An Observation: WSJ

It is shortly after 11:30pm local time and I just finished reading today's Wall Street Journal.  The WSJ is my paper of record having been a daily reader for well over a decade.  Why am I reading a newspaper at 11pm?  Isn't the news old?  Why am I reading a paper at all?  Good questions for this internet age, I suppose.

First, I read the paper late in the day because the news is already old by the time it hits my doorstep, so why rush?  I read it for context and detail, not timeliness.  Good investors can pick up ideas and nuances in the articles that illuminate current events and provide insights.  Such details can be far more valuable than simply hearing the raw news as it breaks.  I often get wonderful ideas from articles which are weeks old.  And if a WSJ article is truly breaking news, other sources point this out and I can open the paper immediately.

Second, there is something about simply reading a hard to handle, crinkly, inky, paper.  I'm not that old, but I do appreciate getting away from my screens and away from the desk to sit in a comfortable chair, under soft light and enjoy the paper with a nice beverage.  Some things need to be digested without the ping of a new email in the inbox or the flashing of an obnoxious ad on the screen.  Sometimes you just want to focus on the words, in black and white, instead of something glowing, blinking and binging back at you.  Plus my back enjoys the change of chair.

But what brought me to write this post?  After finishing today's Journal, I solemly noticed that this was perhaps the most somber, grim and bearish WSJ I can recall.  It struck me as even more bleak than in the days after 9/11.  Take a look at the headlines from mostly just the A section:

Central Banks Launch Coordinated Attack: Emergency Rate Cuts Fail to Halt Stock Slide
AIG Bailout Hit by New Cash Woes
UK Stocks Fall Despite New Bank-Rescue Effort
United Response by G7 Seen as Unlikely
Aftershocks Felt From Iceland
After Years of Heavy Borrowing, Spain Is Poised for a Slump
Austrailian Dollar Takes Steep Dive As Investors Pull Back From Risk
Asian Markets Dissatisfied With Global Rate Cuts
US Treasury Seeks Relief in More Bonds
In India, Global Financial Crisis Really Hits Home
Downturn Forces Cutbacks Big and Small
Retailers Brace for Lean Holidays

How is that for bleak?  I wonder if Rupert Murdock's purchase of the Journal has injected a bit more sensationalism or if the feeling in New York is simply that dour.  I suspect it is a little of both, but mostly the later.  There was one, small and nearly hidden bright spot in an easily overlooked place on page A8.  It was all over the newswires by dawn anyway, but it was summarily ignored by investors the world over.  Even the title implied we should ignore it since it happened over a month ago.  I didn't even digest it thoroughly until reading the ancient newpaper tonight.  It read (emphasis mine):

Home Sales Appeared on the Mend Before Financial Crisis Deepened

As it turns out, in August home sales rose 7.4% in units (not price!) when everyone expected a 1.5% decline.  How could that be?  Well, in places like the Western region, prices fell by nearly a quarter.  When prices of homes fall that much, buyers emerge.  To me, that is indeed good news.  It means that there is a desire and a demand for homes, just not at inflated prices.  Eventually, home prices will stabilize where demand meets supply and that may be somewhere around where prices have already fallen to.  If so, it is increadibly good news for everyone since home prices are the root variable in this crisis.

So why was this news dismissed?  Because those August sales were contracted for months ago, before the crisis deepened.  Can the trend continue or will buyers back away?  Who is willing to buy a home now?  These are admittedly troubling prospects.  However, it has often been the case that when everyone is so pessimistic that they ignore even a hint of good news that things are about to change.  How so?  Let's put it this way, who is left to sell or what else can go wrong?  Often the sentiment gets way ahead of the fundamentals.  My friends, this is how psychology can overpower logic in the markets.  Not even one article about how the fall in energy prices will add roughly $150 billion to the U.S. economy which is equal to as much as the whole stimulus package that went out this past spring (remember those $600 checks?)  Not one article on the strengthening U.S. dollar? Not even a suggestion that governments the world over can have any impact on the crisis? We are at a point where we are fearing fear itself. 

In the world of economics, finance and Wall Street, emotions can take over.  Groupthink can be a dangerous thing and difficult to avoid.  Losing money causes real psychological pain (hey, I'm not sleeping well).  Fear is an incredibly strong emotion causing us to do dumb things.  Great investors open their skeptical eye and separate facts from sentiment; truth from emotion; and fall back to what is likely rather than what is feared.  It is tough, really, really tough.