Sunday, September 17, 2006

The Folly of 'Calling the Market'

There's a cute article today in the New York Times about real estate agents and "industry executives" lamenting the negative media coverage about the housing market. They say that the coverage is splashing cold water on the market, "making a cooling market sound worse than it is."

What made it cute was this quote:
Richard A. Smith, vice chairman and president of the Realogy Corporation, the nation’s largest residential real estate broker, said there was a “constant flood of media that is so negative” that it was discouraging many potential buyers and sellers.
I wonder... would Smith be so upset if a "constant flood of media attention" was overhyping the market?

The larger question, I think, is whether the media should be attempting to "call the turn" of housing markets or, for that matter, any market.

Such articles have a reputation for being amazingly wrongheaded, such as Business Week's famous "Death of Equities" cover story in August 1979. Fortune's 2002 cover story on the real estate bubble was not half as declarative, but turned out to be premature (which pretty well rebuts the real estate industry's whining about negative media coverage).

I'm all in favor of market coverage, as I pointed out the other day, but the media should avoid "calling the turn," no matter how tempting that may be.

It's been shown repeatedly in countless academic studies that nobody can reliably forecaset either the broad market or the movement of individual stocks. So it's time journalists got out of the "market forecasting business" entirely, and wrote stories that pointed out the excesses of the market, both positive and negative. Then the reader can draw his own conclusions.

In early 2000 I co-authored with Marcia Vickers an article on Wall Street's "hype machine." That story did not attempt to "call the turn," but instead reported on how hucksterism was running rampant. The story did not attempt to "call the narket" and was not harmed by that omission in any way.

© 2006 Gary Weiss. All rights reserved.

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Wall Street Versus America was published by Penguin USA on April 6.
Click here for its Amazon.com listing and here for more information on the book, from my web site.

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