Dear Reader, please try to think about the impact the currently weak US dollar can have on the country's imports and thus on its trade balance. It is already horrendous and shows a constantly increasing US national debt of almost 12.000 bn US dollars. Instead of showing in an open and honest way what is going on in the market, the newspapers keep on cheering: cheering over better-than-expected corporate earnings due to layoffs; Cheering housing and car sales due to more government debt etc. This causes the vast majority of bad news to actually look like good ones, because the bad part is made unimportant and put in the background if mentioned at all. But how can a weak currency be transformed into a good headline? Just start with the consequence of beautifully rising gold prices and the readers are happy! Let's look at some examples taken from different newspapers:On Friday CNBC published a price forecast by JP Morgan for gold and said that 'new record highs for gold (...) were likely in 2010'. This article defines gold as the 'overwhelming beneficiary of investment allocations to commodities all year'. The bank already describes the next year as a year of consolidation in the base of metals, stating only in the second last paragraph that investors may be paying too high prices for gold as an inflation hedge. This immediately tells the attentive reader, who knows that in times of uncertainty in the market gold is a secure investment, that there is, as he expected, not everything going well, but without specifying where the exact problem is. This newspaper obviously decided to focus on the good part of the whole story.
The Economist uses a slightly different approach to present the news. It, typical for this magazine, starts off with a short headline that should attract the reader's attention since it contains strong words and does not immediatly make clear what the news is about. This article explains, why factors other than the weak dollar were not the reason for the current boost of the gold prices. According to the Economist, it has been seen already that risk-averse investors tend to buy gold when the dollar falls. At the end of the article there is even a forecast to be found, saying that prices are likely to increase further. However, also this article begins with the fascination of gold from an investors' point of view followed by detailed information about the new record prices. This article gives the best overview combined with background information and I would thus recommend this article to other interested readers.
Even though the article analyzed in the Financial Times refers to different sources including brokerage MF Global and large metal producers, it is still focusing too much on the actual record price of gold, generated profitability and successes acchieved at the London Metal Exchange. This waive of great numbers, statistics and forecasts does not allow a detailed insight in the less brilliant consequences for the world's trade and economy. It is the only article that talkes about the copper, platinum, silver etc. market. With comments like 'unexpected profits' and a paragraph about the fact that materials priced in the US currency are cheap for countries holding alternative currencies, this article sounds quite pushy to me; it almost seems that the FT would get commission for new investors introduced to the commodity market, which from my point of view does not look very adequate.
When trying to not only read through random articles, but thinking about their content and way of putting information, it became apparent to me, that financial media is trying to calm everybody who has a direct or even inderect interest in finance. In good times everything has to be made worse, sometimes even by exagerating, in order to become a great headline. Now, in times of financial crisis (yes, it is not over yet), good news is what people are interested in. For the sake of clarity, I am not saying that attempts to calm down the whole situation are a bad idea, but it depends on how it is done; a good headline will only be good until the bad parts attached to it become obvious to everybody. Then, as soon as there are too many contradictions and different opinions about a topic, disturbance and incertitude are created which lead to wrong behaviour, misinterpretation and bad investments. For this reason I believe that the process of tranquilizing is only sustainable if objectiveness, honesty and straightforwardness are offered in financial media. In the end it is the readers' responsibility to judge the news, decide what to believe in and make decisions as a consequence. But bear in mind: all that glitters is not gold!
Sources:
.JPG)
A good intro and well researched. Good evidence of critical analysis. I like your writing style. Well done. 8/10
ReplyDelete