Another contrarian view - CBS MarketWatch website:
cbs.marketwatch.com
Economic meltdown? Not for
small-caps
There's 'good news' in the 'bad news'
By Paul B. Farrell, CBS.MarketWatch.com
Last Update: 2:08 AM ET Aug. 27, 2001
LOS ANGELES (CBS.MW) - The American media could use
some Prozac. There's too much bad news reported lately. It's
depressing. Bankruptcies are up. Earnings are down. More
lay-offs and write-offs are coming. Hunker down, it'll get
worse.
The economy may not be in a recession. But sure it seems like the
media is already in a depression, reporting one disaster scenario
after another. Have they given up hope, resigned to a long
economic downturn? Listen:
The Wall Street Journal was highly critical of Greenspan for
"sending the wrong signal" and giving up his role as
cheerleader. His caricature shows an ineffective, frightened
man unable to start a fire under the economy. Even arch-bull
Abbey Joseph Cohen has turned bearish.
The Los Angeles Times says "Fed Move Fails to Cheer
Investors," comparing the Fed's action with the extended
two-year low rate period 1992-93, speculating that current
market lows "signal that the bear market has resumed in
full-force."
Forbes' latest cover story asks, "What if housing crashed?"
worrying that weak markets, unemployment and excessive
debt could trigger a full-blown recession.
InvestmentNews, the "insiders" newspaper for professional
financial advisers, has a huge cover shot of an A-bomb
mushroom cloud as a backdrop for the headline: "An
Economic Meltdown?" They review negative events that could
trigger a global depression.
What's going on? Why is this intense negativity dominating the
media? Is the market and economy really a total disaster? Or are
short-term events being filtered through a new collective negative
mindset gripping the media?
Financial news - faster, bigger, more volatile
We have entered an era of personal and cultural excess.
Competitive forces and new technologies encourage the media to
grossly exaggerate the intensity, the magnitude and the speed of
events - whether positive or negative!
CNN and CNBC set the pace. Daily financial news reporting plays
like a fast-paced sporting event -- horse racing, boxing, pro football
games. BusinessWeek calls it the "hype machine." The new
economy may have fizzled, but not the new media's compulsion to
exaggerate into tabloid sensationalism.
Financial reporting - new sport for bulls and bears
Remember two years ago? Everything was as frantic and intense
the opposite way. Instead of bad news, "good news" dominated:
The information revolution. The new economy. An unstoppable bull
market.
Triple-digit funds were making millions of new millionaires.
Large-cap growth was king. Small-cap value was for losers. The
advancing storm clouds were ignored. Then came the 2000 crash
and a reversal of fortunes.
Think about it. Nothing has really changed for the media. Nothing.
Yes, the mindset shifted from positive to negative. But they still have
the same preoccupation with exaggerating the magnitude, intensity
and speed of financial reporting. In fact, judging from the latest
round of depressing bad news, it's accelerating.
Good news lost on bad-news bears
Earlier I noted this trend to the financial adviser, Paul Merriman. He
reminded me that the small-cap arena was filled with good news.
Unfortunately, most investors can't take in good news amid all of
today's bad news. I wasn't sure. I had to look at Morningstar's July
database to confirm this good news. It's true, but we discount it:
CGM Focus (CGMFX: news, chart, profile). Fab-u-lous news
here: a 94.6 percent return over the past 12 months for the
$100 million small-cap blend fund, and 36.7 percent
year-to-date!
Schroder Ultra (SMCFX: news, chart, profile). More
outrageously good news, with an 88.7 percent return for the
past year, and 39 percent year-to-date for the $143 million
fund.
Wasatch Core Growth (WGROX: news, chart, profile). How
about the incredible 56.6 percent return over the past 12
months for this $1.1 billion small-cap blend fund.
American Century Small-Cap Value (ASVIX: news, chart,
profile). Another solid 49.8 percent return over the past 12
months for this $620 million fund.
Franklin MicroCap Value (FRMCX: news, chart, profile). A
great $242 million fund generating 42.9 percent during the
past year.
Heartland Value (HRTVX: news, chart, profile). A $1.0 billion
veteran returning 37.3 percent over the past year and
averaging 18.4 percent per year during the past decade.
Legg Mason U.S. Small Value Primary (LMSVX: news, chart,
profile). Check out the 38.8 percent annual return for this
popular $98 million fund.
Can you hear it? Probably not. Even good news about returns in the
37.3 to 94.6 percent range (generated during the market crash and
recession) is ignored by fearful investors. And the media has gone
from merely capitalizing on this mindset to being compelled by it.
No bear experience for 90% of investors
Wake up! Market cycles are real: "In the last 100 years we have
had more than 25 bear market slumps," says Bill O'Neil, publisher
of Investors Business Daily. "And every single time the market
recovered and ultimately soared into new high ground."
What's different? Today most American investors are newcomers
to the market; 90 percent of the money in the market came in the
past decade -- during a bull market. New investors, new portfolio
managers, new journalists. It's a game full of new players with zero
bear market experience. So everybody exaggerating the bull in the
90s is exaggerating the bear now!
Good news about bad news - go contrarian
Funny thing about cycles, though. Just when you throw in the towel
and think they'll go on forever, something can happen, a reversal.
Remember early 2000: The new millennium, triple-digit funds,
this-time-it's-different, money pouring into the market. And the
media and press over-hyping the bull.
Now it's just the opposite. Only this time the media is exaggerating
the negativity and the bear. And at some point, we'll hit a
breaking-point. Then, the bear market and the recession will be as
vulnerable as our red-hot small-caps.
Bottom line: When the media exaggerates too much, and gets too
depressed, when it can't stop from saturating us with disaster
scenarios, the cycle is peaking, a reversal is in the making. Expect
the unexpected. Go contrarian. Remember Sir John Mark
Templeton's advice: "Buy when pessimism is at its maximum." |
