Is Bad News Good News?

As someone who is a serious consumer and producer of news and analysis, now called “content” in contemporary lingo, I can’t avoid noticing that America’s economy is doing better than anyone would have imagined a decade ago in the middle of the financial crisis. Yet the news remains pervasively negative.

How much this is caused by biases in the media or real negativity in the news cycle isn’t clear. Both interact and reinforce each other.

Speaking at the Schwab Impact conference shortly after the financial crisis in 2010, Ariel Investments’ CEO Mellody Hobson offered an illuminating insight. Adults at that time were reacting like 5-year-old children who had witnessed a terrible car crash, so every time they heard a loud noise they expected another one.

Has the news media exacerbated this? Certainly. But news organizations didn’t cause 9/11, two Middle Eastern wars, the financial crisis, the Deepwater Horizon oil blowout, the Japanese tsunami or Hurricanes Harvey and Katrina.

Looking back to the turn of the millennium, everything looked so rosy it seemed like we were about to enter Nirvana. In retrospect, one could argue that financial news pornography played a major role in the tech bubble of the late 1990s and that the need for ratings spawned today’s political polarization.

It hasn’t escaped my notice that the current financial news cycle is replete with stories from wise men like Bridgewater’s Ray Dalio predicting that the next financial crisis will be bad, but not as nasty as the last. Predictions from venerable institutions like J.P. Morgan and Goldman Sachs pinpoint the end of the bull market and the economic expansion within the next year or two.

But if everyone is saying something is going to happen, it rarely materializes. Maybe this time is different.

I had the fortune of interviewing Oaktree Capital’s Howard Marks in August. As a distressed debt investor, he is hardly a blind optimist, but he didn’t see any imminent disaster like 2008’s on the horizon. Marks did say, however, that the longer a trend continues, the more people believe it will continue. That creates its own set of psychological issues.

If Sir John Templeton’s famous observation that bull markets “mature on optimism” and “end on euphoria” is accurate, we are barely at the optimistic stage. Maybe that’s a reason the current cycle already has lasted longer than anyone expected a decade ago.