media hype and manipulation

THE STOCK MARKETS CONTINUE to reach all-time highs. Each month over the last year or so, various market indexes have continued to hit record highs. Make no mistake about it—this is good news for your growth-oriented retirement investments.

Over the last 14 years, we have witnessed one crisis after another. The cycle began with the Y2K crash in early 2000, triggering a very real recession. This was followed by the 9/11 tragedies, another severe market crash and continuing recession. All of this was accentuated by corporate scandals like Enron and WorldCom. Then we saw the wars in Afghanistan and Iraq. The markets recovered to new highs in 2007, immediately followed by the worst stock market crash, real estate crash and banking crisis of most of our lifetimes in 2008-09. Since 2009, the markets have recovered nicely, but we have become conditioned over the last 14 years to believe that any new market high must be followed by a new market low. It has been 14 years since we have seen a true “Growth Economy “ and a bona fide “Bull Market.”

Constant Predictions of “Boom or Bust”

For some time now, you have all heard me issue repeated warnings about media hype and manipulation, especially with regard to investment markets and volatility. When the markets are down, the general news media and financial media alike adopt a “Chicken Little/the sky is falling” approach. Then when the markets are going up, they switch gears and go into enthusiastic hype mode. Both the print and broadcast media are constantly making dramatic predictions such as “stock market crashes” or “booms in gold or energy investments.” The media reminds me of needy children seeking constant attention and affirmation.

In a single hour of network television you can be exposed to countless predictions of boom or bust. In order to grab attention and push ratings, media outlets look to trigger an extreme emotional response in the viewer. They often do this by focusing on either optimistic euphoria or fear-laden anxiety. For example, as investment markets hit all-time highs, the news media feature guests and so-called experts attempting to explain why the markets are going up. Then, when the markets show volatility, (sometimes the very next day), the media release troubling stories and feature even more interviews with so-called experts to now explain why we’re headed for a major crash!

Russian Hostilities and Harry Dent

During the last week of February and the first week of March 2014, we witnessed a great example of this “media cycle.” In the last week of February, major media outlets interviewed bullish guests as the Dow rose back above the 16000 level. Then over that weekend, Russian hostilities against the Ukraine/Crimea region heated up and on Monday, March 3rd, the Dow dropped over 200 points. Guess who NBC and CNBC News featured as their resident guru? It was Harry Dent predicting the Dow would soon collapse to 6,000!

You may remember Harry Dent as the guy with the dubious reputation of being a “dark apocalypse guru.” In the early days of his prognosticating he began as an unbridled bull, publishing his book in 1998 titled, “The Roaring 2000’s” where he predicted the Dow would hit 41,500 by 2008. Now we all know that he could not have been more wrong, and in fact dead wrong! The investment markets in the 2000s were exactly the opposite of “roaring.”

After this dismal prediction failure, he decided to switch his clairvoyant prognostications to that of a “gloom and doomer.” He published a new book in 2009 titled, “The Great Depression Ahead,” and in 2011 another book called, “The Great Crash Ahead.” Since his Armageddon-like predictions in 2009 and 2011, the Dow has risen from 6500 to over 17,000. Once again Harry Dent was dead wrong!

Yet NBC and CNBC leap at the chance to feature Harry and his predictions on the air. Why? To exaggerate and fuel viewer anxiety over a 200 point drop in the market that coincided with problems in Russia and the Ukraine. The media knew full well that Mr. Dent has a history of being horribly inaccurate. This is exactly the type of hype and manipulation I’m referring to.

Long-Term Discipline & Diversification are Key

Now, please understand that no one knows exactly where the markets will go in the future. We’ve seen very good trends of late, but the markets and the economy could decline again. That’s why I have always directed my clients to adopt and faithfully adhere to a strategy of long-term discipline with an asset allocated diversified approach. It is this strategy that has allowed us to tolerate and endure over the last 14 years.

I never recommend knee-jerk reactions to short-term events. Tuning into the various financial media programs and listening to the “short-term day trader mentality” can severely distort your perceptions and emotionally lure you into making financial mistakes.

All of my clients should have their eyes wide open and understand that the investment markets do have volatility risks, and that market declines can and will occur in the future. However, just because the markets are hitting all time highs does not mean we should cast aside our long-term strategy in fear of a pending market crash. Falling for media hype and manipulation only creates extremes ranging from Pollyannaish euphoria to fear, dread and doom.

A rational and sound long-term strategy, with an understanding that there will be good and bad years in the markets, will help you be much more consistent and at ease as the natural ebbs and flows unfold..

Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Ryan Craner, Registered Representative. Advisory services offered through Strategic Planning Group, LLC, Ryan Craner, Investment Advisor Representative. Strategic Planning Group and Cambridge are not affiliated.