TRIVIA QUESTION: What was the name of the bill that Congress passed to raise the debt ceiling and implement changes to the budget?

Stumped? The bill was titled “To make a technical amendment to the Education Sciences Reform Act of 2002”. If you’re an outsider to Congressional politics, this sure looks strange. But it serves to reinforce the point we’re about to make. Outsiders don’t understand how and why politicians operate and the mainstream media fails miserably in educating us.

Throughout most of July and increasingly so towards the end of the month, U.S. media sources exhaustingly covered the U.S. debt ceiling deadline of August 2. Note that I did not write ‘exhaustively’, which would imply that the coverage was thorough and accurate. No, the media coverage, as usual, was embarrassingly thoughtless and inaccurate.

When clients asked us about the debt ceiling, we told them what any basic analysis of our political system suggested: the likelihood of a deal getting done on time by Congress was very high. However, it was to be expected that the debate would go to the last minute as the parties involved would seek to get as much out of their opponents as possible and, knowing that a compromise will ultimately be necessary, seek to appease their constituents by not giving in earlier than necessary. Regardless of whether you prefer these methods, they are not unusual on Capitol Hill.

Yet the media’s breathless portrayals of partisan battles and internal party squabbles led many to believe that a deal would not get done on time. Sure, there were some rational voices trying to speak up, but they were mostly drowned out by the hysteria and misrepresentations. If you read or listened to the right sources, you could have gotten a good grasp of the issue. But the mainstream media utterly failed you and the rest of the American people.

This should not come as a surprise. As we’ve noted in the past, the media’s purpose is not to educate you, to make sure you fully understand the nature of a situation. Its purpose is to sell advertising at the best rates it can, which requires the highest readership/viewership it can gather. The truth is boring; it doesn’t generate much buzz. Much more exciting is leaving you with a cliffhanger every hour on the hour.*

“Have the talks between Obama and Boehner broken down?”

“Have the talks between Boehner and Reid broken down?”

“Will the Tea Party support Boehner?”

“Will the U.S. default on its debt, causing a massive recession?”

“How far will U.S. bond prices fall? 20%? 30%?”

“How far will U.S. stock prices fall? 20%? 30%?”

After the fact, we know that certain discussions did break down and some parties never saw eye to eye, but that was just part of the process. It did not halt the process altogether.

The financial market reactions were instructive. So much emphasis was placed on the debt ceiling issue that it was reasonable to think that the resolution of the matter would be a positive for stocks and bonds. The mistake in that logic is that there are many other factors that impact prices in the financial markets on a daily basis. In this case, several pieces of weak economic data in the days leading up to August 2nd caused investors to turn pessimistic. The debt ceiling was passed, but stocks sunk anyway. Treasury bonds moved higher, but primarily on concerns of a weakening economy, not because of the debt ceiling increase. So not only was most of the media coverage on the debt ceiling a complete waste of time, but even if you DID understand how it would play out, it doesn’t look like it would have been very useful to an investor. You may as well have flipped a coin.

This, of course, drives home two points we believe. Do not rely on the financial media to give you useful information for investing and do not attempt to predict moves in the financial markets. Both are likely to leave you poorer.

It is often said that an investor’s worst enemy is himself because he lets emotions control his decisions. We’re naming the media as an accomplice in the crime of jeopardizing your financial security.



* Think about other big news stories you’ve come across in the past few months and you’ll find a recurring pattern. A week or two after the earthquake/tsunami in Japan, I told some friends, “A month ago, the average U.S. citizen knew nothing about nuclear reactors. Now they know things that are wrong.” Add the political process to the same category.


Please note: The opinions voiced in this material are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.