If news drives markets, then stock exchanges in the United States shouldn't have even bothered with an opening bell this morning. It would have been like the "limit-down" session we saw on October 24, when stock futures contracts fell the maximum points allowed in one session.

 

Why do I say this? Because the October unemployment report from the Bureau of Labor Statistics (released at 8:30am) showed the largest one-month rise in unemployment since 2001, with the rate itself at the highest level in 14 years. What's more, this month's release also "revised" the unemployment data from September: what had been 159,000 job losses was adjusted upward to 284,000.

 

Now, there are days when stocks rise "despite" bad economic news, and the media will say that's "because" the bad news wasn't as bad as the "consensus estimate" of economists. Not so today: the consensus estimate was for 200,000 jobs lost, while the report itself showed 240,000. And that's subject to "revision" in next month's report.

 

So: all of this, along with stock index declines in the ten percent range over the previous two sessions, should have sent stock traders and investors back to bed this morning for a three-day weekend. If news drives markets, we could have pretended we were Russia and just kept the indexes closed because we "knew" what would happen.

 

But, dear reader, news DOES NOT drive markets. The Dow Industrials were up sharply in the first hour of trading and closed three percent higher on the day. I'll leave to your imagination how pathetically tortured the "explanations" of this price action were in the financial news.

 

Not that I imagine facts and evidence will ever put a stop to human stupidity. At 3:05pm this afternoon, one financial site said the President-elect was having a news conference, and claimed "The stock market gives up half of its gains as Obama makes his statements." Wow. It must have been when Obama stopped talking that prices took back those gains and closed near the session high. I wish the mere sound of my voice had that much power.

 

Most of the reason the media assumes that "news moves markets" is because most of Wall Street's financial models make the same assumption -- the efficient market hypothesis, for example, claims that "share prices reflect all information," blah-blah-blah.

 

It's way past time to take those models and shove 'em. To that end, please consider a wonderful quote from the late Michael Crichton. The great storyteller and contrarian-after-my-own-heart died this week. His words are from a 2003 speech about global warming, but the application to financial models is obvious.

 

"I want to pause here and talk about this notion of consensus, and the rise of what has been called consensus science. I regard consensus science as an extremely pernicious development that ought to be stopped cold in its tracks. Historically, the claim of consensus has been the first refuge of scoundrels; it is a way to avoid debate by claiming that the matter is already settled. Whenever you hear the consensus of scientists agrees on something or other, reach for your wallet, because you're being had.

 

Let's be clear: The work of science has nothing whatever to do with consensus. Consensus is the business of politics. Science, on the contrary, requires only one investigator who happens to be right, which means that he or she has results that are verifiable by reference to the real world. In science consensus is irrelevant. What is relevant is reproducible results. The greatest scientists in history are great precisely because they broke with the consensus."

 

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