Most news outlets reported that investors were “cheered” by the Fed’s most recent rate-cut, but we know better. For it was nothing even remotely resembling cheer that pushed the Dow Industrials into a spectacular, 420-point surge last week, and into 200- and 300-point rallies since then; rather, it was the unmitigated panic of bears who had bet that stocks would fall.  This dynamic is called short-covering, and we would be very surprised if those two words combined have ever been uttered by a network news anchor. Despite this, we have always maintained that short-covering is the basic fuel not only of bull markets, but of breathtaking bear rallies such as have been occurring almost weekly of late. Mere optimists are incapable of such buying stampedes, even when the business pages are filled with the kind of news that brightens investors’ spirits.  No, it is only bears who get caught in the ringer who can muster the kind of urgency it requires to push the broad averages past heavy supply and above prior peaks.

Pack Journalism

Are the news reports that describe this action as “bullish” therefore wrong? Yes, we would argue. Moreover, the inability of mainstream commentators to tell it like it is represents a key difference between major news outlets and the not-yet-ready-for-prime-time world of newsletters such as this one. Having been a newspaper reporter myself for seven years, I can empathize with the tendency of journalists to report the obvious at the expense of the truth. As a fledgling reporter, I learned this the hard way covering a campaign “coffee klatch” for a powerful New Jersey politician at the home of a black ward-heeler in Atlantic City. She had baked a cake because it was his birthday, but he was so eager to move on to the next whistle-stop that he left without even realizing the cake was there in the living room, waiting for him to blow out the candles. The politician, Frank S. “Hap” Farley,  ultimately lost the election, along with the seat he’d held in the New Jersey Senate for 40 years, probably because he’d grown out of touch with “the little people.”  The cake episode would have illustrated this perfectly, but, facing a deadline in an hour, I simply recapitulated for the edification of my readers the vacuous five-minute speech he gave at this event.

Behind the Headlines

Pack journalism is manifestly unsuited to revealing the sometimes subtle nuances of truth that lie behind the events of the day. It is assembly-line writing, really, and readers and TV viewers have been conditioned to imbibe their daily dose of news in sound bites and shorthand. If you want to know what is really going on, you’ll need to tune to the op-ed page and to specialized newsletters whose job is to make sense of the stories behind the headlines. However, we suspect that many who merely scan the headlines understand that a 400-point rally in the Dow is no more an indication of the economy’s good health than the routine assurances we receive on this topic from Mssrs. Bernanke, Paulson et al.

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