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Alternative Facts Hit The Front Page Of The Wall Street Journal As Dow Breaks 20,000

One of President Donald Trump's top advisors, Kellyanne Conway, recently ignited a firestorm over the Trump Administration's use of "alternative facts."

Why is it such a big story? Alternative facts are nothing new. They're just coming to light more often because of the speed of information.

An example of how alternative facts are nothing new appeared on the front page of The Wall Street Journal, the day after the Dow Jones Industrial Average topped 20,000 for the first time ever.

It was a historic day in U.S. economic history, and the front page emphasized the stunning rise of the Dow index in the chart climbing the side of the page. The related article highlighted in red is a classic example of alternative facts promulgated by a nationally known expert on the front page of America's most important financial newspaper on a big day in U.S. economic history.

The article was written by Greg Ip, a distinguished financial reporter who has worked at The Economist as well as The Journal. "The U.S. expansion is more than seven years old and retains little momentum from using up spare capacity from the recession," Mr. Ip, said. He ended the story with an ominous warning, "The next decade for blue-chip company profits are going to be tougher than the last. Investors should adjust expectations accordingly."

Now that is an alternative set of facts! It flies in the face of reality!

Ironically, The Wall Street Journal, the very publication that put the "fragile economic foundation" headline on its front page conducts a survey of about 70 economists monthly to ask them about their expectations for the future on US gross domestic product.

While the latest quarterly growth rate of 1.9% for the fourth quarter was below expectations of the economists surveyed by The Journal and was much lower than the 3.5% growth spike in the third of 2016, the 1.9%, is okay. If you average the 3.5% and 1.9% growth rates of the last two quarters, it is 2.7%, which is strong. Moreover, growth is expected to accelerate steadily at a 2.4% rate over the first three quarters of 2017, according to The Journal's survey economists.

This picture of accelerating growth in the U.S. economy was not what was painted on the front page of the venerable Journal.

The alternate reality portrayed by on the front page of The Journal ignored the facts underlying the economy presently: The four factors of GDP growth are shown in these charts. Consumer activity, in the upper left, and business investment in the upper right.

Consumers represent 70% of the activity in the economy and is the dominant component of U.S. economic growth. While it declined for the past two months, consumer activity remains strong and its long-term trajectory, shown in the red line, remains strong.

A big negative last month for GDP came from exports. However, it was attributed to a large increase in shipments of soybeans to China in November. Weather, the dollar, or other extraneous global economic "noise" could have caused the spike and the 1.7% decline last month. While worth watching, exports are expected to stabilize, if consumer spending accelerates as projected.

Also contradicting The Wall Street Journal's alternate reality, the newly-released monthly report on the U.S. Leading Economic Index (LEI) in December on Thursday confirmed the outlook for growth ahead. The LEI is a forward-looking index, which is why it is so important.

The LEI is "suggesting the economy will continue growing at a moderate pace, perhaps even accelerating slightly in the early months of this year," according to The Conference Board, a private business group that tracks the LEI. "December's large gain was mainly driven by improving sentiment about the outlook and suggests the business cycle still showed strong momentum in the final months of 2016."

The LEI has rolled over very definitively prior to previous recessions. There's no suggestion of that kind of pattern at present, with the LEI's on the rise.

Despite all of these facts, the front page of The Wall Street Journal this past Thursday reported that the Dow run up to 20,000 is built on a shaky economic foundation.

Astonishingly, contrary to the alternative facts on the front page of The Wall Street Journal last week, optimism among small business owners is "unpresidented."

The Journal's alternative facts branded the economy as shaky and expressed pessimism about the rally in stock prices continuing just two weeks after the monthly index of small business optimism compiled by the National Federation of Independent Businesses (NFIB) was released and had surged as never before in its 30-year history.

The NFIB has tracked economic sentiment among small business owners for over three decades. The surge in optimism after the surprise election of Donald Trump caused a spike never seen since the NFIB began tracking this data in 1986!

The stunning surge in optimism among small business owners did not make its way into the national press, perhaps because NFIB economic monthly reports have always been like watching paint dry. The monthly commentary always is measured and never hyperbolic. That was not the case in January.

"Small business optimism rocketed to its highest level since 2004, with a stratospheric 38-point jump in the number of owners who expect better business conditions," according to the monthly National Federation of Independent Business Index of Small Business Optimism. NFIB economists are unlikely ever before to have characterized optimism as "stratospheric."

"Small business is ready for a breakout, and that can only mean very good things for the U.S. economy," said NFIB President and CEO Juanita Duggan.

The Standard & Poor's 500 stock index, which measures the value of America's largest publicly-held companies, also a hit new all-time this past week, as well as the tech-heavy small-company Nasdaq Composite Index, and along with the Dow Jones Industrials. It closed slightly down from that high mark on Friday.

Despite the bright outlook for the U.S. economy, and even though the global economy is exhibiting strength not seen in about a decade, investor sentiment could change anytime. There are many instances in U.S. post-War history in which a stock market correction or bear market occurred during a period of economic expansion. No one can predict the future.

What is certain is that alternative facts are nothing new. There always are some who ignore facts. The alternative reality on the front page of The Journal is proof. Calling the economic foundation of the stock market rally "fragile" flies in the face of the facts. The economy is growing, expected to accelerate in 2017, and small business owners - a powerful force in driving jobs and income, are more optimistic than since such data was first tracked in 1986.

For long-term investors, the alternative facts that made the front page of The Wall Street Journal on the day the Dow hit 20,000 actually represented good news: As long as the perception that the stock market rally is built on a fragile economic foundation is widely-held, the market could continue to climb a wall of worry.

Whether or not you voted for the new President, don't think Kellyanne Conway is the first and only purveyor of alternative facts. Alternative facts have always been around and Ms. Conway just pointed that out.


This article was written by a veteran financial journalist based on data compiled and analyzed by independent economist, Fritz Meyer. While these are sources we believe to be reliable, the information is not intended to be used by as financial advice without consulting a professional about your personal situation.

Indices are unmanaged and not available for direct investment. Investments with higher return potential carry greater risk for loss. Past performance is not an indicator of your future results. Investing in foreign securities carries political and currency risks.


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This article was written by a professional financial journalist for The Dover Group and is not intended as legal or investment advice.

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