How many times have you read a news article or seen segment about a view that the stock market, or some part of the economy, will improve based on an argument made by an investor? Some journalists love talking to fund managers about their investment strategies. Sure, they may have done some research that suggests some future expectation. But they also have an unabashed bias -- since their view is driving their investment strategy. Why are they so easily trusted?
There are countless examples of news articles that take the form just described. Today, Bloomberg has one. Its headline is, "Barton Biggs Says Stock Market Set to 'Pop' in Days." Biggs is a hedge fund manager. He apparently did quite well last year -- his return was three times the industry average. Here are a few excerpts of the article:
"I think they're going to stabilize in this general area, and then we're going to have a significant move to the upside."
Biggs recommended buying U.S. stocks last year when benchmark indexes sank to the lowest levels since the 1990s. The Standard & Poor's 500 Index rallied 23 percent in 2009 as governments worldwide mounted stimulus programs to counter a recession.
But now comes the kicker!
On March 22 this year, Biggs told Bloomberg TV U.S. stocks had the potential to rally a further 10 percent. The S&P 500 has since declined 8.4 percent.
Whoops. And yet Bloomberg goes back to the same trough to feed. It then provides some further insight from Biggs:
"The market is very, very oversold, and I think we're going to have a big pop to the upside some time in the next couple of days," said Biggs. "I wouldn't be surprised to see us go to a new recovery high, just to make everybody squirm."
Or he could be wrong again, and we could get a drop -- instead of a pop -- leading to a new recovery low.