Independent economist, Clifford Bennett, suggests looking beyond negative financial headlines (Image: simon zhu)
Is a fundamental change in the way news is reported actually creating investment opportunities?
29 October 2019 | Clifford Bennett
Mainstream media organisations are now not only competing with each other; but increasingly responding to a kind of ‘wild west journalism’ emanating from social media. Most traditional journalistic standards have gone out the window in the process, in a desperate strategy to maintain readership levels.
It is important therefore, for us all to rise above the daily fear-based news torrent, in order to see the world correctly. The essence of the daily news is now more than ever, to sensationalise the negative. In short, to sell fear.
In the past week, we saw yet again the usual fearful quarterly headlines that China’s GDP grew at its slowest pace in the past 27 years. This is only to be expected however, as China has moved to be the world’s second largest economy at break-neck speed, that it must eventually moderate to more normal levels of proportional growth. While absolute growth numbers continue to increase.
China’s growth continues
The reality on the ground then, is far brighter and prosperous than many of the contemporary media headlines would have us believe.
For instance, in 2009 terms, China’s economy is growing at about 12%. It is just that the pie is bigger, and though the last quarterly slice of the pie is also quite significantly larger, it is as a proportion running at just above 6%. Every quarterly number in trend terms at least, is going to be smaller as fresh new wealth creation in China continues to increase the economy in significant absolute terms.
To headline that China’s growth remains robust, does not seize the interest of readers in the same way as saying that it is the slowest in 27 years. Such is the prevalent negative bias. This is, but one example of how the narrative and the headline, the language used around all economic releases these days, is dangerously biased and misleading to the downside. We should always look to the actual data itself; and do so in the context of how that economic series behaves, fluctuates over time, and from one month or quarter to the next.
For instance, most US data at the moment is being reported as individual declines over one month, when in fact the range of oscillation of any particular economic data series there, is simply ranging in a very strong economic zone. Many US data points are at economic boom like levels. Despite some recent declines. Of course, they cannot be perfect and remain at the top of their range indefinitely. They do decline in this strong range from time to time. The media then exaggerates these downside events purely to maintain readership levels.
The other very significant factor in all of this, is that most of the weakness in any of the data in the US, Europe or China at the moment, is more about expectations and sentiment of business managers, than actual production. This is why we are seeing such a discrepancy between consumer data / retail sales, from that of manufacturers expectations. Even in the manufacturing data itself, we often see actual production holding, or increasing, while managers expectations have deteriorated.
Don’t confuse surveys with the real economy
What is actually happening, is that business managers are reading the Wall Street media. While Main Street consumers, the real economy, continue to march ahead. The opportunity for us all then, is to recognise that the vast majority of financial market participants are absorbing on a daily basis, without any filter, the idea that the world is falling apart. This is the current market “sentiment”. The economic foundations and “reality” however, are far stronger. This is, if I may, the Wall Street/Main Street divergence, which is so interesting and has created all the great investment and trading opportunities of the past decade.
While the media headlines have been intensely fearful for the past decade, the US stock market has risen over 300% and made fresh all-time record highs, again, and again.
In terms of individual stocks, it is some of the biggest names that seem to be the least appreciated just now. Strong global consumer brands and the raw material providers are well worth a look, in what remains the most prosperous economic period in history. It may sound boring to suggest names like Apple, Google, Walt Disney, BHP and Fortescue Metals Group, but they all claim a high point in their respective markets.
Seeing the world in terms of a more positive and prosperous reality, as it exists on Main Street, in comparison to the daily sensationalism of the Wall Street press, provides an advantage over the great majority of investors at this time.