Thursday, May 8, 2008

Ball of Confusion

Let's get right into the pop culture - name that 1970 band that recorded the title to this blog post.

Anyway, ball of confusion, that's what the world is today. Go ahead, check the day to day reports in the financial media and hum along. Stocks rallied despite rising oil. Record high prices set stocks back. Stocks stage comeback as oil hits yet another record.

While I may be paraphrasing, this is exactly the sequence of daily news reports we saw this week. Listen people, there is no correlation between oil and stocks. Yes, rising oil leads to inflation which kills the economy but if you are looking for a reason for what stocks do on any given day this ain't it. Journalists have to write something so they latch on to anything that any of their sources say that sounds good.


Hey, what happened to gold? Everyone was writing it off as the "bubble" burst on commodities but guess what?

And oil? The fundies say we are once again swimming in the stuff yet the price sets six new daily highs in four trading days. OK, I exaggerated but you get the point.

Interest rates? Wasn't a weakening Europe supposed to get them to cut rates over there? Not today, pal. They are worried about inflation, as they should be. Perhaps my call for a higher dollar later in the year was premature.

What's going on? (Dang, another 1970s pop song reference tell me). Don't let anyone tell you they know the full story. All I know is that the charts are telling me something is happening and that it is probably not a good idea to take out a loan to buy that big screen TV.


Ragamuffin said...

Ummm ... without googling it: Genesis?

And yes, financial journalists will take anything they can get that may or may not serve as a useful explanation for the markets' gyrations.

The market is up, and oil is rising? "Markets shrug off rising oil,", or, even better, "Markets rise on record oil prices". Markets are down, and oil is rising? "Markets decline on record oil." Sometimes, when markets reverse course during the day, you'll find both headlines during the same day.

It's a little bit like the correlation between birth rate and storchs nests: Where storchs are building their nests, expect one or more families living near by to have babies shortly (at least that used to be something people believed in in rural areas in Germany; probably this kind of superstition still prevails in some areas).

Simply create a correlation where there is none, no matter how much (or how little) sense it makes, as long as it provides any seeming explanation.

You could just as easily fathom "Markets up (down) on doughnut shortage in Lower Manhattan."

My impression is that the way markets have been developing during the past couple of months in the face of all kinds of (bad) news that it seems questionable if news matter at all. Perhaps sometimes they do, and sometimes they don't.

As long as it provides financial journalists with something to write about, it won't matter if news matter.

Anonymous said...

My favorite over the last month and a half has been equities rising on days filled with both horrible earnings, outlooks, and forward looking economic news. Confusion yes, but perhaps also denial about what may lie ahead. What I find really interesting is that there is no widespread risk aversion -- yet. Eventually very few people will want to be in stocks.

This comment has been removed by the author.
Michael Kahn said...

Well, that deleted blog comment had it right (I did not delete it, the author did).

Ball of Confusion - Temptations
What's Going On? - Marvin Gaye

Like professors, journalists must publish or perish but on a daily, if not intraday, basis.

Michael Kahn said...

Ragamuffin - that was "land" of confusion. I needed meds after seeing that video for the first time.