When I was a teenager “Alternative Rock” was just coming on the scene. In the early days, Alternative Rock was just that- the alternative to the music that was consumed by the masses. But then people decided that Alternative Rock was cooler than Pop Rock and suddenly there was a movement en masse out of pop and into alternative. The result was that the term “alternative” became increasingly ironic because it was, in fact, simply the new pop marching under a different label. Rebellion, as they say, is best done through conformity.
The reason I bring this up is because I’m starting to feel that way regarding investing and the mainstream media. A couple of years ago economic contrarians where the lepers of the financial media. Everyone seemed to know that the stock market was the place to be, as Dr. Jeremy Siegel wrote, for the Long Run. After all, the Federal Reserve was firmly in control of the economy, and they would never let a prolonged market downturn occur.
People aren’t saying that anymore. Last week the New York Times ran a story saying that the ten year period ending last month was the worst for stock market returns in the history of the S&P. As the story said, if you factored in Consumer Price Inflation, the S&P returned a negative 40.4% over that ten year period. Now media pundits are lining up to say that the economic troubles we are in are going to get worse still. A friend of mine just forwarded me an article saying that, if the stock market were to return to historical bear market averages for price-to-earnings, that the S&P would soon see levels of around 500 or so- a decline of another 40%.
The problems are mounting. If this were a Hollywood production, all of this bad news would be the que for the hero to come riding in to save the day. Currently, Obama and Bernanke are promising to be the dynamic duo that will come to our rescue with another $3 trillion or so in stimulus. I’m amazed at how quickly that figure has grown. Back in the days of the campaign trail, Obama and McCain were arguing over stimulus figures that were around $150 billion or so. That one didn’t work so, instead of investigating why Keynesian theory has, yet again, broken down, the government is instead going to just throw more money at the problem- A LOT more.
A bigger bailout is what Wall Street is demanding. Today the S&P was down 4.91% because, according to Bloomberg, Geithner dodged the tough questions about how exactly this bailout was going to work. Those cranky investors; they want their bailout. I find it amusing that these same people will vehemently argue for free markets, but demand the equivalent of Socialism when they are facing loses from their own mistakes. Oh irony, thy sting is swift.
In the face of such a wholesale move to doom and gloom on behalf of the mainstream financial media, what is a doom and gloomer like me to do? How can I compete with someone like Ben Bernanke, the man most responsible for maintaining confidence in the financial system, told Congress in October that they needed to pass the bailout immediately or else there wouldn’t be an economy to bailout out next week? It’s hard to get much more doom and gloom than that.
Of course, the area where the mainstream financial press is really getting it wrong is regarding the stimulus. The questions all seem to be:”How much money?”; “Given to who?”; “On what terms?”. No one seems to be asking: “Why have a bailout at all?” or “Hey, I thought the last stimulus was supposed to fix the problem… or perhaps the TARP bailout after that? What gives?”
I did find one gem in the mainstream financial media, however. In Bloomberg today there is an opinion column entitled Adam Smith gets the last laugh. I’m not going to reproduce it all here, but I’d encourage everyone to read it. My favorite piece is where the writer discusses what Adam Smith would recommend for how to fix our current financial crisis:
How then would Adam Smith fix the present mess? Sorry, but it is fixed already. The answer to a decline in the value of speculative assets is to pay less for them. Job done.
We could pump the banks full of our national treasure. But Smith said: “To attempt to increase the wealth of any country, either by introducing or by detaining in it an unnecessary quantity of gold and silver, is as absurd as it would be to attempt to increase the good cheer of private families, by obliging them to keep an unnecessary number of kitchen utensils.” 
We could send in the experts to manage our bail-out. But Smith said: “I have never known much good done by those who affect to trade for the public good.” 
And we could nationalise our economies. But Smith said: “The state cannot be very great of which the sovereign has leisure to carry on the trade of a wine merchant or apothecary”.  Or chairman of General Motors.
Well said indeed. Perhaps we should all pick up a copy of The Wealth of Nations. It may be retro, but, as we sometimes see in fashion, retro is going to become very “in” over the next few years.