[A-List] Conflict of interest

[Sabri Oncu <soncu@xxxxxxxxxxx>]

Why Bears Will Never Be Market Stars

By Michael Lewis

Berkeley, California, Oct. 29 (Bloomberg) -- One of the striking
things about the financial press during a bear market is what
isn't in it: bona fide financial celebrities.

A bull market gives rise to lots of big-time bull gurus (Abby
Joseph Cohen, Mary Meeker, Henry Blodget) who then become almost
household names. There is no real equivalent to these characters
in bear markets.

There are bearish authorities, of course, and they get a bit of
attention, but they excite nothing like the passion and interest
of the bulls. Just the reverse: they excite skepticism.

Even now, when Abby Joseph Cohen of Goldman Sachs Group Inc.
predicts to newspaper reporters that the stock market will rise
40 percent in a year, no one writes that she stands to make a lot
of money if the market rises. When David Tice of the Prudent Bear
Fund tells reporters the stock market will fall 40 percent next
year, he is invariably described as a man who bets money on the
market falling.

Double Standard

One obvious reason for this double standard is that the average
investor is long the market. Faith, or optimism, or whatever you
want to call it, is built into our financial system. Skepticism,
or pessimism, or whatever you want to call it, is systematically
discouraged.

The people who are right about the market when stocks are rising
receive a lot more uncritical flattery and attention than the
people who are right about the market when stocks are falling. As
a result, for anyone who sets out on a career of financial
punditry, there is a very clear incentive to become a bull.

Louis Rukeyser, for instance. The host of "Louis Rukeyser's Wall
Street" has made a fantastically good living for going on 30
years by ridiculing bearishness in all its forms, and celebrating
bullishness in most of its forms.

Even in this darkest of stock market moments, Rukeyser has
defied, with Dracula-like determination, public television's
attempts to kill him off. As the Dow plunges, he continues to be
watched and taken seriously, if not on Wall Street then at least
in West Palm Beach.

Bears' Obscurity

No doubt Rukeyser would argue that he has been watched because
he's been right about long-run trends: the market is higher now
than it was 30 years ago. And that is no doubt a part of the
secret of his success. The other part is that the television
audience is long.

But here is the point: Even with the Dow falling fast, it is
impossible to imagine a bearish version of Louis Rukeyser's gaudy
worldly success. Just as we grossly exaggerate the importance of
people who argue that that the market is going up, even when
those people are dimwits, we grossly diminish the importance of
those who say the stock market is going down -- even when those
people are first-rate thinkers.

James Grant, for instance. The editor of Grant's Interest Rate
Observer is one of the most interesting market analysts alive.
Even in a bull market his views are far more stimulating and
original than those of most bullish pundits.

For going on 15 years he has argued, with wit and clarity, that
the U.S. stock market is a house of cards. If there was any
justice in the world right now, James Grant would be a household
name, feted for his prescience, offered huge sums for his public
speeches, perhaps even recognized on occasion by New York taxi
drivers.

But because James Grant is instinctively bearish and
constitutionally incapable of optimism, he has, even now, only a
small, perverse cult following.

It's Your Fault

Whose fault is this? Why do we have this weird, and weirdly
corrupting, asymmetry in the market for financial opinion? It's
hardly the bears' fault. In their gloomy way, they try just as
hard as the bulls to attract attention to themselves.

It's no easier to blame the bulls. They are far too busy enjoying
their worldly success to conspire against the bears; indeed, in
their treatment of the bears the bulls exhibit a certain
largeness of spirit about them. (Rukeyser invites Grant onto his
TV show, for example.)

The media might take the blame, but the media is usually just
frantically trying to give its audience what it wants. Which is
to say that the fault must lie with the audience. If our
financial punditry is structurally bullish -- if it is inclined
to encourage markets to rise a bit too giddily -- that is only
because consumers of it want it to be.

They think they want the truth, but the truth about what they
want isn't as simple as that. On the one hand they'd like the
truth; on the other, they have these stock portfolios. They have,
in other words, a conflict of interest.