Investing in a Post-Fact Society (a/k/a Were the Good Times a Mirage?)
Barry Ritholtz
About this author: Author's websites:
One of the concerns we have expressed here over the years is that there was much more -- and less -- to the post 2001 recession recovery than met the eye.
Several years ago, this was a controversial position. We first suspected we were on to something, however, when the many critics of this view found it much easier to use epithets (negative, naysayer, perma-bear) than to do the credible critiques of our positions, or any kind of critical analysis. It reminded me of an old lawyer's joke: "When the facts go against you, stress the law; when the law is against you, emphasize the facts; when your case has both the law and the facts against it, call the other lawyer an asshole."
As of March 22, we are still in the early stages of any sort of widespread understanding about this post-recession recovery cycle. Many people are just starting to realize how much fertilizer has been spread around.
Many of the stated economic gains have been a false ghost. Whether it was overstated job creation [NFP], understated inflation [CPI] or "inflated" growth [GDP], a shocking amount of the debate about the economic expansion has been primarily spin.
That's what attracted me to this book by Farhad Manjoo: Learning to Live in a Post-Fact Society.
That such a book is even necessary boggles the mind. Consider the
myriads of benefits and standards of living improvements we have seen
from the reality-based community -- and by that, I mean Scientists
(Physicists, Biologists, Medical Doctors) and Engineers (Technology,
materials and mechanical). Why so many people would turn their backs on
this belief system leads me to Arthur C. Clarke's 3rd law: "Any sufficiently advanced technology is indistinguishable from magic."
While a "Post-fact society" might being intellectually appealing for the slavish followers of a given political or religious order, the same philosophical approach invariably proves very costly for investors -- if not financially fatal.
Consider these elements that are of interest to investors:
1) What objective reality is;
2) The variant perception: What the widespread belief system is versus this objective reality;
3) How far these two are out of alignment;
4) And most importantly to Traders, when the variant view recognizes its error and embraces either a more realistic, or an even more fantastic, view on reality.
For example, as weak as many of the traditional metrics have actually been, some sectors of the economy have enjoyed strong legitimate gains: Everything energy related has been on fire for at least half a decade; the entire agricultural explosion has been for real; all things China-related have enjoyed strong growth (though it certainly became frothy this past year). Metals and Miners have done well, and Transports have had a terrific run, be they rails or shipping. If the economy was truly strong and healthy, these sectors would be ones to avoid.
Consider also the US industrials -- they boomed courtesy of a weak dollar (not healthy) and improved production management (very healthy). What is being called Web 2.0 is seeing genuine innovations, functional business models, and increasing significance in the economy (also healthy).
If you correctly identified where things were healthy or not, the right themes before the crowd caught on, there were plenty of financial gains to be had.
Philosophically, I want to explore -- beyond the legitimate gains mentioned above -- a nagging question about the spin and artifice. Why have we as a nation been increasingly reluctant to confront objective reality? What is it about the present social mood, political leadership, and economic environment that has so totally led us to a world of denial? Up is down, black is white, good is bad -- it's all very Orwellian.
One of the world's great cautionary lessons are the significant contributions made towards mathematics by the Islamic Arab Empire, circa 8th century to 15th century. While European intellectual progress had ceased -- blame the rise of church extremism -- enormous gains were being had elsewhere. Sometime around the 18th or 19th centuries, the cultural roles seem to reverse. After the Age of Enlightenment, the Europeans rejected religious extremism, and prospered, while the Arab Empire embraced extremism, and suffered -- at least until the discover of Crude Oil. There are societal lessons to be learned from this.
I have long railed against superficial headline data that belied the weakness underneath. There were a parade of sycophants and cheerleaders who, despite knowing better, continued to cheerlead punk data. These pundits, politicos and pinheads are now confronting the ugly reality they can no longer ignore. Consider the progression the motley crew of fools and liars went through: First they denied what was happening, then we got the whole contained thingie, then they blamed da Bears. Now, they have unwittingly embraced Marx, and have successfully plead for the central planners to rescue them from their own stupidity.
~~~
Here's my question: Are we stuck with these fantasists? Has Truthiness replaced Truth? Are we going to be saddled forever with these damaging, hallucinatory hacks?
Source:
Worries That the Good Times Were a Mirage
DAVID LEONHARDT
NYT, January 23, 2008
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This article has 13 comments:
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Tony Soprano
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137 Comments
Mar 24 10:00 AM“Here's my question: Are we stuck with these fantasists? Has Truthiness replaced Truth? Are we going to be saddled forever with these damaging, hallucinatory hacks?”
Why a piece like this now? Is it because the short players are stymied and they are turning to their false prophets? To me, they are trying to recharge fear, distrust and loathing in the markets, and back it up with logic.
Just read our history from 1906, a little over a hundred years. Its very encouraging. If you are young you might live this long. All real events that helped and that hurt us.
“Has Truthiness replaced Truth?” I believe that we need all kinds of thinking and ideas. It’s good. Even as people spread false ideas they make money form it and for others as well. That’s quite remarkable and it’s fine.
But whether we are saddled forever with these damaging, hallucinatory hacks is another story. Again, the short players are trying recharge fear, distrust and loathing. Their batteries are getting low and they know it.
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pochovilla
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196 Comments
Mar 24 11:51 AM-
clue me in
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24 Comments
Mar 24 12:16 PM-
mark mchugh
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154 Comments
Mar 24 03:50 PMI’ve really seen enough of your pseudo-patriotic drivel. When the powers that be use the flag to stuff their moral compasses in their rectums, decent people are outraged; jack-holes, like you, salute. Real Patriots seek justice first, and don’t look to pass their debts onto their grandkids. Cheerleading deficit spending and currency collapse to subsidize thieves and over-leveraged fools is about as American as Al-Qaeda wearing the stars and bars.
Yeah, I know, “50 years of investment experience”, yet here you are, frantically posting away, like a fifteen year-old girl on myspace.com. I think what you’ve really had is 6 months of experience, 100 times over. So tell us, brainiac, is this a bear market rally to dress up report card day (end of the quarter) or a true bottom? If you were any good, you’d already be out of the game, but your comments (and volume) reek of the desperation that comes from a bad balance sheet. Hoping for one more bubble to bail your sorry ass out. Maybe you’re hoping to unload some “investment” properties when things get better?
The only question I’ve really got for you is, are you an idiot who idolizes a fictitious crook or an idiot who’s name is actually Tony Soprano.
Your comments are only insightful in the vacuum between your ears. Inflict your “wisdom” elsewhere (the NAR could use some more shills). You are the disease, don’t try to pass yourself off as the cure.
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mark mchugh
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154 Comments
Mar 24 04:07 PMGreat article Barry! I don't know the answer to your question, but it certainly seems like more and more people don't get confused by the facts. I think we are stuck with these parallel universes until something so big happens, no one can ignore it.
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Tony Soprano
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137 Comments
Mar 24 06:56 PMSince there is so much angst directed toward the Fed and the US Government, I decided to list some events, not all of them, that had dramatic ramifications on lives, cost and the psychology of our country. I started in 1906 because it’s just a little over a hundred years. Some of the events were world wide but still had a cause and effect on America and the world. As I compiled the list, I could not help but feel the great sacrifices that many American’s have made and what a resilient country, economy and government we have in American that stretches the entire globe.
The 1906 San Francisco Earthquake and fire, registered 8.25 on the Richter scale; estimates range from 700 to 3,000 dead or missing, approximately 225,000 injuries and $400,000,000 in 1906 dollars.
Recession, May 1907-June 1908, 13 mo
Model T, 1908, came into popular usage
Recession Jan. 1910-Jan. 1912, 24 months
Completion of the Panama Canal, 1914 – 27,500 workers are estimated to have died
Recession Jan. 1913-Dec. 1914 23 months
World War I -- 116,708 killed – 33 billion
Spanish influenza, 1918, killed over 500,000 people in the worst single U.S. epidemic.
Recession Aug. 1918-March 1919 7 months
The first radio news program was broadcast August 31, 1920, in Detroit, Michigan
Recession Jan. 1920-July 1921, 18 months
Recession May 1923-July 1924 14 months
Recession Oct. 1926-Nov. 1927 13 months
Bell Labs gave important demonstration of television April 7, 1927
The Great Mississippi Flood of 1927, flooded 27,000 square miles, 246 killed
The Great Depression, Black Tuesday, crop prices fell by 40 to 60 percent, after the panic of 1929, and during the first 10 months of 1930, 744 US banks failed. (In all, 9,000 banks failed during the 1930s). By 1933, depositors had lost $140 billion in deposits.
The Dirty Thirties, longest drought of 20th century. Peak periods were 1930, 1934, 1936, 1939, and 1940. The dust bowl covered 50 million acres in the south-central plains during the winter of 1935-1936.
Labor Day Hurricane of 1935, 400 killed
Recession May 1937-June 1938 13 months
World War II – 408,306 killed – 360 billion
Wartime Controls: 1941-1945 rationed consumer items ranging from sugar to gasoline
The United States developed the first atomic weapons during World War II
Recession Feb. 1945-Oct. 1945 8 months
The UN was founded in 1945 to replace the League of Nations
The Marshall Plan, July 1947 – 13 billion in economic and technical assistance were given to help the recovery of the European countries
On 16 December 1947, William Shockley, John Bardeen and Walter Brattain succeeded in building the first practical point-contact transistor at Bell Labs
Cable television, formerly known as Community Antenna Television or CATV, was born in the mountains of Pennsylvania in 1948.
Israel declares independence, May 14, 1948,
Berlin's Crisis (June 24, 1948 to May 11, 1949) was one of the first major crises of the new Cold War
Recession Nov. 1948-Oct. 1949 11 months
The Soviet Union tested its first nuclear weapon ( Joe-1 ) in 1949
Chiang Kai-shek moves his government from communist China to Taipei, Taiwan (formerly Formosa), where he formally resumed his duties as president on March 1, 1950.
Korean War, July 1951 - July 1953 – 33,000 killed in action
The United Kingdom tested its first nuclear weapon ( Hurricane ) in 1952
Recession July 1953-May 1954 10 months
The Supreme Court rules on the landmark case Brown v. Board of Education of Topeka, Kans., unanimously agreeing that segregation in public schools is unconstitutional – May 17, 1954.
The Suez Crisis of 1956 – was a military attack on Egypt by Britain, France, and Israel beginning on 29 October 1956.
Recession Aug. 1957-April 1958 8 months
Alaska becomes 49th state of the U.S. on January 3, 1959
Hawaii becomes 50th state of the U.S. on August 21, 1959
U–2 Incident of 1960 occurred when an American U–2 spy plane was shot down over the Soviet Union
France tested its first nuclear weapon in 1960 ( Gerboise Bleue )
Recession April 1960-Feb. 1961 10 months
The Cold War, some estimates shows $8 trillion was spent, worldwide, on nuclear and other weapons between 1945 and 1996
The Cuban Missile Crisis, Oct. 1962
Martin Luther King is arrested and jailed during anti-segregation protests in Birmingham, Ala.; April 16, 1963.
Vietnam War, 1963 – 47,378 killed in action
200,000 people join the March on Washington. Congregating at the Lincoln Memorial, participants listen as Martin Luther King delivers his famous I Have a Dream speech. Aug 28, 1963.
The murder of JFK, 1963 Nov
Good Friday Earthquake (1964) In Alaska, it was the fourth biggest earthquake recorded
The Gulf of Tonkin Incident, Aug 1964
China tested its first nuclear weapon in 1964
President Johnson signs the Civil Rights Act of 1964.
Malcolm X, black nationalist and founder of the Organization of Afro-American Unity, is shot to death – Feb 21, 1965
1967 Arab-Israeli War – was fought between Israel and Arab neighbors Egypt, Jordan, and Syria. The nations of Iraq, Saudi Arabia, Kuwait and Algeria also contributed troops and arms to the Arab forces.
The murder of Dr King, April 1968 and Bobby Kennedy, June 1968
The city riots of April, 1968 – 30 cities affected
President Johnson signs the Civil Rights Act of 1968, prohibiting discrimination in the sale, rental, and financing of housing.
Hurricane Camille, Aug 1969, 259 killed
Recession Dec. 1969-Nov. 1970 11 months
Stagflation of the 1970s began
Nixon first imposed wage and price controls on August 15, 1971
World Trade Center ribbon cutting ceremony was on April 4, 1973
1973 Arab-Israeli War or Yom Kippur War – a surprise joint attack by Egypt and Syria on the Jewish holiday of Yom Kippur.
Oil Embargo, Oct 1973 long gas lines
Recession Nov. 1973-March 1975 16 months
Articles of Impeachment of Nixon started
(Approved by a vote of 27-11 by the House Judiciary Committee on Saturday, July 27, 1974.)
India's first nuclear test occurred on the 18th of May, 1974
Deregulation: 1974-1992 this era began when Nixon left office
Home computers start to enter retail markets, in 1977, and becoming common during the 1980s
Bell Labs launches first commercial cellular network in Chicago – 1978
Three Mile Island nuclear power plant crisis, March 1979
The Carter Administration decides to come to the aid of Chrysler Corp, 1979
Mount St. Helen's eruption 1980
The US Savings and Loan crisis of the 1980s begins, more than 1,000 savings and loan institutions failed.
Recession Jan. 1980-July 1980 6 months
Prime reached unbelievable 20% in January 1981,
AIDS was first reported June 5, 1981 by the government – It is thought that more than one million people are living with HIV in the USA and that more than half a million have died after developing AIDS.
Recession July 1981-Nov. 1982 16 months
California earthquake 1983
The 87 market crash - Black Monday
Pakistan acquires the ability to carry out a nuclear explosion in 1987
California earthquake, 1989
Recession July 1990-March 1991 8 months
Iraq invaded Kuwait on August 2, 1990
Nikkei stock index crashed by over 30,000 points, the average home near Tokyo cost well over $2 million before the crash in 1989
The Persian Gulf War, 1991 or Desert Storm Jan 1991
Hurricane Andrew 1992 very destructive United States hurricane
World Trade Center bombing, February 26, 1993
The Great USA Flood of 1993
The 1995 bailout of Mexico
East Asian Financial Crisis was a period of financial crisis that gripped much of Asia beginning in the summer of (July) 1997
Intervention in the Former Yugoslavia – March 24-June 10, 1999, NATO bombing of FR Yugoslavia
The International Monetary Fund approves an immediate $5.3bil emergency payment for Brazil to rescue its economy, Dec 1998
IMF protects US banks in Russian bailout, July 1998, Russia receives $22.6 billion in loans
Dot Com Bubble, climaxed on March 10th, 2000 with the NASDAQ peaking at 5132.52
9/11 Attack, 2,974 people died
Recession March 2001-Nov. 2001 8 months, Airline Industry Collapsed
Enron bankruptcy in late 2001, employed 22,000
WorldCom, July 21, 2002, filed for Chapter 11
Iraq War, March 19, 2003 – 4,000 dead
Hurricane Katrina, late August 2005, 1,836 people lost their lives
Start of the Great Housing Recession/Depression or Sub-prime Recession, date to be determined.
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Bylo-
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18 Comments
Mar 24 07:39 PM-
Tony Soprano
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137 Comments
Mar 24 08:24 PMShe has the best people, military and Federal Reserve -- nonpareil.
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sammyg123
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97 Comments
Mar 25 09:45 AM-
sammyg123
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97 Comments
Mar 25 09:50 AM-
Tony Soprano
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137 Comments
Mar 25 07:48 PMSpewing personal trash again sammy? Can't Barry teach you some good manners? lol
Yes, I do read ALL of his stuff. To me he is just another spin doctor.
He complains about being saddled with truthiness (spin, nothing new in that) but he uses spin for his own arguments.
For example, in his piece today ‘How Counter-Productive Is Realtor Association Spin?’ is an old story and I do agree it was a sad state of affairs. David Lereah left the NAR a year ago and there are no new events in speak of in his piece. So he is just churning up hate, fear, and loathing. Flames die down but he fans them up again with no solution or fix of his own.
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fxtrader07
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618 Comments
Mar 27 07:16 AMShe has the best people, military and Federal Reserve -- nonpareil."
WoW! To include the Federal Reserve as an achievement - an evil institution that the fathers of the constitution for very good reason sought to avoid under any circumstances is simply breathtaking. For all the progress that the American people have made, the govt and the Fed are relentless in their efforts to redistribute the wealth continuously right into the hands of the banks and the super-rich tycoons and rob the ordinary citizen blind.
But never mind, Tony, go ahead.
But perhaps, you could start your chronology a bit earlier, right at the genocide committed against the American Indians. And you may include events in your chronic such as invading innocent countries thereby killing hundreds of thousands of women, children, old people, assassinating freely elected presidents, propping up dictators allover the world and helping them installing concentration camps and torture hells off-shore etc. etc.
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nukldrager
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246 Comments
Mar 31 01:31 PM