The Google Panic Indicator

This might be the worst recession in a generation if only for one reason: People are choking on more information than ever before.

Yes, dozens of factors contributed to the downturn. But there's something to be said for the fact that the unprecedented flow of information -- a lot of it bogus -- greatly contributed to fear and panic. In past recessions, the average Joe's awareness was contained to a morning newspaper and an infrequent chat with a stockbroker. Today, we're inundated with constant CNBC coverage, millions of blogs and message boards, hourly email updates, text-message alerts, Tweets, and cell-phone stock tickers. No matter who or where you are, you're bombarded with opinions.

Now, no one's claiming that this flow of information is inherently bad. Of course, it's a wonderful thing. But it can, and does, accentuate emotions. Those who aren't interested in the economy can't hide from the headlines. And those who are interested get bombarded with so much useless and repetitive information that their ability to think rationally and independently is squashed. A herd mentality arises.

Into sight, into mind                                                                                                 
For example, consider what former Treasury secretary Larry Summers recently said:

Fear was widespread and confidence was scarce. Traditional measures of consumer and business confidence fell to low levels not seen in decades. The anxiety stretched well into the mainstream. Take one example as an indicator: Google searches for the term "economic depression" were up fourfold from their pre-crisis levels. 

I find that fascinating: Google (Nasdaq: GOOG  ) has become so ubiquitous in our lives -- much to Microsoft's (Nasdaq: MSFT  ) and Yahoo's (Nasdaq: YHOO  ) consternation -- that tracking Google search terms is now used to measure an economy's state of mind.

Intrigued by Summers' Google gauge, I used Google Insights to look up the number of searches conducted on various terms. The results, not surprisingly, show how things have mellowed out since the world collectively went into cardiac arrest in the past year:

Term Searched For

Search Queries Peaked

Decline From Peak*

Should I sell my stocks

October 2008

(90.6%)

How to build a bunker

February 2009

(70%)

Should I cash out

October 2008

(80%)

Financial meltdown

October 2008

(90%)

Worse than the Great Depression

November 2008

(~100%)

Recession

December 2008

(65%)

Lost decade

February 2009

(87%)

National debt

October 2008

(78%)

End of the American Empire

September 2008

(77.5%)

Market panic

October 2008

(93%)

When will the market bottom

October 2008

(83.3%)

Nouriel Roubini

October 2008

(70%)

Peter Schiff

November 2008

(75%)

*As of July 20, 2009.

Since last fall, search queries for doomsday-related terms have steadily plunged. For many terms, these searches are back down to normal levels. That's encouraging news, despite the abyss that might yet lie ahead.

Search terms synonymous with the boom years have also, thank goodness, petered out:

Term Searched For

Search Queries Peaked

Decline From Peak*

Flipping houses

January 2007

(83%)

Flipping condos

June 2005

(~100%)

ARM mortgage

April 2004

(81%)

Private equity

June 2007

(48%)

Home equity loan

August 2006

(59%)

No doc mortgage

March 2004

(87%)

No money down mortgage

May 2004

(56%)

Become a mortgage broker

March 2004

(77%)

*As of July 20, 2009.

OK. What's this have to do with my investments?
More than you might think. We can safely guess that if someone's searching for information about building a bunker, that person isn't too confident about the economy. And confidence is exceptionally key to a recovery. Businesses need confidence to hire workers. Workers need confidence to innovate. Everyone needs confidence to invest. The unemployed even need confidence to go out and look for work.

What's more, when it comes to stocks rebounding out of a recession, there's probably no better indicator than consumer confidence -- even though that's something notoriously impossible to predict beforehand. Here's how things turned out in previous recessions:

Downturn

Consumer Confidence Bottomed Out

Stocks Bottomed Out

2009*

February 2009

March 2009

2003

March 2003

September 2002

1982

October 1982

August 1982

1975

December 1974

September 1974

*Still anyone's guess whether this is the bottom.

This is hardly a perfect gauge, and many other factors are at play. But the correlation between consumer confidence and stocks is pretty tight. The two usually bottom out within a few months of each other.

And the correlation makes sense: For most people, the stock market is the primary indicator by which to judge the economy, and vice versa. Is it coincidental that confidence bottomed out this year at nearly the exact time companies such as Alcoa (NYSE: AA  ) , Wells Fargo (NYSE: WFC  ) , and General Electric (NYSE: GE  ) hit bottom as well? Not at all. Declining share prices erode confidence, and eroding confidence ignites more selling.

That's how these things work. Confidence begets confidence, and panic begets panic. The two feed on each other and largely dictatewhere we're heading. And that's why it's encouraging -- albeit mildly -- that the panic showcased in a list of Google search terms has, for now, subsided.

For related Foolishness:                                                                                                       

Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. Microsoft is a Motley Fool Inside Value pick. The Fool has a disclosure policy.


Read/Post Comments (12) | Recommend This Article (36)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 21, 2009, at 12:49 PM, Teacherman1 wrote:

    That there is an excess of information available is an understatement. There are so many "pundificators" out there now (too often without the knowledge, skills, or background to be of any use), that you have to take steps to avoid stimulus overload. One step that I personally have taken is to turn off the sound when I am watching either the "talking heads" at CNBC or "Gloomberg" (my new name for them after noticing that they seem to accentuate the negative in most of their reports), so that I can concentrate on the visual. It is surprising what you notice when you are not distracted by the noise. I often pause and rewind my TV to take a second look at something that just did not "compute" when it first passed by. I also notice that many of the visual comments have so many "adjective qualifiers" in them, that they are nothing more than wild guesses. A good article, and one that needs to be heeded by more investors so that we don't all turn into panic driven speculators. I apologize if there are typos here, but being dyslexic, as well as blind in one eye, it can be difficult to avoid all of them.

  • Report this Comment On July 21, 2009, at 3:41 PM, FleaBagger wrote:

    Teacherman and Housel - There are serious problems with the economy, almost all of the media is hyping "green shoots" and "improving consumer confidence" to the exclusion of addressing those serious problems, and Google guaging the populace is nothing better than grasping at straws.

    Deal with reality or suffer the consequences.

  • Report this Comment On July 21, 2009, at 3:47 PM, ViolentCapital wrote:

    this can also signal contrarian analysis and may be time to short

    goldmans at risk capital was highest this past quarter, i doubt it will be that high again in the future...

  • Report this Comment On July 22, 2009, at 12:56 AM, AverageJoeLE wrote:

    What is with these ridiculous statistics! Its silly to ignore EVERY stat because of over-technology. You still need to use some sort of stats to invest: http://bit.ly/CEhX3

  • Report this Comment On July 22, 2009, at 12:56 AM, ShaunConnell wrote:

    ... "too much information" is absurd. People are more aware right now than ever before, which is what is causing a lack of confidence in the system. It's also what's going to FIX the system in the long run.

    Ignorance feels bliss -- but it don't change a thing, buddy.

  • Report this Comment On July 22, 2009, at 2:51 AM, surplusstock wrote:

    People have to be very careful now when talking about recession, as there are indications that it's effect is slightly starting to diminish from some parts of usa already. people have to be very careful now when investing in surplus stocks http://www.surplusstock.com

  • Report this Comment On July 22, 2009, at 9:44 AM, denaliguide wrote:

    Lets see if I can add anything to this discussion.

    how about the simplest, efficient and do-able approach.

    Select a stock, select an entry, establish a STOP level.

    Straight up, no double talk. Selected and executed.

    The winners run, the losers are culled.

    Try it, you'll like it, visit me at

    http://denaliguidesummit.blogspot.com/

    At PEAK PERFORMANCE PICKS I attempt to capture 10-20% in a short time a stock is in a Lo-Risk position, rather than the heartburn of going underwater while holding on. We all know that feeling

    Typically 3 of 4 gain, one loses, and one turns into a runner, on a weekly basis, usually measured over two weeks.

    Visit and see. No Info Overload !

    http://denaliguidesummit.blogspot.com/

    DG

  • Report this Comment On July 22, 2009, at 6:19 PM, Teacherman1 wrote:

    I'm not quite sure what the purpose is of some of these comments. Mine was simply commenting on the portion of the article which referred to all of the information available. Some good, some bad, and some from "outer space". I use many means to gather information, including both CNBC and Bloomberg, the Motley Fool, both Yahoo and Google finance, the web sites of the companies involved, and various "headline" articles; just to name a few. As a former commercial banker (one of my 4 careers), I analyze both income statements and balance sheets, as well as annual statements. I pick a stock that looks promising (for me that is a multiple return possibility over a 2-3 year period, take a position, adjust it up or down as conditions dictate, watch it, and unless something fundamental changes, hold it. Not sure where this "discussion" is going, if anywhere, but did not want to leave the appearance that I ignored available information and just "rolled the dice". Hope everyone gets rich in the once in a lifetime market. At least it's once in a lifetime if you are my age.

  • Report this Comment On July 22, 2009, at 7:32 PM, CatFoodMoney wrote:

    that was an awesome article. thanks morgan

  • Report this Comment On July 23, 2009, at 1:09 AM, kamuirei wrote:

    Nowadays you have to whittle down your information. I find the smartest people and more importantly, the obtuse. Sooner or later even the brightest people can be wrong. However, very rarely are idiots on the winning side and they are easier to recognize. The defacto example is of course: if you find yourself agreeing with CNBC, STOP. If you're not sure what to do, don't.

  • Report this Comment On July 23, 2009, at 5:36 PM, PSU69 wrote:

    GOOG gives us insight never before available. I enjoyed this article. Our team works with GOOG doing SEO/SEM. Our team is also CERTIFIED and we do the same with MSN & YAHOO. This high tech insight can help if you are listening, reading and learning about the shifting sand. We also do alpha & beta GOOG testing.

    www.peopletomysite.com

  • Report this Comment On July 25, 2009, at 5:48 PM, moratmarit wrote:

    I think so.

    thanks for information,,

    http://www.moratmarit.com/

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 945887, ~/Articles/ArticleHandler.aspx, 11/28/2014 12:28:37 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement