And What About The US Unemployment Market?

Posted on Uk's Telegraph blog: America slides deeper into depression as Wall Street revels

• The labour force contracted by 661,000. This did not show up in the headline jobless rate because so many Americans dropped out of the system. The broad U6 category of unemployment rose to 17.3pc. That is the one that matters.
  
  Wall Street rallied. Bulls hope that weak jobs data will postpone monetary tightening: a silver lining in every catastrophe, or perhaps a further exhibit of market infantilism.

And once more we have the mainstream media reporting showed only 85,000 job losses. Which was good for Wall Street rallied.

Let's deviate from Mr. Ambrose Evans-Pritchard and look at anothr snippet from aother editorial: Stimulus Doing Little To Alleviate Unemployment

• Worsening unemployment continues to thwart economists’ efforts to convince a reluctant public that the worst recession since the 1930s ended in last year’s third quarter. Numbers indicate upticks in consumer spending in such areas as housing and new automobiles, as well as the steady rise in the Dow, but according to the federal government’s own payroll survey, the U.S. economy shed 85,000 jobs in December.
  
  This is the figure being reported in the mainstream media. A separate report, a household survey incorporating the effects of faulty seasonal adjustments, yields a considerably higher number of job losses: 589,000!
  
  The “official” unemployment rate stands at 10 percent (down slightly from 10.2 percent at the end of November). According to broader measures of unemployment which include discouraged workers who have given up looking for a job for as long as a year, as well as part-time workers seeking full-time work, counted as employed for the government’s statistical purposes, unemployment in America is considerably worse. John Williams, of Shadow Government Statistics, estimates that if all workers who have relinquished the search for work are accommodated (who were included before the Clinton Administration changed the definition of unemployment), the real unemployment rate stands at around 21.9 percent!

Yes 21.9%.

Wanna guess how many Americans are unemployed in real numbers? How many millions of Americans are unemployed?

Yeah.. but this doesn't matter!

What matters most is that Wall Street rallied!

Back to Ambrose Evans-Pritchard's piece.

• The home foreclosure guillotine usually drops a year or so after people lose their job, and exhaust their savings. The local sheriff will escort them out of the door, often with some sympathy –– just like the police in 1932, mostly Irish Catholics who tithed 1pc of their pay for soup kitchens.
  
  Realtytrac says defaults and repossessions have been running at over 300,000 a month since February. One million American families lost their homes in the fourth quarter. Moody's Economy.com expects another 2.4m homes to go this year. Taken together, this looks awfully like Steinbeck's Grapes of Wrath.
  
  Judges are finding ways to block evictions. One magistrate in Minnesota halted a case calling the creditor "harsh, repugnant, shocking and repulsive". We are not far from a de facto moratorium in some areas.
  
  This is how it ended between 1932 and 1934, when half the US states declared moratoria or "Farm Holidays". Such flexibility innoculated America's democracy against the appeal of Red Unions and Coughlin Fascists. The home siezures are occurring despite frantic efforts by the Obama administration to delay the process.
  
  This policy is entirely justified given the scale of the social crisis. But it also masks the continued rot in the housing market, allows lenders to hide losses, and stores up an ever larger overhang of unsold properties. It takes heroic naivety to think the US housing market has turned the corner (apologies to Goldman Sachs, as always). The fuse has yet to detonate on the next mortgage bomb, $134bn (£83bn) of "option ARM" contracts due to reset violently upwards this year and next.
  
  US house prices have eked out five months of gains on the Case-Shiller index, but momentum stalled in October in half the cities even before the latest surge of 40 basis points in mortgage rates. Karl Case (of the index) says prices may sink another 15pc. "If the 2008 and 2009 loans go bad, then we're back where we were before – in a nightmare."
  
  David Rosenberg from Gluskin Sheff said it is remarkable how little traction has been achieved by zero rates and the greatest fiscal blitz of all time. The US economy grew at a 2.2pc rate in the third quarter (entirely due to Obama stimulus). This compares to an average of 7.3pc in the first quarter of every recovery since the Second World War.
  
  Fed hawks are playing with fire by talking up about exit strategies, not for the first time. This is what they did in June 2008. We know what happened three months later. For the record, manufacturing capacity use at 67.2pc, and "auto-buying intentions" are the lowest ever.
  
  The Fed's own Monetary Multiplier crashed to an all-time low of 0.809 in mid-December. Commercial paper has shrunk by $280bn ($175bn) in since October. Bank credit has been racing down a hair-raising black run since June. It has dropped from $10.844 trillion to $9.013 trillion since November 25. The MZM money supply is contracting at a 3pc annual rate. Broad M3 money is contracting at over 5pc.
  
  Professor Tim Congdon from International Monetary Research said the Fed is baking deflation into the pie later this year, and perhaps a double-dip recession. Europe is even worse.
  
  This has not stopped an army of commentators is trying to bounce the Fed into early rate rises. They accuse Ben Bernanke of repeating the error of 2004 when the Fed waited too long. Sometimes you just want to scream. In 2004 there was no housing collapse, unemployment was 5.5pc, banks were in rude good health, and the Fed Multiplier was 1.73.
  
  How anybody can see imminent inflation in the dying embers of core PCE, just 0.1pc in November, is beyond me.
  
  Mr Rosenberg is asked by clients why Wall Street does not seem to agree with his grim analysis.
  
  His answer is that this is the same Mr Market that bought stocks in October 1987 when they were 25pc overvalued on Shiller "10-year normalized earnings basis" – exactly as they are today – and bought them at even more overvalued prices in 2007, long after the property crash had begun, Bear Stearns funds had imploded, and credit had its August heart attack. The stock market has become a lagging indicator. Tear up the textbooks.

From Henry Blodget: The Scariest Jobs Chart Ever

• To date in this recession, we've lost more than 8 million jobs. The decline as a percentage of the workforce is the worst since the Great Depression, matching the sharp but short drop in 1948, as the war machine wound down.
  Equally important, the duration of these job losses, as well as the lack of a sharp recovery (at least so far), suggests that the problem will be with us for a long while. We're now 24 months into this decline, and we're still at the bottom. By this point in most previous recessions, we had already recovered all of the lost jobs.
  

Legendary Value Investing Fund Managers Getting The Sack!

Last August, Henry Blodget wrote, "Bill's not the first legend to get hammered by mean reversion, and he won't be the last" in his article, Legendary Fund Manager Bill Miller Fired By Client

• A few years ago, Legg Mason Value Trust manager Bill Miller was revered the world around for outperforming the S&P 500 15 years in a row. Now, after a couple of horrible years have wiped out almost all of that outperformance, he's getting fired by state pension funds:

Do see also Bill Miller Featured on WSJ: The Stock Picker's Defeat

Yup, how ironic is that Bill Miller isn't the last!

Last week, Grantham Fired by Massachusetts Pension After Losses

• April 8 (Bloomberg) -- The Massachusetts state pension system fired Jeremy Grantham’s firm as manager of $230 million in emerging-markets debt after losses from asset-backed securities dragged down returns.
  
  The pension system’s board voted at a hearing in Boston today to pull its money from developing-nation debt investments managed by Grantham, Mayo, Van Otterloo & Co. The firm continues to run a $500 million emerging-markets stock fund for the state....

And also gone was the legendary 'contrarian' David Dreman!

And NY Times columnist, Floyd Norris, wrote the following David Dreman, Contrarian Fund Manager, Exits Unbowed

• David N. Dreman was a star mutual fund manager. Then he bought bank shares and held on as the financial crisis grew.
  
  Now he has been fired from the flagship fund that bears his name, despite what remains a good long-term record. The fund’s name will be changed, and the fund will take fewer risks. A drab industry will become a little drabber.
  
  In the past, the firings of once-celebrated fund managers have sometimes provided a market signal of its own — that the trend that led to their poor performance was about to end. If that were to happen this time, there could be a revival for so-called value stocks, and particularly for the beaten-down and almost universally disdained financial stocks.
  
  “The success of contrarian strategies requires you at times to go against gut reactions, the prevailing beliefs in the marketplace and the experts you respect,” Mr. Dreman wrote in his best-selling 1998 book, “Contrarian Investment Strategies.”
  
  Mr. Dreman rose to fame in the 1990s, when the fund he began in 1988 amassed an impressive long-term record. But he had been preaching, and practicing, the gospel of investing in unpopular stocks with low price-earnings ratios since the late 1970s. He has been a columnist for Forbes Magazine.
  
  As the fund industry concentrated, the Dreman fund family was bought by Kemper, which was bought by Scudder, which was bought by Deutsche Bank. Last week the fund board installed by Deutsche quietly filed with the Securities and Exchange Commission a disclosure that Mr. Dreman’s firm would no longer manage what is now called the DWS Dreman High Return Equity Fund.
  
  On June 1, Deutsche will take over the management, and assign the job to a team of managers based in its Frankfurt office. The fund will become known as the DWS Strategic Value Fund. Mr. Dreman’s firm will continue to manage three smaller Deutsche funds, but don’t be surprised if those relationships eventually end.
  
  Mr. Dreman, who is 72, did not sound bitter when I spoke to him this week. “The board of directors is obviously entitled to do what they did,” he said. But neither was he repentant. “Low P/E has worked well over time,” he added. “There will be years that we are very out of favor, but we make it up.”
  
  You wouldn’t have known that the fund’s long-term record remained better than the market from reading what Deutsche officials had to say. “We had seen very weak performance for the fund over every major time horizon,” David Wertheim, the bank’s project manager for equities, told Bloomberg News. He declined to speak to me.
  
  Those time frames are one year, three years and five years, the periods that are used by fund raters like Morningstar and Lipper. Just now they are dominated by last year, which was a horrid one for the Dreman fund. Even so, it still has a superior long-term record.
  
  There are few celebrity mutual fund managers any more. Fund groups prefer to promote themselves rather than a manager who could leave to start a hedge fund. In an age when holding on to assets is the way for a fund family to profit, they may well prefer a fund that sticks close to its peers. The new fund managers plan to own more stocks, with less concentration in any one stock, and a broader definition of value investing. They are far less likely to stand out from the crowd.
  
  Mr. Dreman often stood out. I checked the fund’s last 14 annual reports, each of which showed its performance relative to Lipper’s group of equity-income mutual funds. In seven of those years, it was in the top quartile. In four of them, it was in the bottom quartile. Only in three of the years did the fund end up in the middle 50 percent of funds.
  
  The recent bad performance has been costly for Deutsche Bank, as well as the fund investors. Because of a combination of poor performance and investor withdrawals, the fund had $2.4 billion in assets on March 31, down from $8.3 billion in late 2007.
  
  What went wrong? You can get a hint from part of the fund’s most recent annual report, for the year that ended last November. “The cornerstone of our contrarian value investing philosophy is to seek companies that are financially sound but have fallen out of favor with the investing public,” it said.
  
  With too many financial companies, among them Washington Mutual, Citigroup and Fannie Mae, Mr. Dreman and his colleagues did not realize until too late that the companies were not financially sound, no matter what their books seemed to say.
  
  Buying stocks with low P/E ratios can make sense only if the earnings — the “E” — are real. “The E was much worse than anyone thought,” Mr. Dreman told me. “The banks themselves had no idea of how bad the E was.”
  
  He still thinks his strategy will work, and told me he thinks the market may well have hit bottom. As that last annual report put it, “The last few months have provided many opportunities to buy strong companies with good long-term prospects at the lowest prices we have seen in many decades, and we have taken advantage of what we regard as incredible bargains.”
  
  My suspicion is that Mr. Dreman could have saved his job if he had been more willing to bend with the times and go along with the current investment consensus. After all, this is a market where Citigroup and Bank of America could see their shares collapse after the government made it clear they would not be allowed to fail. How could any rational investor want to own a bank stock in that environment?
  
  Of course, what is obvious is sometimes wrong. In February 2000, George Vanderheiden retired at the age of 54 from Fidelity Investments, where his sparkling long-term record at the Destiny Fund had been tarnished by underperformance caused by his refusal to jump on the technology stock bandwagon.
  
  His successors knew a trend when they saw one. They managed to get in on the tech stock boom just before it ended. The fund lost big, when it would have done well had his successors stayed with Mr. Vanderheiden’s stocks.
  
  The people who run mutual fund companies, it turns out, are very much like other investors, something Mr. Dreman well understood.
  
  “The major thesis of this book,” he wrote in 1998, “is that investors overreact to events.”
  
  

Blodget Calls It Wall Street Self-Defense

Reading past Warren Buffett's Letters on the issue of the professional money managers reminded me of the series of articles written in 2004 by one Mr.Henry Blodget. Oh yeah, that bugger Henry Blodget, that bugger that made that amazing Amazon BUY call from US150.00 to US400.00 a share in Dec 1998.

Anyway, I thought it would do me good to re-read some of the stuff Blodget wrote when he was asked to post at the Slate website in 2004, during the trial of one Martha Stewart.

Here is some interesting stuff written in Part IV

• And this isn't even the real problem. The real problem is that, in any stock-picking effort, you and your adviser will be competing with thousands upon thousands of full-time professionals engaged in nothing but trying to find and exploit tiny information advantages that other full-time professionals miss. These full-time professionals are smart, nimble, experienced, well-trained, well-equipped, and deeply plugged in, so much so that they often finish exploiting valuable information before you (or CNBC) even know it exists (and, even so, most of the pros still can't beat the market!). To beat the market, you have to capitalize on other investors' mistakes, and, in this effort, no matter how alert and dedicated your adviser is, the two of you will be at a major disadvantage.
• So what are financial advisers good for? The best ones, in my opinion, will do less, not more. They will be decent, trustworthy people you feel comfortable with. They will help you allocate your assets appropriately and keep your costs low—a strategy that will usually generate less compensation for the advisers but higher returns for you.

In Smart? Skillful? Probably Just Lucky

• Because stocks and markets can only go up or down, analysts, strategists, and investors often have at least 50-50 odds of being "right." (The odds that any specific stock will rise are likely worse than those for the S&P 500, but on average, they are probably still close to 50-50.) Fifty-fifty odds are pretty good odds—better than any you'll find in Las Vegas, for example (and it is worth noting that ubiquitous awareness of this doesn't stop millions from jetting to the desert and gleefully throwing money away). Because the stock market is not random, moreover, but loosely tracks the growth of profits and dividends, forecasters who predict the market is going to rise have better than 50-50 odds (over time, profits and dividends usually increase). Here's the catch, though. Human psychology being what it is, stock forecasters—and those who evaluate them—almost never factor these odds into their assessments of the forecasters' skills. (In 1998, when I suggested that Amazon's stock might eventually hit $400 a share, some media observers reacted with first shock and then adulation, as though the odds against this were 1,000-to-1; given the conditions at the time, I thought they were better than even). Similarly, those who buy stocks and make money almost never realize that a monkey should win about 50 percent of the time. Instead, they congratulate themselves on their acumen—they were right!—and double down. In a bull market, when the odds that the market, at least, will rise are even better than 2-in-3 (from 1982 to 1999, the S&P 500 rose 15 out of 18 years, or 83 percent of the time), most people forget their "mistakes" and increasingly come to believe that the next investing best seller should be titled George Soros, Warren Buffett, and Me.

• This is not to say that all investing success is luck—it isn't. Some people are better than average, and, over time, some of them will generate superior returns. (According to John Bogle's Common Sense on Mutual Funds, approximately one in six mutual fund managers has enough skill to consistently beat the market after costs—1 in 6.) This skill, however, has little to do with the simplistic price predictions that dominate most market discourse. It stems from discipline, patience, experience, and methodologies that lead to a rare ability to determine when the odds are distinctly good or bad. Skilled investors aren't immune from losses—far from it. They are just talented enough that eventually, gradually, their skill allows them to win.

And in another more shocking piece, Blodget writes What Stock Analysts Are Good For

• If this is so, then what the heck are stock analysts for? Why are thousands of analysts being paid zillions of dollars to do work that, on average, apparently isn't worth the cost of the chairs the analysts sit on?
  The answer is complex. First, it turns out that stock analysts are valuable—sometimes very valuable—but not in the way that most of the public and financial press think. Specifically, casual observers view analysts simply as "stock-pickers," when stock-picking is often one of the least helpful services they provide. An analyst's goal is to help investors make decisions, a mission that encompasses not only rating stocks, but also providing industry expertise, trend-spotting, evaluating scuttlebutt and gossip, interviewing management and customers, and shaping mountains of raw data into coherent projections
• Which brings us back to the original question: If, despite all these efforts, the market is so hard to beat, why have analysts at all? The simple answer—a tautological one—is that as long as there are investors who try to beat the market, there will be analysts who, one way or another, try to help them. The more profound answer is that one of the reasons the market is so hard to beat, even for professionals, is that, in aggregate, analysts and investors are good at what they do (evaluating, distributing, wringing the profit out of every piece of information). After an 18-year bull market, of course, the number of analysts has ballooned beyond what is needed to get the job done—the world probably doesn't need 24 analysts covering Microsoft, for example—but Wall Street is nothing if not laser-focused on the bottom line. Over time, if the market stays stagnant, many analysts will eventually be exploring other professions. But there will always be Wall Street jobs for the best of them.

And in The Trouble With CNBC and Smart Money and …

• The sad truth is that sound investment policy is boring. Diversify, reduce costs, aim to earn the market rate of return—even Stephen King would have trouble telling stories about that. But for the financial media to survive—at least the financial media devoted to helping you "profit" from reading/watching/listening—they have to suggest, over and over again, that there are exciting new places to put your money or dangerous places to remove it from. They have to tantalize you with the latest, greatest mutual funds or the "Ten Hot Stocks for 2005." They have to make you drool by observing, again and again, that every dollar invested in Microsoft's IPO in 1986 would be worth about $300 today. (Next time, it will be you!) They have to enumerate new ways to refinance your house, consolidate your debt, track your investments, pick better stocks, beat the pros, buy treasuries, retire rich, or make millions. They have to keep you watching, listening, and reading, or else they—not you, they—will go bankrupt.
  Unfortunately, the underlying message of such commentary—Do something!—is often hazardous. Once you have gotten the investing basics right, you should do almost nothing. Every time you make a change, you incur costs—transaction costs, tax costs, psychological costs, and opportunity costs. You also, in many cases, decrease your odds of success. The least predictable investment decisions are those focused on the short term (months and years). The most predictable, meanwhile, are those focused on the long term (decades). To the media, of course, the long term is death. How often will you pay or tune in to be told that you shouldn't do anything, that nothing has changed? Answer? Never. So the media must find other ways to keep you entertained.

And in Born Suckers , Blodget states the following!!!!!

• This self-defense guide would not be complete if I did not address the greatest Wall Street danger of all: you.
  Human beings, it turns out, are wired to make dumb investing mistakes. What's more, we are wired not to learn from them, but to make them again and again. If there is consolation, it is that it's not our fault. We are born suckers.

Self-attribution Bias: We attribute our successes to ourselves, and we blame our losses on others or bad luck. This hobbles us in two ways. First, we don't learn from our mistakes because we don't see them as mistakes. Second, we assume we are skilled or smart when we're just lucky.

The Gambler's Fallacy: We tend to believe, incorrectly, that if a flipped coin has come up heads three times in a row it is more likely come up tails next time. Similarly, just because a stock or market has gone up or down for a while doesn't mean it is more likely to go the other way soon.

Prospect Theory: We have an irrational tendency to sell our winners to lock in profits and keep our losers to avoid taking losses. This causes us to sell too early when the market is going up and too late when it is going down. We also feel the pain of loss more than the pleasure of gain and, therefore, blow out losing positions in panic when we should just hang on.

Conservatism Bias and Confirmatory Bias: Once we form opinions, we tend to overvalue information that reinforces them and undervalue information that undermines them (conservatism bias). We even tend to seek out supporting information (confirmatory bias). Thus, we irrationally cling to incorrect conclusions, and, to paraphrase Simon and Garfunkel, hear what we want to hear and disregard the rest.

Overoptimism: We tend to be overoptimistic and overconfident. According to James Montier, when students are asked whether they will perform in the top half of their class, an average of 80 percent say yes. This tendency makes it easier for part-time hobbyists to dismiss a century's worth of academic research showing that only a tiny fraction of full-time professionals can beat the market.

Outcome Bias: We tend to evaluate decisions based on outcomes instead of probabilities. Thus, we congratulate ourselves for stupid choices that happen to turn out well and vow to never again make smart choices that happen to turn out badly. Our errors get reinforced, and our wise decisions rejected.

Buffett's "Rearview Mirror": We base our expectations for the future on what has happened in the recent past. Thus, we are most bullish at the end of long bull markets, when we should be most bearish, and most bearish at the end of long bear markets, when we should be most bullish.

Hindsight Bias: When we reflect on the past, we imagine that we knew what was going to happen when we didn't. As James Montier puts it, "You didn't know it all along, you just think you did." This allows us to imagine, for example, that we knew that the tech boom of the late '90s was a bubble and that everyone who suggested otherwise was an idiot or crook. It also makes us overconfident about our ability to predict what will happen next.

The Art of Fighting the Market!

Reading Warren Buffett's Letters on the issue of the professional money managers reminded me of the series of articles written in 2004 by one Mr.Henry Blodget. Oh yeah, that bugger Henry Blodget, that bugger that made that amazing Amazon BUY call from US150.00 to US400.00 a share in Dec 1998.

Anyway, I thought it would do me good to re-read some of the stuff Blodget wrote when he was asked to post at the Slate website in 2004, during the trial of one Martha Stewart.

Here is some interesting stuff written in Part IV

• And this isn't even the real problem. The real problem is that, in any stock-picking effort, you and your adviser will be competing with thousands upon thousands of full-time professionals engaged in nothing but trying to find and exploit tiny information advantages that other full-time professionals miss. These full-time professionals are smart, nimble, experienced, well-trained, well-equipped, and deeply plugged in, so much so that they often finish exploiting valuable information before you (or CNBC) even know it exists (and, even so, most of the pros still can't beat the market!). To beat the market, you have to capitalize on other investors' mistakes, and, in this effort, no matter how alert and dedicated your adviser is, the two of you will be at a major disadvantage.
• So what are financial advisers good for? The best ones, in my opinion, will do less, not more. They will be decent, trustworthy people you feel comfortable with. They will help you allocate your assets appropriately and keep your costs low—a strategy that will usually generate less compensation for the advisers but higher returns for you.

In Smart? Skillful? Probably Just Lucky

• Because stocks and markets can only go up or down, analysts, strategists, and investors often have at least 50-50 odds of being "right." (The odds that any specific stock will rise are likely worse than those for the S&P 500, but on average, they are probably still close to 50-50.) Fifty-fifty odds are pretty good odds—better than any you'll find in Las Vegas, for example (and it is worth noting that ubiquitous awareness of this doesn't stop millions from jetting to the desert and gleefully throwing money away). Because the stock market is not random, moreover, but loosely tracks the growth of profits and dividends, forecasters who predict the market is going to rise have better than 50-50 odds (over time, profits and dividends usually increase). Here's the catch, though. Human psychology being what it is, stock forecasters—and those who evaluate them—almost never factor these odds into their assessments of the forecasters' skills. (In 1998, when I suggested that Amazon's stock might eventually hit $400 a share, some media observers reacted with first shock and then adulation, as though the odds against this were 1,000-to-1; given the conditions at the time, I thought they were better than even). Similarly, those who buy stocks and make money almost never realize that a monkey should win about 50 percent of the time. Instead, they congratulate themselves on their acumen—they were right!—and double down. In a bull market, when the odds that the market, at least, will rise are even better than 2-in-3 (from 1982 to 1999, the S&P 500 rose 15 out of 18 years, or 83 percent of the time), most people forget their "mistakes" and increasingly come to believe that the next investing best seller should be titled George Soros, Warren Buffett, and Me.

• This is not to say that all investing success is luck—it isn't. Some people are better than average, and, over time, some of them will generate superior returns. (According to John Bogle's Common Sense on Mutual Funds, approximately one in six mutual fund managers has enough skill to consistently beat the market after costs—1 in 6.) This skill, however, has little to do with the simplistic price predictions that dominate most market discourse. It stems from discipline, patience, experience, and methodologies that lead to a rare ability to determine when the odds are distinctly good or bad. Skilled investors aren't immune from losses—far from it. They are just talented enough that eventually, gradually, their skill allows them to win.

And in another more shocking piece, Blodget writes What Stock Analysts Are Good For

• If this is so, then what the heck are stock analysts for? Why are thousands of analysts being paid zillions of dollars to do work that, on average, apparently isn't worth the cost of the chairs the analysts sit on?
  The answer is complex. First, it turns out that stock analysts are valuable—sometimes very valuable—but not in the way that most of the public and financial press think. Specifically, casual observers view analysts simply as "stock-pickers," when stock-picking is often one of the least helpful services they provide. An analyst's goal is to help investors make decisions, a mission that encompasses not only rating stocks, but also providing industry expertise, trend-spotting, evaluating scuttlebutt and gossip, interviewing management and customers, and shaping mountains of raw data into coherent projections
• Which brings us back to the original question: If, despite all these efforts, the market is so hard to beat, why have analysts at all? The simple answer—a tautological one—is that as long as there are investors who try to beat the market, there will be analysts who, one way or another, try to help them. The more profound answer is that one of the reasons the market is so hard to beat, even for professionals, is that, in aggregate, analysts and investors are good at what they do (evaluating, distributing, wringing the profit out of every piece of information). After an 18-year bull market, of course, the number of analysts has ballooned beyond what is needed to get the job done—the world probably doesn't need 24 analysts covering Microsoft, for example—but Wall Street is nothing if not laser-focused on the bottom line. Over time, if the market stays stagnant, many analysts will eventually be exploring other professions. But there will always be Wall Street jobs for the best of them.

And in The Trouble With CNBC and Smart Money and …

• The sad truth is that sound investment policy is boring. Diversify, reduce costs, aim to earn the market rate of return—even Stephen King would have trouble telling stories about that. But for the financial media to survive—at least the financial media devoted to helping you "profit" from reading/watching/listening—they have to suggest, over and over again, that there are exciting new places to put your money or dangerous places to remove it from. They have to tantalize you with the latest, greatest mutual funds or the "Ten Hot Stocks for 2005." They have to make you drool by observing, again and again, that every dollar invested in Microsoft's IPO in 1986 would be worth about $300 today. (Next time, it will be you!) They have to enumerate new ways to refinance your house, consolidate your debt, track your investments, pick better stocks, beat the pros, buy treasuries, retire rich, or make millions. They have to keep you watching, listening, and reading, or else they—not you, they—will go bankrupt.
  Unfortunately, the underlying message of such commentary—Do something!—is often hazardous. Once you have gotten the investing basics right, you should do almost nothing. Every time you make a change, you incur costs—transaction costs, tax costs, psychological costs, and opportunity costs. You also, in many cases, decrease your odds of success. The least predictable investment decisions are those focused on the short term (months and years). The most predictable, meanwhile, are those focused on the long term (decades). To the media, of course, the long term is death. How often will you pay or tune in to be told that you shouldn't do anything, that nothing has changed? Answer? Never. So the media must find other ways to keep you entertained.

And in Born Suckers , Blodget states the following!!!!!

• This self-defense guide would not be complete if I did not address the greatest Wall Street danger of all: you.
  Human beings, it turns out, are wired to make dumb investing mistakes. What's more, we are wired not to learn from them, but to make them again and again. If there is consolation, it is that it's not our fault. We are born suckers.

Self-attribution Bias: We attribute our successes to ourselves, and we blame our losses on others or bad luck. This hobbles us in two ways. First, we don't learn from our mistakes because we don't see them as mistakes. Second, we assume we are skilled or smart when we're just lucky.

The Gambler's Fallacy: We tend to believe, incorrectly, that if a flipped coin has come up heads three times in a row it is more likely come up tails next time. Similarly, just because a stock or market has gone up or down for a while doesn't mean it is more likely to go the other way soon.

Prospect Theory: We have an irrational tendency to sell our winners to lock in profits and keep our losers to avoid taking losses. This causes us to sell too early when the market is going up and too late when it is going down. We also feel the pain of loss more than the pleasure of gain and, therefore, blow out losing positions in panic when we should just hang on.

Conservatism Bias and Confirmatory Bias: Once we form opinions, we tend to overvalue information that reinforces them and undervalue information that undermines them (conservatism bias). We even tend to seek out supporting information (confirmatory bias). Thus, we irrationally cling to incorrect conclusions, and, to paraphrase Simon and Garfunkel, hear what we want to hear and disregard the rest.

Overoptimism: We tend to be overoptimistic and overconfident. According to James Montier, when students are asked whether they will perform in the top half of their class, an average of 80 percent say yes. This tendency makes it easier for part-time hobbyists to dismiss a century's worth of academic research showing that only a tiny fraction of full-time professionals can beat the market.

Outcome Bias: We tend to evaluate decisions based on outcomes instead of probabilities. Thus, we congratulate ourselves for stupid choices that happen to turn out well and vow to never again make smart choices that happen to turn out badly. Our errors get reinforced, and our wise decisions rejected.

Buffett's "Rearview Mirror": We base our expectations for the future on what has happened in the recent past. Thus, we are most bullish at the end of long bull markets, when we should be most bearish, and most bearish at the end of long bear markets, when we should be most bullish.

Hindsight Bias: When we reflect on the past, we imagine that we knew what was going to happen when we didn't. As James Montier puts it, "You didn't know it all along, you just think you did." This allows us to imagine, for example, that we knew that the tech boom of the late '90s was a bubble and that everyone who suggested otherwise was an idiot or crook. It also makes us overconfident about our ability to predict what will happen next.

Here is the link to the archives of what Blodget has written