Self-Fulfilling Prophecy

"The medium is the message" is a phrase that has intrigued me for years, and has given my feeble brain more than a bit of trouble. Indeed, Marshall McLuhan's utterance may have several different levels of meaning and boggles me still.

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And, having little formal education to guide me and less still to confuse or conform, I had always assumed that the long-ago read book 1984 was mostly about the dangers that big government and technology pose to free will and critical thinking. It now occurs to me to go back and reread George Orwell's words to see if it wasn't the power of the media that he was really warning us about.

Forgive me if I'm stating the obvious, but what's going on right now all around us in this age of unparalleled speed and change -- which drowns us in an ocean of data and misinformation -- is far more important than, and is also directly relevant to, what's now going on in the markets. And it's far scarier and more dangerous than the prospect of just another garden-variety bear market or recession.

How is it that the economy has gone from Goldilocks to Dante's Inferno, and the markets from being characterized as the "best environment ever" for U.S. financial assets, to one that's increasingly viewed as being close to collapse in a matter of months? Is it really just the gross ineptitude of Wall Street gurus, dismal forecasts by the practitioners of the dismal science, and simple greed on the part of many investors or nascent traders? I think not.

We tend to forget that it's been less than 50 years since television burst into American homes, not much longer since radios were first huddled over in every living room -- and a relative blink of time since telephones were first cranked. We now know that those devices evolved in a manner that was unforeseen by the futurists of yesteryear. But exactly how their pervasiveness has impacted society -- particularly today, with the near-ubiquitous use of PCs and the Internet -- are barely understood and ripe for serious exploration.

Like the changing of the seasons, the past consisted of economic cycles that were closely tied to harvests, natural disasters, illness and the dogs of war. That was the reality for millennia. Recessions were commonplace and often vicious; it was simply the nature of living in a sometimes cruel and unknowable world. Common folk and kings only knew that they had to put away stocks in the fat years since lean years were certain to follow. Shamans, priests and wise men could perform rituals to make things better -- but they had no power to eradicate the certainty of bust following boom.

Most of our modern-day holidays are a testament to the immutable laws of nature and our ancestral superstitions and rituals designed to please the gods. It's no accident that Christmas (and perhaps Kwanzaa -- I admit unfamiliarity with its history) comes shortly after the winter solstice, which is once again upon us today. However, as we all know, the symbolism and meanings of the holidays have changed dramatically over the period of just a handful of generations.

We also tend to forget that the history of economic theory can only be measured in a few short centuries, and the science is still in its infancy and constantly being refined. (No wonder it offers up so many faulty forecasts!)

"Recessions" in more modern times were empirically measured -- mostly after the fact -- and society was dutifully informed that their readily perceived economic discomfort, and worse, was sufficient to warrant a new label. In many cases, the proclamation of a recession by economists was a sure sign that the worst had passed. But accurately forecasting a recession remained beyond the ken of the dismal science, as it failed to adequately account for the emotional factors that sway human interactions.

And now, in the information age? Economic perceptions are increasingly being shaped by the opinions of hardly objective "experts" with a great deal of help from the media, which seems intent upon making the news rather than impartially reporting it -- if only for the benefit of ratings. Certainly, there are good reasons for changing perceptions; however, the media appear to me to be an ever-growing source of a significant problem. That problem is the increasing likelihood that self-fulfilling prophecies are apt to shake politics, governance and the global economy to the core.

A literate but too-busy-to-care American populace gets much of its information via television, increasingly on cable news networks. Those who do read increasingly favor sensationalized tabloids. It's certainly not your father's nightly news anymore, and much of journalism is turning into a profession bereft of real values.

Is it any wonder that so few bother to vote? Or that Alan Greenspan is increasingly being reviled as an economic ogre? Sound bites are all that matter. And it's understandable from an economic point of view. How can one hope to generate ratings or readers by examining important issues when an overworked population is more interested in becoming comfortably numb by plopping in front of entertainment centers and electronic games?

Why Calling It a Recession Makes It So

It now appears likely that we will indeed have a recession next year. (An increasing number of "experts" are saying we're already in one now.) And it's not because the economy is showing extraordinary strains or because money is too tight, or that folks have been overly concerned about holding onto jobs.

It's simply because an economy with near-full employment is being portrayed by the media as one that's teetering on the brink of disaster. Every headline is slanted and every piece of economic news that doesn't fit a doomsday forecast is ignored. The inability of companies to meet foolish estimates is taken as further proof of an economic collapse, as is a Nasdaq Composite Index that's still about 70% higher than it was little more than two years ago. And many adhere to the simplistic notion that the pain they have still yet to feel is because of the "intransigence" of one man -- Alan Greenspan.

Perception is reality, and confidence is far more important to keeping the economy growing than anything else; just ask the Japanese.

The perception of many of those who have failed to foresee a full-blown mania is also that Wednesday's heavy volume selloff was the capitulation that marked yet another bottom. Many are also now convinced that Mr. G. will cave in to the mounting pressure to cut rates, perhaps by as much as 50 basis points, before next month's Federal Open Market Committee meeting. Hence, a nice snapback rally is in store.

Traders who took profits Wednesday, as I did, should view a short-term rally just like all the others that have occurred in the tech sector recently, although it could last a bit longer due to strong seasonal factors, and sell when it begins to wane.

Investors should hold what they've picked up recently but wait to add to positions at lower levels. (I nibbled a bit on Cisco (CSCO - Cramer's Take - Stockpickr), added a little Nextel (NXTL - Cramer's Take - Stockpickr) and took a new position in Qualcomm (QCOM - Cramer's Take - Stockpickr) Wednesday while shedding most index puts, but it's not yet time for investors to get aggressive.)

My target of 2250 on the Nasdaq Composite remains in place, but I don't have a great deal of confidence that it will hold. And I don't think the financials will get an automatic, sustainable lift from any easings with a recession dead ahead. They generally do; but then again, rate cuts have generally been used to end a recession, not to prevent one. It is a new, new era, but not one that's likely to be as rosy as the bulls would have you believe.

Sorry to sound so negative, especially during the holiday season, but I am genuinely concerned about the path we appear to be on right now. If you have a strong opinion about what's going on in the media, I ask that you make a New Year's resolution to take the time to send emails and letters to the appropriate people in power.

The information age holds great promise, but there are also great dangers we may have to face. As we saw in Florida, even a small number of people can make a difference. Please be sure that the media and the government hear your voice; you and your opinions are very important to our democracy, even if you disagree with what I say. Thanks for your indulgence, and let me know what you think of all this on my message board.