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The Age of "Screw-tiny"

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What heretofore had been scrutiny now feels more like something I'd call "screw-tiny." Today, mainstream journalists are turning over stones looking for worms and slugs, not buried treasure.

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What first got my attention to the change in tact was Charles Duhigg's New York Times cover story on Apple (NASDAQ:AAPL) last January in which he openly questioned transnational manufacturing practices. As long-time Minyanville readers know, I had been wondering aloud for some time when weak social mood, with its natural nationalism, would put the business practices of the world's largest corporations under the microscope (see Pledging Allegiance: Multinationals in an Increasingly Nationalist World).

Not surprisingly, since Mr. Duhigg's first column, we've seen companies like Wal-Mart (NYSE:WMT), Starbucks (NASDAQ:SBUX), Standard Chartered (PINK:SCBFF) and Commerzbank (PINK:CRZBY) all fall victim to changing social mood and the need for greater local accountability (see From Socially Aware to Socially Attentive Investing).

But as 2013 begins, what have really gained my attention are the recent articles by Jon Hilsenrath of the Wall Street Journal on the Federal Reserve. On December 12, the day of the Fed's final meeting for the year, under the headline "Inside the Risky Bets of Central Banks," Mr. Hilsenrath painted a very different image of central bankers than I had seen from him before. Maybe I am reading too much into his story, but I sensed a significant shift in Mr. Hilsenrath's unbridled adoration of the Federal Reserve and other global central bank policymakers. Not only did Mr. Hilsenrath paint the group as academics, he added some rather striking adjectives to both the group and its actions. Call me crazy, but central bankers who "dreamed up mathematical models" while at MIT and are "among the most isolated people in government" and are now executing "high-stakes experiments" which, if they fail, could "sow the seeds of another financial crisis" are not what I think of when I think of Mr. Hilsenrath's coverage of the Fed, nor of Superman -- which is how the Wall Street Journal portrayed Mr. Bernanke back in 2010.

Earlier this week Mr. Hilsenrath took his critique of policymakers one step further in an article on the forecasting models used by the Federal Reserve. I was particularly struck by his open assertion, "But here is the problem: The models are deeply flawed. They failed to foresee the financial crisis in 2008 and have tended to overestimate the strength of the economy for several years."

While admittedly white goes to black through thousands of shades of gray, when you include the Wall Street Journal's editorial from this past summer in which they characterized central bankers as "Music Men," I am left with this image swirling in my head:



What is unclear to me today is how additional scrutiny, or more importantly, screw-tiny will affect the effectiveness of central bank policymakers.

Further I can't help but wonder whether Mr. Hilsenrath's focus on Fed policymakers is just the beginning of a long list of investigative articles focused on Washington in general. With banks and corporations already under the microscope, it seems logical to me that media attention would now turn to the public sector.

In 1972, under strikingly similar social mood conditions, two reporters from the Washington Post gained international attention with their coverage of a break in at the Watergate Hotel. Maybe it's just me, but as I look ahead into 2013, it would not surprise me at all if we see this generation's Bob Woodward and Carl Berstein come to the fore. The environment for public sector screw-tiny is ripe.

What this all means for investors, particularly in a world unprecedentedly dependent on the acts of global central bankers and policymakers, I don't pretend to understand. But given what I have read already from Mr. Duhigg and Mr. Hilsenrath, they could easily have been the beginning of a critical trend.

Peter Atwater's groundbreaking book "Moods and Markets" is now available for pre-order on Amazon and Barnes & Noble.

"Peter Atwater brilliantly provides a framework for understanding both the socioeconomic hubris that led to the great credit bubble of the past decade and the dark social-psychological hangover that has resulted from its collapse. In so doing, he offers an invaluable guide to what promises to be a very difficult and turbulent period ahead as we experience what he calls the 'me, here, and now' behavioral tendencies of the post-crash world." -Sherle R. Schwenninger, Director, Economic Growth Program, New America Foundation


Twitter: @Peter_Atwater
Position in SH and JPM
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