A Theory On The Foundations Of Excessive Bearishness

A couple weeks ago, Paul Kedrosky wondered why there seemed to be a spell of excessive bearishness in the financial blogosphere. I don't think it's just blogs. You see guys like Mort Zuckerman, EIC of US News & World Report going out there predicting soup lines and a AA rating on US bonds (I exaggerate a little bit).

Let me take a stab at why this might be: Most people don't have the mental creativity, intellectual capability or understanding of the economy to formulate a compelling bull case at the moment. That's not meant to be an insult, it's just the facts. Those who are bulls, such as the ones who show up on CNBC, don't do a very good job of making their case. They say things like "unemployment is low, defaults are near historic lows and interest rates are low... I'm buying," which is not all that compelling. On the other hand, there's little to be gained from being merely bearish. If you're just one of these 6-12 month recession types, then you're nobody, because that's very safely within the margins of conventional wisdom.

So that pretty much leaves excessive bearishness as the only viewpoint that can reasonably be constructed based on the readily available facts (i.e., you don't need to do much digging) and which allows the espouser to sound like they're sticking there necks out a little bit. There's a cascading effect with these things, as daring analysis quickly becomes a la mode, setting the bar even higher. And when you get into the fairly insular world of financial bloggers, it's probably even worse.