The Disaster Distraction

When I'm watchin' my TV
And that man comes on to tell me
How white my shirts can be
But he can't be a man 'cause he doesn't smoke
The same cigarettes as me

-The Rolling Stones

Treadmill-running in a Florida hotel last week, I got a rare opportunity to actually focus on CNBC for an hour. Unfortunately, it was Thursday: Bernie Madoff day. Our obsession with this admitted criminal is reflective of our human nature. Some would say, "There but for the grace of God go I." Others would say, "Gee, perhaps my life isn't so bad after all." And this, I believe is the reason the most popular "news" stories typically focus on bad news rather than good.

It became obvious last summer that all our economy needed was a boost in confidence. A capitalist society demands its participants have confidence in the system itself, otherwise all consumption and investment can come to a halt. And that's what we are facing now.

Unfortunately, our news outlets are profit-oriented institutions, just like every other private corporation. And they know better than anyone that bad news sells advertising more effectively than good. They understand the human wiring when it comes to disasters. Who hasn't slowed near a recent accident and looked over in fearful hope to see some gruesome catastrophe? It would seem we feel better knowing that it didn't happen to us. This is most likely why so many accidents occur within a couple miles of a previous accident. Some feeling of euphoria envelopes the driver who becomes emboldened to take on more risk, perhaps.

But the alternative is to nationalize the media, which would be a complete disaster. No government has overseen a thriving economy for long when the dissemination of information is not free. No, the best alternative is to alter the program from the demand side. Simply resist that natural human temptation to focus on the negative and reward those outlets who provide success stories.

Our financial conundrum is as much a reflection of this bit of human nature as it is a reflection of poorly underwritten loans. Surely the recent car salesman-turned-loan underwriter was the spark, but our desire to push others down has fanned the flames.

In my client conversations through the third quarter of 2008, I continually stressed the good news. Employment, though dropping, had yet to reach recessionary levels and if we could possibly turn the mortgage market, and thus the economy, before it did perhaps we could get out of the downturn rather quickly.

Instead, market participants were fed a continual dose of doom and gloom including such "disastrous" employment reports as losing 60,000 jobs in a month (they've since been revised upwards some threefold). Now that we are moving ten times that speed, we should be wondering why last summer's job losses were "disastrous." If they were, what is the word for ten times disastrous?

It is unfortunate that in the post-Internet age where a true 24/7 news cycle exists, we are continuously peppered with bad news. Sometimes, you must turn off the noise and realize that it is just that - noise. The American spirit is alive and well and the fundamentals of our economy remain almost untouched. While we've taken solid blows to our wealth, consumption, profits and borrowing capacity, none of these events tells us we have to make true fundamental change, save for the mortgage market.

Congress needs to focus on this disabled, dysfunctional sector of our economy and allow American ingenuity and our desire to thrive to take care of the rest.

Until then, try to refrain from focusing on too much of the negative news. I will too. After all, I had the gym television on mute and tried my best not to read the closed captioning.

Key Developments

The stock market turned in solid gains last week with the S&P 500 up 10.8 percent and the beleaguered Dow up 9.1 percent. Market talk focused on whether this was the last bottom we will see or if dead cats will be popping up in conversations in coming weeks. Of course, no one knows the answer, but it's difficult to imagine the market reaching a bottom until reason for a recovery emerges. We have yet to see that.

The trade deficit for January narrowed more than expected to $36 billion, falling from $39 billion in December. While this may seem good news to some, the fact is trade worldwide is slowing and our trade deficit is somewhat a random outcome of this more important event. Until global trade can find its feet, the worldwide economy will continue to fall.

Retail sales in February fell just 0.1 percent versus expectations of a 0.5 percent drop. In addition, January retail sales were revised upward to 1.8 percent from 1 percent as the consumer, it seems, has been much more active than previously thought. Diving deeper, however, it is reported that some pent up demand, deep discounting and higher tax refunds than last year seem to have played a significant part.