On September 17th I introduced 10 themes that we see as having significant impact on the future of the US economy. Along with the a description of the theme, I include what "The New Normal" could look like, along with the possible risks and opportunities for investors. Here is the third theme of ten.
3. Media Saturation
Technology has unleashed a broad number of information dissemination opportunities for essentially anyone who wishes to have an audience. Ad-driven models require content in order generate income, which has resulted a massive increase in data, editorial, and opinion available to anyone at anytime. In order to attract audiences and break through the melee of content, content programmers aim for “dramatic arc” in order to retain audiences, and derive advertising revenue. Parties to the “dramatic arc” with typically undisclosed vested interest tend to control messages related to the economy, policy, and individual corporate activities. Because there is so much available information, and less time to make decisions, data is “headlined” and themed, which tends to omit key nuances which would otherwise moderate outcomes.The manipulation of messages and themes reduces the accuracy, credibility and objectivity of information, which tends to increase underlying market risk. Information is becoming a blunt-force object.
New Normal: More extreme bull/bear opinions presented via large media platforms reinforce volatility and undermine economic confidence, This reinforces the flight of capital to perceived safety like money markets and gold, while helping to sideline capital and erode investment into the "real" economy.
Risks: Lacking confidence, individual investors and companies are less willing to deploy capital in the form of equity which is often the fuel used by companies for research, commercialization, or improvements in productivity. Fund Managers, whether VCs or institutions, become more concerned with risk management than with manximizing returns through growth and innovation. Without growth capital, entrepreneurs stop inventing and innovating. Without innovation, GDP stagnates.
Opportunities: Research analysts are required to disclose their position on any stock on which they publish. Similar disclosures should be enforced for any individual providing market opinion in a public forum. It would be nice for the macro-economist predicting economic disaster and targeting $2000.00 GLD to disclose that he/she owns 10,000 oz at $600.00/oz. There is probably room for "throw-back" fundamental analysis business models as a competitive counterbalance to"stream-of-conciousness" flow of information prominent now in media.
Investor Sentiment: Considering that the equity market appears to be heading sideways for the foreseeable future as baby boomers act more cautiously while they retire, extreme viewpoints within the media provide excellent opportunities for younger investors to buy on fear and sell on greed as the “dramatic arc” drives short-term volatility.