Aug

28

P McDIt seems every day for the past few months we heard another story about how bad the economy is. The mainstream media have had a monotonously lugubrious message about how bad it is. Against this backdrop we have today the salutary news that GDP rebounded at an adjusted annual rate of more than 3% in the second quarter. Simply put, the widely predicted recession never happened.

This still begs the very real question as to why the mainstream media are so bearish on the economy. There are several reasons for this but one is often overlooked. Part of the blame for the bearishness of the press can be placed on Google.

Clearly the people at Google are not sending out negative messages nor are they inherently pessimistic. In fact the opposite is true. Google is one of the most successful companies in history. Most of its employees are active participants in its success story. So the folks at Google are just short of euphoric on the economy. It is working very well for them. But that is exactly the problem. Google has a had enormous disruptive influence on other media companies. It has adversely impacted newspapers, magazines, radio, TV and pretty much every other advertising medium.

Across the board things are bad for almost all media companies who do not have a significant Internet presence. Sales are falling and consequently earnings have been decimated. No question, the media industry is in a Google-induced depression. So it should be no wonder that the mood in the financial press is depressed. They are losing their jobs wholesale. Over the last year many if not all senior columnists or reporters have been replaced in many companies. Typically they are being replaced by younger, prettier and, most importantly, cheaper talent. Many of these Young Turks have never seen a bear market. The guidance of the financial media has never been very good at its best, but this new generation may represent a new level of ineptitude. They are far too quick to hit the panic button.

However that is no reason that the rest of us need to panic. This time it is not different. Financial crises happen all the time and with a certain cyclical regularity. The GDP number tells us the worst is behind us and that the non-financial non-real-estate part of the economy is just fine. I believe stocks are more undervalued than at any time since 2003.

Dr. McDonnell is the author of Optimal Portfolio Modeling, Wiley, 2008


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