Explaining the Market's Explainers
One of the more fascinating aspects of watching finance is the never-ending stream of explanations for the market's action. Strategists, news media and economists all engage in a series of tortured rationales for what just happened. These tend to be after-the-fact reasons that are too smug, too pat and too late to be useful, let alone satisfying.
Forget predicting the future, these folks don’t seem to even understand what happened yesterday.
All too often, they seem to be saying nothing more than “I don’t like that!” but lack either the awareness or courage to acknowledge the subtext of what they are saying or writing about.
To protect the not-so-innocent, I won’t point to specific examples.
It would be helpful if there were annotations to the commentary --sort of like VH1’s pop up videos (I’m showing my age). The insight into the authors’ psyche actually is much more valuable than the commentary itself.
Consider, for example, the countless analyses during the past six years about why the market is overvalued, or why it's a tech bubble or why we're about to experience (choose one) a 1929/1987/2000/2008-like crash. It would have been a huge time saver if a popup explained:
“I missed the bottom and have been unable to find a good way to get into equities!”
It would be helpful if every time there is a complex merger or acquisition, analysts would simply admit that the accounting and tax benefits are somewhat beyond their expertise. “Maybe the deal is a money saver, maybe it isn't, but in the 27 minutes since it was announced, I simply don’t know.” Of course, then they wouldn't have a self-promoting reason to discuss it on television.
Consider the benefits of this in the technology sphere: Every time Facebook spend a billion dollars on some startup with three employees, or whenever a venture capitalist makes an investment that values some company you never heard of at tens of billions of dollars, it would be great if people simply would say:
“I don’t understand that!”
Don’t even get me started on biotech -- no one seems to have the slightest clue about the underlying science behind innovative, potentially cancer-curing molecules, genomics or treatments. The medical professionals barely understand this stuff -- why should someone with no scientific training have a clue?
The world has been changing constantly ever since technology, capital and labor came together to make life better for everyone. Creative destruction is the default setting; modern life has been an endless series of industry-wrecking new products, from the steam engine to computers to robots. Perhaps the world would have been better off if the followers of Ned Ludd simply declared:
“I am afraid of that!”
Wall Street analysts are no different. As my colleague Michael Batnick recently observed in a post titled "What They Say, What They Mean," when analysts make statements such as “It’s a stock picker’s market” it actually means they get paid to pick stocks. When they say “There’s still a lot of uncertainty” it is typically because they are underperforming.
We haven’t even gotten to the well-understood Wall Street company ratings -- “strong buy” means buy, “buy” means hold, “hold" means sell and “sell” means run for the hills. At this point, post-2000 crash and post-analyst settlement, I assume everyone understands the subtext of:
“I have a banking relationship with that company!”
Next, we come to politics. You know better than to discuss anything related to President Barack Obama at Thanksgiving. Yet when it comes to markets, or Federal Reserve policy or taxes, you never hesitate to tell people how wrong they are. What you really mean is, facts be damned:
“I don’t agree with that!”
Disagreement over opinions and factual accuracy are two different things.
Last, we come to the politicians themselves: When they say things like “I am not a scientist” you know subtext is involved. There is even a Beltway-insider phrase for it: Dog-whistle politics, or things that sound innocuous to the moderate middle but contain signals of profound significance to the true believers. Even the word “Constitution” makes me cringe now in anticipation of some ludicrous blather about policies designed to diminish liberty -- for some people. What they really mean to say is:
“I am a cynical populist, saying things I don’t believe to appeal to a donor base I don’t like to get votes from people I don’t respect, but it takes lots of money to get elected.”
Annotations would be hugely helpful in real life, especially to those of us who have -- or more accurately had -- a tendency to take what people say or write at face value. Understanding the motives of these folks and their underlying biases could even avoid some money-losing trades.
As to the politicians, it has now reached the point where I assume everything they say is nonsense. According to the most recent polling data, that is something that most Americans can agree on -- even without the annotations.
To contact the author on this story:
Barry Ritholtz at firstname.lastname@example.org
To contact the editor on this story:
James Greiff at email@example.com