The Bulls, The Bears, & the Media

by: Barry Ritholtz

Saturday's "What's Online" column in the New York Times is about an ongoing debate between Paul Kedrosky, Herb Greenberg and I, titled Taking the Bears to Task.

That was kind of a WTF headline. Taking the Bears to Task? For what -- being right? Coming up next week: People Carrying Umbrellas in the Rain -- What's wrong with them!

A few corrections are in order:

The article links to the wrong blog post, pointing to our emergency Fed cut discussion (Whiff of Panic), rather than the post quoted, So Much for the Decoupling...

What's worse, the author apparently misunderstands our criticism. Had he contacted me (!), I would have told him that it's not that some strategists got it wrong, or that "people remained positive about the markets and the economy." Markets are all about differences of opinion, and there are always credible arguments on both sides.

It's the process that matters, not the outcome that matters (see our 2005 column, Expect to Be Wrong).

No, our criticism was about the It's-Different-This-Time crowd. Our obvious point was to reference the list of well established economic and investment rules that some people decided to once again ignore (was 2000 so far in the past they already forgot those lessons?). These are the people that cost investors their money -- the sanguine cheerleaders, the pollyannas, the political hacks.

Back to our debate: The Times references Paul's post, "Why are Financial Blogs so Bearish?" That post reminds me of this The Daily Show exchange:

Rob Corddry: How does one report the facts in an unbiased way when the facts themselves are biased?

Jon Stewart: I'm sorry, Rob, did you say the facts are biased?

Rob Corddry: That's right Jon. From the names of our fallen soldiers to the gradual withdrawal of our allies to the growing insurgency, it's become all too clear that facts in Iraq have an anti-Bush agenda.

That was about Iraq the war -- but it's not too hard too see that the economic facts maintained a similar "bias."


Name calling: I've always chafed at the Bear label. It's an intellectually lazy, ad hominem criticism -- much easier than addressing the actual arguments about economic concerns. It also ignores our longstanding advice that investors maintain "ideological flexibility" (see: Bull or Bear? Neither).

Some of those disinclined to mental exertion (no, I am not referring to Paul) like to point to the Bearishness of the past few years -- but somehow, they never, ever, mention the Bullishness. We take this as proof their argument's disenginuousness.

Perfect example: In 2002/03, we wrote a detailed explanation as to why the markets had gotten too bearish, titled Contrary Indicators 2000 – 2003 Bear Market. That originally ran in the Stock Trader's Almanac as a 3-part piece in June, July and August of 2003, and eventually was posted on the blog. The irony is that much of the critical email accused me of being a perma-bull -- despite turning aggressively bearish in January 2000.

Investing: As money managers, no one pays you to sit in cash. We flip bullish and bearish as conditions, risks and opportunities warrant. For example, this past Wednesday, on CNBC, we flipped Bullish, calling for an 8-12% rally. But we also noted this was a trading rally. The 2008/09 recession bottom likely has not been made yet. The usual name callers would never credit us for a good bullish trading call, but again, that is merely more evidence of their hackery.

Some people have criticized our defensive posture, but it has well served our clients for the past few years -- they made money in overseas investing, in energy, metals, gold, agriculture, etc. For "Bears," we've done pretty well on the long side. Our "favorite stock pick for 2007" in BusinessWeek December 2006 was Mosaic (NYSE:MOS), which was up 330%. And, our forecast was the best out of all of the WSJ/BusinessWeek predictions for 2007 (for the record, we think predictions are silly, and we do them just for fun).


Of course, one's perspective is a function of what you do during the day.

Paul Kedrosky, for example, is a venture capitalist. We've worked on several projects together, and both scribe for TSCM.

Paul's job is to purposefully put money at risk. He is looking at early venture companies, start ups, new ideas. That requires not only technological and finance skills, but a specific kind of optimism. He knows despite the long odds -- most start ups fail -- that the next Apple (NASDAQ:AAPL) or Google (NASDAQ:GOOG) is out there.

Herb Greenberg is an investigative reporter. His job is to identify the seemy underside of business, the frauds, the crooks, the liars -- even the occasional errant Sith Lord.

I have a different perspective. I manage money for a living. That creates very different obligations -- it's to preserve capital and manage risk. Since inflation is always eroding our clients' assets, we must find ways to offset that by generating returns in excess of inflation. Part of our calculus is when to go into risk-free treasuries.

And because of our long experience on Wall Street, we have become rather skeptical of what we read in the papers and hear on TV. We have not forgotten all of the television cheerleading in 2000, nor the analysts who lost investors trillions. We well remember the investment banking scams, the corporate accounting fraud, the lax regulatory oversight, the general theivery that took trillions our of the pockets of individual investors.

As Raymond Jame's insightful strategist Jeff Saut likes to say, where you stand is determined by where you sit. And where I sit requires a healthy dose of not letting the bullshit artists lose our clients' money.