Market discipline

On March 11, 2008, Jim Cramer, host of the CNBC program Mad Money, said this about Wall Street giant Bear Stearns: "Bear Stearns is fine. Bear Stearns is not in trouble. Don't be silly. Don't move your money."

Less than a week later, the 85-year-old firm was essentially gone. JPMorgan Chase announced it would buy the firm for a stock swap of $2 per share, less than 10 percent of its value on the day Cramer declared it "fine" and its nay-sayers "silly."

The marketplace punished Bear Stearns for its mistakes. Did it do the same to Jim Cramer? A full year later, he went on Jon Stewart's The Daily Show and admitted he had made mistakes, but neither Cramer nor his show left the air or issued a formal apology.

Cramer's fate is typical in the world of market prognosticating, which has become a staple of business journalism. Books abound on the subject-from 1999's Dow 36,000 to 2011's Super Boom: Why the Dow Jones Will Hit 38,820 and How You Can Profit From It. Many of these books predicting economic boom (and, more rarely, bust) are bestsellers and appear as often as quarterly earnings reports-and they're almost always wrong. Why?

Brian Solis, president of Wealth Preservation Strategies of New Jersey, says there's a bias for optimism in the markets. "Most people are hopeful and truly want to see our economy flourish," he said, so they make predictions based on hope rather than data. "Another major factor for Wall Street analysts and Washington politicians is that their livelihood often depends on them being positive, hopeful, and ultimately bullish." He said expressions such as "now is a great time to buy" and "you've got to be in it to win it" are drilled into stockbrokers and have found their way into the culture of business journalism.

That's why there are so many bulls and so few bears on Wall Street. One of the few consistent bears has been Gluskin Sheff's David Rosenberg. Even during the markets' October 2011 to April 2012 bull run, when the Dow went up 2,500 points, Rosenberg has remained stubbornly bearish, saying government stimulus will not produce sustained economic growth. In May the Dow fell 1,000 points, giving up all of its 2012 gains.

Rosenberg was not surprised. "Over the past two years, the American public's reliance on public funds (housing goodies, expanded welfare, food stamps, extended jobless benefits, and other subsidies) has surged 7.5 percent to 23 percent," he told The Wall Street Journal. "This metric usually goes down after recessions end-but not this time. And to put it all in perspective, in the severe 1981-82 recession, there was only a 6 percent increase (and then it fell sharply). So you may want to call the economy 'resilient,' but keep in mind that it is still heavily medicated."

The American people are resilient, too, and they make changes when necessary. That may be why Cramer and CNBC have experienced significant ratings declines since his Bear Stearns predictions. CNBC's relentless corporate cheerleading has also spawned competition. Fox Business News debuted in 2007 and is now in 50 million households. A revamped Bloomberg News is also providing competition and taking market share.

CNBC, in more than 90 million households, still leads the ratings race. But media analyst Bud Fox, writing for the website Benzinga.com, said CNBC needs a dose of marketplace reality.