I just heard BBC radio tell listeners that we should be expecting people to start buying on financial markets, given that everything is at rock bottom prices. How did BBC determine that stocks were at rock bottom prices? Did they do an analysis of price to earnings ratios and determine that stocks had never been so low, or at least not in recent years? They clearly did not perform such an analysis because many, if not all, markets are far above their lows of the last decade. In the case of the U.S., the S&P 500 index bottomed out at under 850 in 2002. Adjusting for growth in trend profits and inflation, this would be around 1100 at present, far below the S&P’s current level around 1400. So where does BBC get off telling its listeners things that are not true. Of course BBC is not the only news outlet that seems to be working for the financial industry. I listened to several local DC news shows last night and they all gave their viewers the advice from their experts that the best thing is to just sit back and hang on to their stock and to be on the lookout for bargain buying options. There was no one saying “sell.” I would not necessarily give anyone sell advice, but it is hardly clear that the best thing for investors would be to sit tight. The Nasdaq peaked at over 5000 in March of 2000 and then plummeted by close to a third to 3500 in the summer. The advice to stockholders to sit tight at that point would have been disastrous. The Nasdaq eventually dropped by two-thirds from its summer of 2000 level, eventually bottoming out at less than 1200. Even today the Nasdaq is till down more than one-third from its level in the summer of 2000, after adjusting for inflation. So the sit tight or buy bargain strategies would have led to large losses. The point is that a buy and hold strategy is not always best. The media are misleading its audience when they present this as the best possible course without presenting any alternative perspectives. As I’ve said before, maybe we should let viewers sue the media for any subsequent losses that they can attribute to such reporting. Such a law would certainly lead to better financial reporting.
--Dean Baker
