Exuberant Again

It's no surprise that readers are skeptical of media assertions that the economy's bouncing back

Wait a minute, the economy's coming back! So say the financial pages, anyway, if a bit warily. "Shares Rally as Economy Shows Some Signs of Recovery," was the headline over a recent Reuters story in The New York Times, capturing the general feel of this kinda sorta turnaround, this maybe-the-bull's-back-in-town story.

And from some highly influential corners of the financial media comes a more emphatic message about the recent rally, an admonition that America just isn't taking this nascent recovery seriously enough. We apparently aren't buying into it sufficiently by rushing merrily back to stocks, and—tsk, tsk—this is very, very bad of us, and we should all go stand in the corner for a while and think about our behavior.

"The Market Is Half Full," announced a knuckle-rapping Wall Street Journal opinion piece last week by James J. Cramer, the irrepressible market swami. Cramer scolded the half-empty camp, wondering if perhaps "everyone from Alan Greenspan to the president is too negative." His Panglossian pique rose to this crescendo: "Maybe we are in one of those rare moments where capitalism should be getting its three cheers and instead is being voted off the stage by a chorus of wronged investors, permanently pessimistic intellectuals, and politicians who don't want to see the positives."

"An unpenned bull is striding down the middle of Wall Street these days, but it's being ignored just like the emperor's lack of clothes," wrote Chris Pummer of CBS.MarketWatch.com, a leading personal-finance Web site, this week. The piece couldn't have closed more definitively: "Believe it. The bull is back."

To which hordes of burned investors, people who may never again see the nest eggs they've lost, can only respond: Oh is it really, now?

If the public doesn't respond to this new round of "buy" orders from the media, and the economy doesn't come roaring back as quickly as it might, who's at fault—all those frightened investors trying to protect the pennies they still have, or the media outlets that took them for a ride in the 1990s and are now widely and justly distrusted?

Remember all the brilliant magazine stories about tech stocks that were going to make us rich? Remember when stock-picking geeks were profiled in the adoring tones once reserved for sports heroes and movie stars? Surely you recall the unbeatable Janus Fund, the wild success story that launched so much fawning coverage not many years ago. The Colorado-based outfit wound up with more than $300 billion in investors' money at the market peak in 2000. My sad little skeletal IRA remembers those ebullient stories all too well. Recent headline from CBS.MarketWatch.com: "Fading giant Janus offers few worthwhile funds." Thanks, fellas.

But the crash served one useful purpose for American investors: It revealed the tragic flaws of personal-finance journalism. One is that personal-finance outlets tend to be heavily dependent on advertising from the very industries they cover: Wall Street brokerages, high-tech companies, and others. Thus, even as they try to give disinterested advice, it behooves them to essentially cheerlead any boom, because that will put more cash in their pockets.

A story in The New York Times Business section this week noted that SmartMoney magazine, which rode the '90s boom very nicely but has been suffering of late, now hopes, as David Carr wrote, "that a recovering market will help stabilize the magazine." Edwin A. Finn Jr., the chairman and editor in chief, told The Times, "The turn in the stock market has been helpful."

See how that works? In fairness, I should note that SmartMoney and other top-tier financial pubs didn't surrender their journalistic skepticism in the '90s, and often ran negative pieces about Wall Street and big companies that buy ads. Finn also heads up Barron's, another member of the Dow Jones family that was often bravely bearish in the '90s, and wound up looking wise in retrospect.

But the fact remains that booms are good for the personal-finance media, and in tone and temper, many fanned the flames of irrational exuberance. They convinced a lot of moms and pops it was wise to make financial moves that later lost them their shirts, and have little standing to tell us what to make of the market right now.

The other tragic flaw is that personal-finance outlets tend to be followers rather than leaders. Because they need evidence to make the case for particular stocks and funds, they focus on strategies that have already paid off and can be documented with performance numbers. As a result, they often urge people to go into investments whose best days may well be over.

This cycle seems to be playing itself out again right now, with the real estate rush. "How Real Estate Really Builds Wealth," says the cover of the June issue of Money magazine, and the words "Real Estate" and "Wealth" appear in the same green font, just to make sure you get the message. After several years of astonishing real estate gains, Money is suggesting that it's still a lovely time to jump in. Even the one article that asks whether this boom could go bust has an upbeat feel. Sample text: "Even where there is a bubble, a pop is unlikely."

Money actually posits that real estate investments might just build better people: "A 2001 study by researchers at Ohio State found that children of homeowners scored higher on math and reading tests than children of renters, the likely reason being that homeowners don't move as often as renters, thus creating a more stable environment."

Did someone say irrational exuberance was dead?