I am working on a concept, and I invite comment.
The basic idea is that recession-induced cutbacks in news organizations have altered the way in which news is interpreted and delivered. There is more emphasis on profitability from each article, so popularity is paramount.
My working hypothesis is that the more educational and intellectual pieces, including those that take balanced viewpoints, draw less interest. These are the mainstream media authors who have been squeezed out.
A Baseball Lesson
Regular readers know that we love drawing lessons from sports. I just finished reading As They See 'Em: A Fan's Travels in the Land of Umpires by baseball fan and occasional umpire Bruce Weber. There are many fun facts and problems, plenty of stories, and lots of arcane information about umpiring.
The lesson for us is about the strike zone, something that is in the rule book, but not actually implemented by umpires. Umpires adopt a shorter and wider strike zone. Even if they start with the rule book, as they move up the minor leagues, they learn what is expected. It comes from the reaction of batters, pitchers, managers, and fans. It is an inevitable socialization of the umpire, and often defies league edicts. The umpire -- who does an excellent job according to Weber -- gradually adapts to the norm. The individual strike zone may vary a bit, but it approaches the norm.
This is happening in regular news, and more importantly to investors, in financial news.
The Sources of Bias in Financial News
Financial news sources, in a play for page views and ratings, are succumbing to various influences:
- The political bias. Most market participants and affluent, educated, and conservative. More than a few are libertarian and outspoken. These participants constitute a majority of the audience for financial sites, and an even larger share of outspoken commenters. It drives ratings.
- The bearish bias. This overlaps with politics, since market bears are also political critics, but it goes further. The most popular contributors and commenters on Seeking Alpha, Minyanville, TheStreet.com, and the most highly-rated investment blogs share a bearish viewpoint. It is not necessarily a bias on the part of the editors of these sites. They are merely "learning the strike zone." The readers have hated the market rally and embrace any criticism.
- The controversy bias. Even efforts to achieve balance do so by bringing in extreme representatives and highlighting conflict. CNBC helps out by showing boxing gloves clashing over the images of participants! These brief segments do little for enlightenment.
- Dueling Economists. The featured sources are left and right, emphasizing conflict. The mainstream sources get less attention.
- Incestuous Linkage. If you are a fledgling writer of a mainstream media blog, one who needs to get page views, you need recognition from the established sources. Since these sources reflect the prevailing biases, the writers offer respect and deference. This even helps to explain why recognized economists with real credentials engage and link to the pop economists -- those who discuss the economy in terms that merely cater to the biases and understanding of the average reader.
What is Lost
Mainstream media is closing down reference libraries, cutting back staff whose articles are not popular, and de-emphasizing the balanced approach.
It is a reaction to readers, who are teaching them the strike zone. Most readers want a daily fix of information supporting their current views -- liberal or conservative, bearish or bullish.
In happier economic times, publications could afford to pay for thoughtful analysis and examination of data. One of our featured sources, Talking Biz News, has chronicled the major cutbacks. (They may not share our interpretation of the implications).
First, this is a work in progress. There is room to debate my conclusions, and I invite comment.
Second, there should be a way to profit from these developments. It is a challenge. The reader or viewer must have a healthy skepticism, with special attention to the sources. Eventually, the best investment choices will emerge.
The intelligent consumer should be delighted when it is difficult to find the best information. That is the source of investment edge.