markets. You go guys/gals!

Mar 07 11:26 AM

[misiosnechacz:]

doesn't matter if you are a blogger, journalist it's human thing to be wrong. That's why site is called seekining alpha not being alpha. But you have to be ready to eat your words. You can't just say on monday that will be great week ... and on friday as we predictet that week was bad because... That is most anoying thing.
I was wrong few times and I'm advanced beginner in investing money and i'm not afraid to say it. I don't operate milions. I invested few grands lost some of it. recently I recovered some cash. What doesn't kill me makes me stronger.

Mar 07 12:58 PM

[La Marque:]

I love financial journalists and bloggers. They are just op-ed pieces.

CNBC has good reporting; BUT, most of what they actually show is opinion and it is always mixed. You make the call. Of their experts, I would go with Santelli over Liesman. Overall, CNBC is just entertainment.

Mar 07 01:58 PM

[bcncv:]

The real problem isn't people's failure to "see it coming". In fact, you could probably make the argument that this mess started WHEN people started seeing it coming rather than after the fact. Of course, this is oversimplifying it, but I believe it to be generally true.

The real problem is the MASS of people trying to call different things. The real problem is that the financial news and bloggers have no real vetting process. Anyone can claim to be an expert and be publish whatever they want. From my experience, roughly 10% know what they're talking about, 60% like the sound of their own voice, and 30% get lucky. To make it more difficult, the ones that really know what they're talking about are usually the least convincing.

Mar 08 12:49 PM

[BxCapricorn:]

Economists are no better. Remember late 207, when Businessweek ran the story that despite fears of a recession, only 2 of 54 economists predicted we would see one in 2008.

Everyone in the mainstream media is owned by a corporation, and I have nothing wrong with that personally. The problem is that they cannot be objective, and that's what journalism is supposed to be about. Without it, you are simply a PR spokesman at best, and at worst, a shill.

We are all warned to perform "due diligence", but really...how many of us have enough time to justify spending hour upon hour sifting through financial statements that are themselves a series of misdirections and lies. Even if you've read Howard Schilit's, Financial Shenanigans and worked his 30 ways financial statements lie, into your stock modeling, as I have, you can only avoid one deceitful company at a time. It's exhausting.

You can only conclude that to make the stock market worth your time, you must adopt the methods and tools of traders, and now you've gone from casual investor, hoping to make a few dollars with your capital, into full-fledged bucket shop. Once you're done investing in your tools, and have your routine down, you have to make an enormous number of trades to justify taking anything you spent on your new second career, against your new tax partner...the US government. Uncle Sam will gladly share in your gains, but is not too happy about giving you credit for your losses.

In the end, you leave the stock market to the simply enjoy the money you make in your real profession, leaving the financial spin doctors, economics spin doctors (David Lereah, you're still my favorite shill), financial journalists (CNBC, other than David Faber, is a non-stop chorus of sideshow barkers), and out-and-out, last-minute market turners (Charlie Gasparino, you should be censored) who are used as a tool by the street, making anyone that listens to them, a fool of the street.

Mar 08 01:06 PM

[Fighting Yoda:]

There is plenty of blame to around for the current crisis – the leadership of the country failed us- economists, Congress, regulators, corporations, people at large(bad consumers) - too much greed and even more stupidity. Ofcourse the financial media missed the crisis completely – we expect them to be some kind of an watch dog- they failed us badly. Even Buffet – he came with his buy American call in October – at 25% higher than today. He has not bought any stocks (in any meaningful way), that he divulged, he simply is buying – preferreds at loan shark rates – profits down 96% in ’08 – stock down 55% from peak.

TV media is of course biased towards bullishness – that is what sells. How many investors like to invest on the bearish side – very very few. So CNBC etc are just catering to their audience.
A more important fact, not so well understood, is the nexus between financial firms and financial media. Media depends on firms to create the shows, firms depend on media for publicity. Firms sell bullishness, so media sells bullishness.
Unless media becomes more objective – questioning the bubbles, bash the bad calls, nothing is going to change. CNBC attracts more criticism because it is the biggest out there, and it certainly has plenty of bad characters –
Kudlow : Total Republican bias – anything Bush or Republican is great , bash everything else.
Cramer: A freak show – he simply is a bubble maker, rabble rouser – I told you so. Market goes up – I told you so, market goes down – I told you so.
Dennis Kneale: Perma bull – prize moron - always sees only the silver lining – never (ever) the big dark clouds.

Overall I am very bearish on the market, cheap can become cheaper – as all of us can see. Peole who have lost the most in this market are the ones who doubled down – bottom fishing – likes of legendry Bill Miller, Ken Heebner – both down 50- 60% last year.

S&P earnings projections range from $ 35 - $60 - a very wide range – the consensus below 50. A trough multiple of 10 would give you only 500. That is my target.

Mar 08 01:20 PM

[EEB:]

The author states that it is not the job of journalists to predict the future. Of course, predicting the exact future is too high of a bar, but they are at least expected to discuss various possible outcomes and various probabilities for these outcomes. For instance, if country A announces that it is gong to invade country B, then I expect serious journalists to discuss what might happen and what they think is likely to happen. They might be wrong, but they need to give some real effort. I saw little effort on the part of most financial journalists to seriously explain the possible outcomes of the housing bubble. Thus, they were not doing their jobs as journalists. But, since they work for large corporations as another comment pointed out, they aren't really journalists in the first place.

Mar 08 04:49 PM

[Reinko:]

I too think financial journalists are not 'obliged' to predict the future. For example on CNN the journo's are only there to popularize the economical stuff; explaining the difference between the real GDP and the one that includes inflation is about one of the most interellectual challenges over there.

On CNBC I have less mercy, after all they pretend to be a financial channel. But the truth is that even on CNBC they every now and then invite some very bearish folks.

As a profession however, I think the economists are much much more to blame. So often the Nobel prize for economics went to the USA and all of these folks simply did not see it coming.
That is strange because already in the Spring of 2004 I published how (for example) Central Banks from developing nations should behave... Ok I was a bit early may be but all my doom and gloom scenario's came out; to be honest reality with AIG, the investment banks or the derivative fun was even a larger then expected by me.

My vote for the worst performing profession goes to the USA economists (a kind of incest qlique only looking at their local pals missing the rest of economical theory in the rest of the world).

Mar 08 04:49 PM

[sunny12945:]

"blogs in general are definitely at the smarter end of the spectrum"

I tend to agree strongly with this statement b/c my reading(late 2006 and on wards) of various blogs outside MSM tremendously helped me in protecting my nest egg with bear minimum loss (<2%). I have developed more respect and appreciative of their contribution (select a few, of course) and tend to rely on them although not always 100%. They all foresaw the first waves of the current Tsunami.

I am glad I heeded their well analyzed approach to the problems. It was sicking to see Hank and Heli cop Ben declaring ' controlled' contained" Even now, Ben is repeating that AIG is not a ZOMBIE Bank.

Mar 08 05:52 PM

[mathgeek:]

The problem, Felix, is that too many of those same journalists... including bloggers... are all too happy to blame regulators, bankers, CEO's, and boards for not predicting the future.

I believe that the critics need to be held to an equal standard. The fact is, circa 2004, very very few saw this coming... except of course those who have been predicting disasters of various sorts 20 out of the last 20 years.

Even Nouriel Roubini, who has become famous for predicting the outlines of the crisis gave his famous talk in September, 2006. By that time, a significant portion of the subprime and alt-a paper that started the snowball rolling had already been originated... Washington Mutual... often the poster child of bad lending practices... sold most of its 2006 production to reduce exposure in early 2007.

Were their clear signs of trouble? Absolutely. Should leaders of banks done a better job of managing risk? Emphatically yes. Were regulatory flaws part of the problem? Definitely. But, too often bloggers and journalists make uncritical use of 20/20 hindsight to bash decisionmakers, this theater is of no use execpt possibly those who value entertainment above insight.

Mar 08 07:02 PM

[Tesa:]

There are number of issues that have not been addressed by this article. One is that fact that financial industry and financial reporting benefit from each other. The monies that pass through financial industry have to pass through the veins of the industry to produce the fat tissue that plumps it up the industry. It just doesn't happen by itself. They are key organs that are involved in producing the fact tissue include reporting industry and not just the analyst industry or rating industry who involved and deal while they have conflict of interest. The conflict of interest means that they can be corrupt.

Can an analyst or reporter give valuable insight if they are trading stocks and seeking the own benefit?! The basic claims that absolves giving tainted advice is the claim that they don't effect the markets and if that was the case, why would their advice be at all be valuable! The only reason that any investment advice would be valuable would be if they could be predictive so there is vicious circle there that forces the reporting and analyst to collude with the industry to be valuable even if they are not paid by them directly.

Mar 08 09:26 PM

[PROXIMO:]

Much prefer the give-and-take format of the SA blog to that of a monthly magazine. Depend on a weekly or monthly info source and the Dow could have popped a thou or two in the meantime. Hell with that. The articles in SA tend to be heavily critiqued by the bloggers, which tends to eliminate the BS when neccessary. Many authors on SA are heavyweights, based on the profiles provided. I'll take SA over CNBC, WSJ, or the rest in a NY second.

Mar 09 01:51 AM

[currency x com:]

Bloggers are not professional writers (in most cases) and do not work for financial magazines, tv stations, etc.

A blog has a big piece of "Personal" in it si it just natural that opinions in a blog are biased.

When people forget that a blog is a "blog" problems arise, never forget that it is a journal, just like the one people write in before going to bed...

Mar 09 06:28 AM