2006 Report to Clients*

Officially, the hurricane season in the United States runs from June through October.

As the year 2006 began, media attention was understandably focused on the end of the prior year’s hurricane season. Katrina, centered on New Orleans, had devastated the Gulf Coast of the U.S. including Louisiana, Mississippi and Alabama. And Rita sent hapless motorists pushing their empty-gas-tank cars along Texas evacuation routes lined with fuel-less gas stations. The new hurricane season approached with much trepidation on the part of coastal citizens, and the media speculated on damage that might occur.

As the 2006 hurricane season opened, the financial media tracked every tropical storm and depression. When Fridays rolled around, if there was anything at all on the radar, the media warned traders not to leave for the weekend with positions that might lead to large losses in the event of a major hurricane. Drivers were advised to top off their gas tanks should oil refining capacity be destroyed: talking heads on CNBC and CNN speculated on how high the price of gasoline might go should this happen. In a most amazing story, a major network, prime time news show created a model of Katrina hitting New York City. Throughout the evening news program, the network ran teaser ads about how devastated NYC would be after “the big one.”

Truly, it could be said that 2006 was the year of the hurricane, since the media competed with each other throughout most of the year to create pictures of gloom and doom. Such was the “news.”

How about the facts? Interestingly, only three tropical storms made landfall in the continental U.S. during the 2006 hurricane season, none of them rated even a Category I. NOT A SINGLE HURRICANE TOUCHED THE ENTIRE ATLANTIC COAST.

This story demonstrates that today we practically live in two worlds: the one we operate in and the one that is fabricated by the media. The media world is short-term by definition, always trying to deliver the most sensation before being the first to deliver the next one. Rather than being caused by deliberate, pernicious intent on the part of the media, this phenomenon seems to stem from our technologically supercharged society. As such, everyone is part of the cause because of our seemingly inexhaustible need to be entertained. We can turn on the news any time of the day or night, 24/7. Cell phones and the Internet hard wire us into constant communication. A competitive media thrives in this environment to gain our attention.

In the financial media we experience this phenomenon on a daily basis, with the press bombarding us with data twenty-four hours a day to explain every wiggle in the markets around the world. Such a short-term focus obscures the underlying principles of a sound investment strategy. Wired into this bombardment of data, it is easy to confuse what really happened with the media interpretation of the day. Our INSIDE THE MARKETS attempts to reduce this media noise from the financial process to develop a longer-term perspective.

*Complete reports available to clients and subscribers in Client Area.