Stock markets closed sharply higher today, Monday, October 1, 2007
The scene: A busy financial newsroom. A cigar-chomping editor gives a junior financial reporter the lay of the land. "If the stock market rallies on good news, or falls on bad news, you got an easy story, kid. But if the market rallies on bad news or falls on good news, then that's a tough job. On days like that, you earn your money -- you gotta get creative." That was the way financial journalism used to be. Here's an example:
The New York Times Business page ran two lead stories today:
- Citigroup Warns of 60% Earnings Drop
- Wall Street Rallies Into Record Territory
In the first story, Citigroup expects its third-quarter net income will fall from $5.51 billion to $2.2 billion. It blames leveraged buyout loans, poor bond trading results, higher credit costs and everybody's whipping boy, the "complex mortgage-backed securities that contained bad subprime loans."
In the second story, the reporter seems so confident in the markets he feels no need to be creative. He reused the weary, "Wall Street shrugged" simile. "Wall Street shrugged off a profit warning from Citigroup and rallied into record territory today, a surprising show of confidence even as new indicators suggested further fallout from the summer’s lending crisis." (NYT)
An EWI colleague explained how reporters present their after-the-facts tortured logic: "When you want to explain a rally at the end of the day, don't forget to cite all the good news, and even the bad news (or any news that comes your way) as the "reasons," and do so confidently, as if YOU knew exactly what the investors were thinking."
The media tilts its prism to bend the news of the day to reflect the popular assumption -- that events move the markets. But they miss the larger view. Hedge funds may be holding trillions in potential losses. Analysts expect foreclosure for millions of homes this year. Builders are going out of business. The dollar is at a record low against the Euro, and at a 27-year low against the British pound.
At this point in the inflationary credit expansion, the dollar is disconnected from reality (gold). So is financial journalism. Crowd dynamics control them both.
The asset mania has changed a supposedly quantifiable and qualitative writing craft into a daily routine of eyes-wide-shut argument for a flawed premise. Good plus bad equals good. And bad plus bad can equal good too if Wall Street shrugs hard enough. There is no precision in this kind of journalism, only lazy logic that panders to the crowd.
"The good-news-is-good, bad-news-is-even-better rationalization for today’s advance is typical of the way fundamentalists explain the market’s moves. If stocks went down today, they would use the exact same news to “explain” why the market was down. Technicians certainly don’t get every move correct, but at least technical analysis is logical!" (Elliott Wave Short Term Update, Monday, October 2)
EWI won't give you lazy logic. The Elliott Wave Financial Forecast was not surprised by today's Dow move, as the chart on the first page of the just-published October issue shows. You should see it for yourself, risk-free.