January 21, 1999

Eyes on the Press

Louis Corrigan (TMF Seymor)

The market meltdown that began in mid-July 1998 and continued through early October was certainly scary. At times, it seemed like everything that could go wrong did. The global financial system appeared to be imploding, and political leaders seemed to have neither the wits nor wherewithal to halt the disaster. The litany of troubles ran something like this: Russia, emerging markets, Long-Term Capital, U.S. financial companies exposed to all of the above, Japan, Hong Kong, Clinton, and so on.

Amidst the mayhem, blue-blooded blue chips like Coca-Cola (NYSE: KO) and Cisco (Nasdaq: CSCO) plunged 40% from their 52-week peaks. From its July 17 closing high of 9,338, the Dow eventually fell nearly 20%, hitting a closing low of 7,539 on August 31. It recovered some, then retested that low on October 8 with a dip below 7,400. From there, the Dow staged a massive recovery, eventually breaking through to a new closing high on November 23.

Though some commentators feared that the market would not recover as quickly as it did after the dips in 1987 or 1990 -- and might even plunge to around 5,000 on the Dow -- the 1998 recovery was actually far more swift. The key was that Federal Reserve chairman Alan Greenspan led the Fed to make three quarter point cuts in the Fed funds rate: on September 29, October 15, and November 17. The mere rumor of the second cut on October 8 triggered the market recovery by confirming that Greenspan would provide the necessary liquidity to reverse the psychology of panic -- just as he had done after the 1987 crash.

During this troubled period, you probably turned to various publications for perspective, and maybe even some guidance. We at the Fool offered some of our own. But we also checked out what the Wise media was saying, with David Gardner offering up some Foolish scrutiny of their efforts. Six months have now passed since the market began its descent. So it seems like a good time to look back at how some of the major magazines covered the story, to see whether their perspective, in retrospect, proved useful and accurate.

"Cover" is the operative word. I focus only on the major-hoopla, cover-story "Crash" issues. Though they arrived at different times in the debacle, they presumably represent the best efforts by these publications' editorial staffs to cogitate over what was going on. And that's a little scary given the astonishing amount of conventional nonsense these publications bandied about to bolster what turned out to be mostly crummy predictions about the market and the economy.

Sure, a few magazines did a good job -- notably Business Week, Money, and, to a lesser extent, Time. Reading through the various cover stories, though, I continually ran across what I consider bad data, bogus comparisons, faulty and unexamined assumptions, false prophets, love of market timing, and pure sensationalism. In many cases, the reasoning was just U-G-L-Y, you-ain't-got-no-alibi ugly.

As Fools, we think that active investors should spend their time looking at and thinking about actual businesses rather than worrying too much about predicting what the market or the economy will do. Still, it's easy to pick up a supposedly top national magazine and be taken in by what sounds like a compelling argument based, ultimately, on faulty logic.

Be forewarned: This tour will take us past some monstrous attempts to rob you of your wealth by filling you with mistaken ideas. If you encountered these assaults and escaped unharmed, I congratulate you. If not, well, the best way to resist the sirens of silliness in the future is to see how they've performed in the clutch. Here they are, from worst to first.

Eyes on Esquire

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