There is a rhythm to economic reporting. More than just the seasonal adjustment that makes up most of the fudge in the economic reports, each story has a progress on its way to becoming something suitable for the mainstream media. The biggest stories often take a full year, passing several well defined milestones.
This delay has to do with several factors. Conventional wisdom seems to rule, which is to say that old news affects the narrative long after it is not exactly true. But the cycles themselves suggest that the real problem is that many reporters really don’t understand what markets and market movers are telling them.
News stories which fundamentally change the narrative of public opinion do come along seemingly at random in this time of rapid change and high interconnectivity. Such stories are still unusual, and economic stories of this kind are usually ones that have had time to fully bloom and develop.
A major economic crisis never, and I mean never, happens overnight without warning. The cycles of these stories seem to take about a year before they hit the conventional, popular media. They progress usually runs something like this:
- Stage 1: Initial warning – 1 year out – when the problem is noted as a potential risk by bond, ForEx, and other traders. Stories, or really musings, appear in their blogs and perhaps a few stories in trade journals.
- Stage 2: First pickup – 10-12 months out – secondary blogs like Barataria start to write about the growing alarm as data comes in showing the market reaction to Stage 1.
- Stage 3: Second warning – 7-10 months out – the market in question sends a clear signal that risk is getting out of hand or related, often out of the blue (ie, the stock market falls for what appears to most as no good reason)
- Stage 4: Hand wringing – 4-7 months – the traders start to really fret about the situation and combs over every official pronouncement. Their blogs light up with the fear of the moment.
- Stage 5: Big Pop – 2-4 months – The markets really move in reaction
- Stage 6: The Story – 0-2 months – over a few months the story is finally written, starting with Bloomberg / Forbes / CNN Money / WSJ and then moving gradually into more mainstream outlets
You will note where Barataria often stands on this timeline, at Stage 2. This is a particularly bad place to be for two reasons. The first is that many excessive risks that show up in the Initial Warning stage are corrected before they fester into major crises. The second problem is that by writing about something up to a year before it becomes big news there’s little chance this early work will be remembered as the story develops. Part of the reason that Barataria has taken to repeating itself is to mark the progress of a story and attempt to gain credit for the early notification.
I am trying to get a regular, full time job of economic reporting, after all.
Want an example? Take this piece on the implosion of China’s “Shadow Banking System” done in June 2013. It was a year ago, right after China started moving quickly to regulate the most open part of their financial system before it fell apart on its own. The entire system seemed very fragile as two large banks failed. This Stage 2 piece used Stage 1 information as references.
The Stage 3 market response came in October, which is shown clearly on the SHCOMP index of Shanghai, which fell 7% in two weeks before recovering. There were even a few articles about the fears developing. Stage 4 hand wringing showed up this winter as everyone started watching both the banks and the Chinese manufacturing indexes. Stage 5 is due any moment, and there are some signs in the press that people are very worried about a big implosion in China.
This story is a bit warped because traders always watch China carefully. The fall of Lehman in October 2008 set off a general collapse of the financial system. Nearly every major press outlet said that “No one saw this coming,’ which was utter nonsense. It was a year in the making, as shown in this Barataria post from Stage 2 and this one from Stage 3 on the market response. This happened more or less like clockwork.
Stories on the upside aren’t much different. In 2013, the signs were all present for a solid foundation for recovery, and positive economic stories started to become all the rage only this year amid some prevaricating.
If big financial stories are this predictable, why don’t more reporters try to predict them? For one thing, the story isn’t finished until it makes its way to the end. You’ll note in both of the examples given that while Barataria was ahead of the curve, the stories changed a lot as they matured and more information came in.
In the end, however, the real problem is that financial and economic reporting is not up to rapid change. Stories that go against the narrative of conventional wisdom won’t make it to the mainstream until they are very obvious. That doesn’t bode well for our economic future, especially our ability to stop big disasters before they happen.
But it’s good news for anyone who has mastered the cycle of economic reporting, as long as that person can find a way to brag about it.