The Stock Market is Having its Worst Second Quarter Since the Great Depression
Did that headline get your attention?
I’m sure it did. I’m sure it also rattled a lot of un-suspecting Bloomberg, CNBC, Yahoo Finance, and Market Watch viewers as well.
This is the headline that first ran on Bloomberg, with CNBC, Yahoo Finance, and Market Watch following suit right after.
Please pay very careful attention to the words they chose to use in the original Bloomberg story, “U.S. stocks are on track to have their worst April start since 1929, according to data compiled by Bloomberg. The S&P 500 Index slumped 2.4 percent as of 1:10 p.m. in New York, a rout exceeded only by its 2.5 percent de-cline 89 years ago, a prelude to the devastating crash later that year that brought on the Great Depression…The stock slide also looks pretty bad when compared to the beginning of other quarters. Equities are on pace to lose more than on any other quarterly first day since October 2011, when stocks plummeted 2.8 percent, Bloomberg data show.”
Before commenting on this incredibly misleading and self-serving headline and story, there are two very important pieces of information to know:
- This appeared on April 2nd, the first trading day of the second quarter.
- It appeared well before the market closed at 4:00 p.m. that day.
Here’s what actually happened: in the first few hours of trading on the first day of this quarter, market prices fell 2.4%, one tenth of one percent less than on the first trading day of April 1929.
And, that little nugget of information, i.e. the results of three and a half hours of trading, led Bloomberg and the other financial media lemmings to extrapolate that blip and turn it into, “The Stock Market is Having its Worst Second Quarter Since the Great Depression!”
Three and a half hours into a ninety-day quarter, they were so desperate for viewership that they chose to run with, “The S&P 500 Index slumped 2.4 percent as of 1:10 p.m. in New York, a rout exceeded only by its 2.5 percent decline 89 years ago, a prelude to the devastating crash later that year that brought on the Great Depression.”
Note the ending they added that I chose to place in bold for emphasis.
This is the reprehensible nonsense that you have to do battle with every day, and I do mean “battle”, in order to maintain your financial confidence at the very point in your life where your Retirement Bucket™ must now support you instead of your income from work.
As Bill Clinton was known to say on the campaign trail, “I feel your pain.”
Why Do News Organizations Do This?
If you’ve ever wondered why news organizations resort to this unethical nonsense in order to grab attention, Matt Ridley, famous author of The Rational Optimist, provided a compelling answer in his New York Times article on March 12th titled, “My Cure For Disease X? A Bit of Positivity.”
Here’s an excerpt from the article (first sentence bolded by me for emphasis):
“Almost by definition, bad news is sudden while good news is gradual and therefore less newsworthy.”
That’s a heck of a distinction.
Here’s more, “Things blow up, melt down, erupt or crash; there are few good-news equivalents. If a country, a policy or a company starts to do well it soon drops out of the news.
This distorts our view of the world. Two years ago a group of Dutch researchers asked 26,492 people in 24 countries a simple question: over the past 20 years, has the proportion of the world population that lives in extreme poverty:
1) Increased by 50 per cent?
2) Increased by 25 per cent?
3) Stayed the same?
4) Decreased by 25 per cent?
5) Decreased by 50 per cent?
Only 1 per cent got the answer right, which was that it had decreased by 50 per cent. The United Nations’ Millennium Development goal of halving global poverty by 2015 was met five years early.
What is more, the bias against good news in the media seems to be getting worse. In 2011 the American academic Kalev Leetaru employed a computer to do “sentiment mining” on certain news outlets over 30 years: counting the number of positive versus negative words. He found “a steady, near linear, march towards negativity”.
This is a human susceptibility and one that is open to exploitation. Even while saying that they would prefer good news, subjects in a subtle psychology experiment in Canada who were told to choose and read a newspaper article while waiting for the “experiment” to begin in fact “chose stories with a negative tone — corruption, setbacks, hypocrisy and so on — rather than neutral or positive stories”.
Financial journalists have been found to report rising financial market indices with declining enthusiasm as rises continue, but falling ones with growing enthusiasm as the falls continue. As the Financial Times columnist John Authers said: “We are far more scared of encouraging readers to buy and ushering them into a loss, than we are of urging them to be cautious, and leading them to miss out on a gain.”
That is one reason for the pervasive negativity bias that afflicts the public discourse. Humans are loss-averse, disliking a loss far more than they like an equivalent gain. Such a cognitive bias probably kept us safe amid the dangers of the African savannah, where the downside of taking risks was big.”
Ridley’s points are extremely profound.
About Things That Happen vs. Those That Don’t Happen
Relaxing Retirement member, Ken Arkind, recently recommended Harvard professor Steven Pinker’s new book: “Enlightenment Now: The Case for Reason, Science, Humanism, and Progress.”
I will have a lot more to say about the incredible level of research and data in Pinker’s work, but here is an excerpt from his book with a great distinction on the subject of “news”. The first paragraph is critical:
“Whether or not the world is really getting worse, the nature of news will interact with the nature of cognition to make us think that it is. News is about things that happen, not things that don’t happen. We never see a journalist saying to the camera, “I’m reporting live from a country where a war has not broken out”-or a city that has not been bombed, or a school that has not been shot up.
As long as bad things have not vanished from the face of the earth, there will always be enough incidents to fill the news, especially when billions of smartphones turn most of the world’s population into crime reporters and war correspondents.
And among the things that do happen, positive and negative ones unfold on different time lines. The news, far from being the first draft of history, is closer to play-by-play sports commentary. It focuses on discrete events, generally those that took place since the last edition. Bad things can happen quickly, but good things aren’t built in a day, and as they unfold, they will be out of sync with the news cycle.
The peace researcher John Galtung pointed out that if a newspaper came out once every fifty years, it would not report half a century of celebrity gossip and political scandals. It would report momentous global changes such as the increase in life expectancy.”
Beware and Be on Your Toes
At this point, you might be wondering why we’re discussing the “news”. Well, for nearly three decades, we have worked hands-on with hundreds of individuals and couples who have accumulated a lot of money by most people’s standards.
Yet, prior to joining our program, many of them lived with a considerable amount of anxiety and were simply not confident enough at this unique stage when they are transitioning over to Phase Two of their financial lives where their dependence on the income from work to support their lifestyle shifts over to dependence on their Retirement Bucket™ of investment holdings.
There are many valid reasons for this lack of confidence, and one of them is the influence of the financial media.
As Bloomberg, and all the other organizations named earlier demonstrated, financial journalists commonly resort to sounding unnecessary, but extremely effective alarm bells which can eat away your financial confidence if you are not prepared.
They will go to any length to grab your attention and increase viewership so they can sell more and more expensive advertising space to their audience.
I don’t think it’s being negative to point out that this is all intentional on their part. Their tactics work and it keeps millions tuned in. That’s the business they’re in and I have no issue with them doing it as long as they don’t use force or fraud in the process.
However, if you want to protect and maintain the supreme financial confidence you need and deserve to live your life 100% on your terms, which we are here to help you experience, you have to be consciously aware of their intentions, their goals, and their tactics, and be on your toes at all times.
Rational and successful investors have discovered that tuning out all of the noise on a daily basis not only frees up a lot of wasted time and energy in your life, but as part of adhering to a disciplined, long-term system (like The Relaxing Retirement Formula™), it has proven to significantly increase your odds of capturing the historically lucrative market returns that have eluded the overwhelming majority of Americans.