The Web Makes It Harder to Read Market Sentiment

The internet swept away the old-school financial pundits, turning the public forum into the Wild West.

This is what financial news used to look like (at least on "Saturday Night Live").

Photographer: R.M. Louis Jr./NBC/Photo Bank/Getty Images

In the best of all worlds, numbers do the talking for me. Most of the time, there is enough hard data so we can avoid the squishy anecdotal stories that so often lead people astray. This can at times be challenging.

I was discussing this recently in the office. My colleague Josh Brown wrote a post looking at how stocks kept going up, yet hardly anyone was celebrating. I blamed the online commentariat.      

How we share and consume opinions has changed radically thanks to the internet. This, contrary to what you might expect, has made measuring market sentiment much harder.  

I am a ‘tweener -- old enough to remember the pre-internet era, but young enough to have embraced the new connectivity. Some of the youngsters out there may not be fully aware of how much some things have changed, and will continue to change. As someone who toils in the public sphere, making comments, criticisms (and, dare I say it, the occasional forecast), I am especially cognizant of how opinion gets disseminated today.

Consider the bad old days of limited media outlets, with their old-school gatekeepers. If you go back just a few decades, there were a handful of newspapers and magazines covering business and investments. Louis Rukeyser's "Wall Street Week," a program carried Friday evenings for 32 years on public television, was pretty much it for financial TV. Bloomberg radio hadn't yet been invented.

The punditry mostly consisted of a handful of approved fund managers, strategists or economists. They went to the right schools; they worked at the right firms; they belonged to the right clubs. This wasn't an especially diverse group, demographically, or otherwise. Perhaps most noteworthy, this community was answerable to clients (or those who serviced clients).

That was a reality check that kept most of the extreme commentary in check. There were genteel bull-bear debates, but nothing like today. Perhaps it's my own selective memory, but I don't recall hearing the sort of reckless claims that I see every day online now.

This pundit system was flawed in some ways. It surely wasn't a pure meritocracy. It served very specific masters, who may not at times have had the investing public’s best interests at heart. However, it was run by responsible adults.

Contrast that with the present, when inflammatory click bait filled with extreme opinions has found its way into ordinary discourse. Not too long ago, anyone who held radical opinions about markets, individual stocks (or even politics) could freely opine about them, just as today. But it was local and contained; those with idiosyncratic opinions could only scare their friends and neighbors, one at a time, at backyard BBQs and school plays.

That is no longer the case. Today, the internet provides a broad platform to anyone who types up a missive. The bias of a handful of cautious gatekeepers has been replaced with an informational Wild West. Add to that the usual cognitive biases and filter bubbles we all are subject to, and you have the makings of confusing (and confused) sentiment readings.

For this, I blame the ministers without portfolios. The phrase is usually applied to a government appointee who has no specific responsibilities or agency to oversee. In my usage, it is someone who is literally without a portfolio -- neither managing money nor answerable to clients.

Unlike the aforementioned group, these folks are spared the burden of being wrong. I suppose in some sense this is liberating. When they forecast a market crash and a soaring bull market ensues, their income doesn't suffer as clients flee. No, the only one penalized are those foolish enough to have paid them any mind in the first place. If anything, extreme commentary plays into the confirmation biases of listeners. There's even an upside for these pundits, since bizarre prognostications can lead to attracting yet more similarly situated believers.

There are too many egregious peddlers of nonsense to call out any individuals. If you want to find them, just do a Google search for a specific year and add a few key phrases such as "crash," "hyperinflation, "deflation" or "monetary debasement."

The financial crisis brought out the worst offenders. Facebook groups and financial Twitter has emboldened many. The internet has given their voice a global distribution platform. If you want to grasp why measuring market sentiment has become so challenging, that is a good place to begin.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

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