Call them prophets of gloom or the doomsday peddlers. Or, if you prefer, just go ahead and lump them all together into some even larger force that sounds darker and more conspiratorial: The Economic Cassandra Complex.
If you spend much time watching financial-news channels or surfing the Web for investment and economic advice, you know who they are: The Doomsayers. They might be urging you to dump your stocks, buy government bonds, hoard gold, brace for the “Greater Depression” by going into survivalist mode or simply to curl up under your desks to take cover from a sky that is perpetually falling.
Their voices grew ever louder over the past year, amplified by the ongoing realities of a “jobless recovery,” a sputtering stock market and nagging fears of a double-dip recession. Factor in the still-raw wounds from the 2008 financial collapse and the political acrimony left over from the 2010 mid-term election, and the Doomsayer view at times seemed unrestrained.
Although their warnings at times can veer toward the alarmist or even cartoonish, it would not be wise to dismiss the Doomsayers out of hand. They are not some monolithic, conspiratorial force. And whether motivated by a sincere desire to enlighten and inform the public or more cynical commercial or political interests, they often play a valuable role in the economic ecosystem.
“Actually, I think it [the Doomsayer chorus] is healthy because it forces people to take a look at things and governments,” said Marvin H. Doniger, a California-based financial security expert, investment adviser and author. “At any given point in time there’s always somebody predicting something. The ones with names that get it right become famous … and the ones who aren’t known and get it wrong don’t matter.”
One doesn’t have to go back any further than the market crash of 2008 for evidence. Remember Meredith Whitney, the analyst who rode to fame on her early and correct predictions about the vulnerability of Citigroup and other major banks? That was before the collapse of the housing bubble and the global financial meltdown. Maybe everyone needed to be listening to Meredith Whitney sooner.
Or what about Dr. Nouriel Roubini, the New York University economics professor who is known, literally, as “Dr. Doom?” As early as 2006, Roubini warned that a failing U.S. housing market would drag the world economy down the tubes. Should he have shut up then?
In the summer of 2010, Roubini found himself atop a businessinsider.com list of 23 Doomsayers who said we’re heading for a depression in 2011. Should he just shut up now?
“I think there are real concerns about the staying power of the recovery,” Gus Faucher, a director at Moody’s Analytics and senior economist at its economy.com website, said of the growing chorus of Doomsayers. “The economy has been in recovery [since 2009] and it’s growing, but growth has weakened, and so I think there are legitimate concerns we could fall back into a double-dip recession.”
This fear is shared by others. The most recent data—showing sluggish economic growth, poor job creation and plummeting consumer confidence—give consumers and business people reason to doubt whether the recovery, which economists say has entered its third year, is for real. Some wonder whether this pessimism could begin weighing on growth.
“If you think things are going to get bad and you stop buying, things will get bad,” Frank Goodnight, owner of a small North Carolina printing company, told MSNBC. “And that’s where we are right now.”
The Risks of Overstated Gloom
But Faucher said dangers can arise when the warnings of impending doom grow beyond well-respected voices to the level of a relentless, mind-numbing din that fills airwaves and financial-advice websites. “On the one hand, I don’t want to downplay the problems that the economy is having,” he said. “On the other hand, I think there is a potential for a negative, self-reinforcing cycle developing.”
It might be hard to find a better example of the ramping up of doomsaying than an alarm bell from Whiskey and Gunpowder, the Agora Financial-sponsored advice e-newsletter billed as “the independent investor’s daily guide to gold, commodities, profits and freedom.”
“It’s high time you look at what you need to live,” said an article last year under the headline “Avoid the Road to Ruin.” It continued: “Start with the basics: air, water, heat, sewage [treatment], garbage disposal, power, transportation, food. Make your own list. Then think individually: Which of these necessities can I provide on my own? Which of them will I need to acquire from others?”
The Need for Perspective
So how does the investor who values not only good information but peace of mind maintain that balance amid all the purveyors of gloom and doom?
David Morey is a Washington D.C.-based author, speaker and consultant who helps CEOs and their companies survive tough economic times by cultivating a mentally tough “insurgent” attitude to create what he calls The Underdog Advantage. Morey sees the proliferation of Doomsayers as a natural part of today’s tumultuous economic environment—just as cable news pundits and their shows on opposite ends of the political spectrum have become an accepted fixture.
“There’s an industry—it’s like cable TV, where there’s an industry on the hard left and the hard right,” Morey said. “I think there’s an industry for the hard bull and the hard bear, the extreme bull and the extreme bear view. And obviously the [economic and financial] reality will probably more likely come down the center—just as the political reality of how to get things done in government may come down the center.”
In other words, don’t run scared from the Doomsayers, yet don’t march blindly to their drumbeat either. Instead, learn to filter out the worst of the panic-mongering for what it is and use the best of the rest to your advantage.
“Part of acting like an insurgent—which is the only way to win today—is to be pretty tough psychologically and not to worry too much about the noise on the extreme left or the extreme right or the extreme optimist or extreme pessimist,” Morey said. “You’ve got to chart your own course and drive your own strategies.”
Sean Holton, a veteran newspaper reporter and editor, is a freelance writer and media consultant based in Orlando, Fla.
How not to fall victim to ‘doomsayers’
1) Don’t take all your advice from one person, brokerage house or organization
2) Seek opposing views before acting on advice
3) Check the track records of the so-called experts
4) Search social-network websites for the prevailing public opinion of experts
5) Look for signs that bias may be at work. Are they trying to sell a product? Are they proponents of a special-interest organization or political persuasion?