Have you ever noticed that financial analysts talking about markets often sound like anxious mothers talking about kids? They seem to have more reasons for markets behaving badly than mothers have for two-year olds throwing temper tantrums.
How often, for example, have you heard analysts trying to explain market volatility by citing the never-ending conflict in the Middle East, rumors about a new Apple product, political dysfunction anywhere from Washington to Islamabad, a hurricane brewing way out in the Atlantic, or fear of one kind or another…?
‘Sell in May and go away’ sounds like just the sort of old saw that lazy stockbrokers cling to when they need an excuse for a holiday and have nothing better to say to their clients. But as an explanation of why investors the world over have been selling shares since May 11th, it makes more sense than many others doing the rounds.
(“The Viagra of Volatility,” The Economist, May 25, 2006)
Indeed, the irony is that the only reliable thing financial analysts can say is that markets go up for the same reasons they go down; or that they can go up or down for no reason at all.
This was brought into stark relief earlier this year when financial analysts sounded the alarm about markets plunging based solely on rumors about the Federal Reserve beginning its quantitative easing program — the monetary equivalent of a mother weaning her child off breast milk:
Analysts have been warning that any signs the money taps were about to be turned off or that the global economy was not recovering as expected would be taken badly by the markets.
Thursday’s rout began with comments late on Wednesday from the Federal Reserve suggesting that America could end its quantitative easing, or QE, programme in the near future.
(London Guardian, May 23, 2013)
Well, guess what happened on Wednesday when the Fed finally gave a clear sign that the money taps are about to be turned off? Far from reacting like two-year olds upon being told it’s time for bath and bed, the markets reacted like two-year olds being told it’s time for milk and cookies.
U.S. stocks soared to new highs Wednesday even though the Federal Reserve announced that it would begin gradually dialing back on its market-friendly bond-buying program….
(USA Today, December 18, 2013)
Financial analysts are cleverly covering their asses by insisting that their call for panic turned out to be a cause for joy because the Fed is only “tapering not tightening” its market-friendly bond-buying program.
Which I suppose is rather like a mother expressing relief that her two-year old reacted with joy instead of panic when she told him he’d be getting a quick shower instead of a long bath.
But their misreading (and misguidance) on this QE program, which is arguably the most important monetary policy of our time, is just the latest example of why there’s precious little difference between financial advisers and carnival soothsayers.
A number of people have asked why I have written so little about the sub-prime mortgage mess and its impact on the US economy. I often replied that I didn’t have a clue what to make of the mess or what it portends…
Little did I know, however, that the masters of the universe on Wall Street were even more clueless.
(“Chicken’s Come Home to Roost on Wall St. Main St Might Be Next,” The iPINIONS Journal, September 16, 2008)
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