Paul Kedrosky posted a question this week, asking Why are Financial Bloggers so Bearish? Check it out as its a very good question, and observations. He writes,
“…most financial blogs — and their commenters, in particular — are bearish way past that point, with they and their commenters in an echo chamber muttering darkly about canned food, plunge protection teams, a bullet-less Fed, and on and on. It’s bleak and apocalyptic at the best of times, and now it’s a relentless and somewhat bizarre mixture of Calvinist moralizing and noisy negative-triumphalism.”
His commenters also offer some insight as well.
“Barry Ritholtz + Roubini have made their livings as the token bearish guys. Someone wants the bear case they go to those sites. Journalists want a bear quote they go to them. It’s all a marketing game. It’s like why the New York Times slants for a left-leaning audience to capture that market niche. Barry Ritholtz slants his commentary for a bearish-leaning audience”
“Financial bloggers are bearish for three reasons that I can discern:
1) Most started blogging in a hyper bull market, it was MUCH easier to build a name for themselves by pointing out the contrarian viewpoints. The world didn’t need a bunch of bloggers telling them to buy the Four Horsemen, to buy BRICS, to play the LBO/IPO resurgence; because we had 25-30 sell-side shills doing that already.
2) It’s human nature to crow when you’re right. Since most of these guys were singing sad songs from the outset of their blogs, they feel the need to reinforce their prior view points and remind everyone that they “called it.”
3) The blogosphere is nothing if not an echo chamber, and financial analysis blogging was late to the party but we’re now fully embroiled in the same stagnation.
I, like you, am looking forward to seeing which of these guys starts talking about how great things look, or what tremendous opportunities are arising as the market sell off approaches panic levels.”
Since I am guilty of both partial Calvinist Moralizing and negative-triumphalism, although I hate it when I get it from a perspective I don’t agree with, I found it very interesting and thought-provoking. While I agree with some of the commenters on some of the reasons for individual bloggers, I believe that it is bearish in general for one main reason – Financial Blogs are the hedge funds in the market for financial news, information, and advice.
The other week I wrote an post on Survivorship Bias in Financial Media. In it I basically wrote how mainstream media sets the trend for the news and just basically fills the marketplace with noise around this trend – usually in the form of pundits, stock picks, first hand accounts, etc. They have the advantage that they are always out there, and basically ride the trend of the actual markets. Financial Bloggers, on the other hand, usually take this news and comment upon it or filter through the noise to point out what they see as valuable and not valuable. They essentially add alpha to the news.
Since financial blogs are not able to really be successful competing with the MSM, they essentially do not benefit from market beta, or just reporting the trend. Instead, they must be different. Many go against the trend and essentially go short the market and since there has been a bull market throughout the lifespan of financial blogs (or at least up until a few months ago) this has equated to a bearish slant. Others filter through the noise the MSM puts out and gives a “relative value” approach. They point out (or go long) stories the MSM has not focused on and lament on (or go short) those that they focus too much on. Once again in a bullish market this will appear bearish. A smaller group actually give their own analysis, but many of the successful ones try to steer clear of this as most don’t have any credibility.
In essence, financial bloggers, much like hedge funds, are largely unregulated and point out and take advantage of the inefficiencies that are inherent to mainstream financial media. The successful ones become successful because of survivorship bias that is caused through Google and Social Bookmarking. Up until now this has been bearish and it will be interesting to see what happens in a bear market, when the CNBC’s of the world become more bearish themselves. Just as hedge fund managers for the most part are more bearish than their long-only mutual fund counterparts, financial bloggers are the same when compared to their MSM counterparts.
In a market that is filled with players who are fighting for alpha, there will naturally be a desire for “value-added” journalism. Financial bloggers attempt to add that value-added component, and the ones who actually do are succesful and the ones who don’t are not. Blogging is the best example of a free market capitalist system of news and those who gain reader market share gain it because of a mainstream media market dislocation, which they aim to capture.