Ain't that the truth?

We just had a cracker of a bank holiday weekend. In-between tennis, dinner out and digging our new allotment, I had time to do some serious reading. And there’s nothing like getting stuck into a good book on a sunny day.

Now some of the reading was around a new project I’m working on. Someone called Dr Chris Patterson, of the University of Leeds, used a program to spot plagiarism on news websites (where 60% of Americans get their news). In the case he was looking for verbatim reproductions of Reuters and Associated Press reports. In 2001, 34% of all web news reports were verbatim transcripts from two or three wire services. By 2006, 50% was verbatim. That 50% doesn’t even include the stories that have been taken direct off the wires and rewritten with no new information.

Now it strikes me as funny that plagiarism is an expellable offence at schools or in colleges. Surely, if these places of higher learning were teaching people how to get by in the real world – they’d be teaching them how to plagiarise.

But the direct copying from the wires isn’t the whole problem. In a fantastic book called Flat Earth News, Nick Davies highlights the real fault of the ‘churnalists’. They are under so much time pressure, he says, that they end up copying PR announcements. Davies got some original empirical work funded – carried out by academics at the University of Cardiff. They trawled through every domestic UK story for two weeks in the UK broadsheets and in the Mail. They found 30% were copied directly from PR statements, 54% of stories were taken from PR statements with no facts changed. And 70% were either wholly or partly taken from PR or a wire service. They found only 12% were original work, with 8% undecided (it could have been PR, but on ‘background’). They found that these papers checked the facts on less than a quarter of wire/PR stories before reprinting.

Davies goes on to say that certain newswires seek to promote ‘accuracy’ – by which they mean accurately writing down what PR people tell them, as opposed to finding out whether what these people said has any validity.

It’s all quite eye opening. And this all plays to one of my prejudices. I can’t bear to watch the TV news. Ever since the press went wild reporting that Norman Lamont had seen the ‘Green shoots of recovery’ I’ve struggled to see the point – couldn’t the journalists identify this stuff for themselves? According to Nick Davies, with all the commercial demands on them – filing ten stories a day, on four different media etc, there just isn’t enough time in the day.

So I suspect that for all the blather about information overload, there is, in fact, a real dearth of information out there. Repetition certainly, but maybe less information, checked, and thought through, than there used to be.

Now in my last job I used to work with a dead sharp economist. His basic premise was that he didn’t believe a word anyone said – he went back to first principles on everything – and worked out his own story. Sometimes, sure, he’d wasted his time, and the consensus call was pretty near the mark as he saw it. But from time to time he would nail a completely out of consensus call – that would be worth a small trading fortune.

And I think that’s the right approach. The only way to get an edge – an analytical edge at least – is to develop your own information. That’s one of the things I liked about the Alchemy of Finance – Soros would write out capital flow diagrams that showed how an overvalued dollar could coincide with twin deficits – and how the two could reinforce each other. Something no textbooks, and very few economists, ever tried to explain.

I also like how Richard Heuer – in Psychology of Intelligence Analysis – argues that analysts should take projections of future events very different from their own calls, and work them backwards. Oftentimes, it does not take an outrageous chain of events to get there.

And that brings me to inflation. A lot of serious analysts I read tell me that the US housing bust and the broader credit crunch is a deeply deflationary event. And that, in due course it will infect commodities, stocks et al. The world, after all, can’t help but slow.

But it’s worth looking at it backwards. Say we’re in 2011 or 2012, and we’ve got a major global inflation problem on our hands. And by that I don’t mean rising oil prices. Because rising oil could simply crowd out consumption in other areas – leading to falling prices for TVs. Right now that is what we have – TV prices are 28% down YoY in the US.

What I mean is proper inflation – when all prices go up. What would have to happen to get that?

I think the wrong answer is a strong US housing market and a healthy financial system. If we had that, the Fed would crank up rates – the dollar would boom - emerging markets would crack– and we’d replay the late 1990s. A disinflationary world.

What I think you need to get real inflation three or four years down the track is a US housing bust and a fragile banking system. You need a moribund US – one that struggles again after the tax boost. That way money stays very easy. The dollar holds a weakening bias. And global reserves keep on growing, as they are now, by 20%+. Not unreasonable.

And that is why I still have my resources, my infrastructure and my gold.