In the movie "The Man Who Shot Liberty Valance," a superficially timid Eastern lawyer who finally faces down a notorious gunman who has beaten, bullied and humiliated him is lionized by the citizens of Wyoming and becomes a US Senator (and gets the girl!) when he is mistakenly credited with killing the villain, whereas the true "kill shot" came from his rough-hewn rival hiding in the shadows. The latter knew the lawyer would not survive the shootout (and made sure the gunman didn't see him and never would have a chance, a gruesome fact he could live with). For the rest of his life, the lawyer wrestled with the truth that a myth had created his chance for greatness (although he had shown real selfless courage). But when the late 19th century "news media" finally learned the truth, near the end of the movie, the town's newspaper editor, who had the scoop, succumbed to what seems an even "higher truth" of journalism: "When the legend becomes the fact, print the legend!"
So it goes today: three very recent examples of serious distortions of reality passing for fact and going virtually unchallenged in the news media threaten to become the stuff of "legend," with serious implication for our financial markets, foreign affairs and the November presidential election. In order of their immediacy of impact, it's important to take them on one by one, teasing out the superficial but dangerous falsehoods that cover up the truth behind each statement.
Let's start with recent assertions about what the US Federal Reserve Open Market Committee is going to do about the key interest rate when it next meets on September 20-21. Remember: the key word here is "September." On August 18, The Wall Street Journal published a front-page article headlining that the minutes of the July meeting of the Federal Open Market Committee "suggested" that the Fed's next interest rate increase (the first since December of last year) could possibly occur at its September meeting, which would be a huge surprise to the bond market that has barely been pricing in the chance of a hike as late as December! Jon Hilsenrath's otherwise very careful analysis of the meeting also contained the same statement.
Yet a complete reading of the Fed's minutes of July 27, 2016 fails to reveal any reference whatsoever to the month of September--except for the final administrative paragraph that merely recites the date of the next meeting!
Why would the WSJ choose to emphasize with a headline its own opinion about a specific "suggestion" that simply never occurred in the minutes? Was it merely conflating the very recent comments of New York Reserve Bank President William Dudley who, in fact, did make such a suggestion (but he is just among ten voting members)?
Or was it shades of the famous "Septaper" myth of 2013, when virtually the entire financial media predicted that the Fed would begin to "taper" its "quantitative easing" bond buying program that month, based on a highly ambiguous remark of then Chair Ben Bernanke in response to a congressman's question about a "Labor Day" timetable?
Bernanke, like the July minutes, never specifically referred to "September"--or "Septaper"--at all. Time between now and September 21 will tell if this WSJ "overstatement" (to say the least) will have the same market-distorting effect in terms of collapsing equity prices, which provided some short sellers and opportunistic traders healthy profits when the market turned up strongly after the Fed chose not to "September" and waited until December to begin closing down QE.
The WSJ, CNBC and other media made much fuss over Janet Yellen's statement at the Fed's late-August Jackson Hole conference that the case for "an" increase in the funds rate had recently "strengthened"--and even more fuss over Vice Chair Stanley Fischer's subsequent interpretation in response to being baited by CNBC's Steve Leisman into suggesting that Yellen meant both September and December meetings would have a rate hike on the table. And, sure enough, the equity markets headed down for several days leading up to the Friday September 2 employment report, which Fischer had also indicated would be a very important data point for the Fed in terms of any rate increase.
When that jobs report turned out to undershoot market expectation for 180,000 net new jobs (the reported figure was 151,000), the air came out of the "Septaper 2.0," "sell-everything" media hype, and the equity market finished higher for a change. Ironically, the August jobs number has been wrong about 75 percent of the time and usually far to the downside, with the average upward revision of 74,000. So when this year's correction for August comes in next month, it may be that Fischer's case was made, but too late!
The guess here is that the Fed will wait until at least November to learn whether third quarter GDP will come out substantially above the 1.2 percent twelve-month rolling average. Current Fed estimates suggest as high as a 3.5 percent growth. The Fed will most likely want to see the "whites of the eyes" of such a strong figure (and get the volatile November election behind them) before pulling the trigger on a rate increase that will signal to the markets a real change in policy. The Fed understands that, ultimately, the markets want to be sure it is in synch with a real--not just projected--direction of the economy. However, that didn't stop CNBC from quickly booking a Goldman Sachs guest who argued September was still in play despite the jobs report. Stay tuned, but don't sell your whole portfolio--as you may have done back in the "Septaper" media scare days!
Is CNBC or the Journal owner Rupert Murdoch, a big Trump supporter, still trying either to bait the Fed into a premature rate increase, or bait the equity market into an unwarranted crash, since each of these outcomes would potentially help his preferred candidate?
A second recent, highly political WSJ's "suggestion" was the notion that the United States somehow might be thought to have paid cash "ransom" to Iran to enable the January release of US citizens held prisoner by that country on specious charges, despite US policy and strong denials by President Obama. The money involved was the first installment of the $1.7 billion the Administration had agreed to return from sequester to Iran in 2015 as part of the deal to halt that nation's nuclear weapons development. So how can "ransom" consist of the recipient's own money? More importantly, given the very sequence of the transactions that the WSJ itself correctly reported, it is clear that, if any nation in fact provided a "ransom," it was Iran, which was forced by the US to physically release its prisoners before it got its cash. We've all seen ransom movies, too (e.g., "Bridge of Spies")--it matters what, or who, gets "exchanged" first!
The third instance, during August, of attempting to create a false narrative that could well become a "legend," if not corrected by the media, is the claim by Donald Trump, in a speech to a white audience in Michigan explaining his outreach for votes of African Americans, that the latter group has nothing to lose voting for him because Democrat policies have, among other bad things, resulted in a black youth unemployment rate of 58 percent. This statement is true only if you count all African American kids who are going to high school or college as unemployed--something no reputable labor statistician (or sensate individual) does. This "data" is as mythical as the notion that the figure of 93 million or more Americans "no longer in the workforce" represents the "true" unemployment rate--regardless of the fact that those 93 million include all individuals over 16 who are retired, disabled or in school full time, whose numbers have been growing steadily for three decades, with an average 10,000 boomers now retiring every day!
Trump's recent and surely obvious falsehood has been largely ignored and left standing as a new "urban legend" by most of the media, except for CNN's minor quibble, noted above, and The Washington Post (a publication that had its press credentials pulled by the Trump campaign), which took Trump on head-on. Is the rest of the media too afraid of losing access to challenge Trump's veracity? Are TV journalists of all stripes afraid to ask the obvious: if Trump persists in quoting the (phony) 58 percent rate as curable only by his promised jobs program, does that mean he wants to pull all black kids out of high school and college to put them to work, presumably in the factories Trump promises to bring back, or the fields and slaughterhouses he promises to clear of Mexicans?