Oct

17

vicAn interesting question is to what extent news is news. Oct 16 at 3:00 pm, news of a rescue plan for the insurers came out with the market down 1%. It immediately rallied 4%. The question is would it have done it without the "news"? And to what extent was the news in the market? Looking at Israel one notes it was down only 2%, catching up with a 12% decline in the US. The extent of the decline at 11:00 was similar to yesterday, and last week, and the path similar to last Thursday. Would it have repeated without the news, and was the news elicited, as I have often said, without quantifying for Thursday, to be the last gasp? It would be interesting to generalize this question. For example, gold rallied a few percent the day before a Libyan jet was downed in 1983, and it turned out that the downing of the plane was already planned as a shot across the bow to our friend Muammar.

George Parkanyi adds:

This whole crisis has very much been managed with strategically released "news." Every time the market has started to turn ugly, the Fed, Treasury, central banks, larger institutions take some action and make some kind of announcement designed to reassure the markets and the public.

Today for example, Warren Buffett announces he's buying (probably already has bought [chuckle!]) equities. The announcement had great timing, as everyone hangs on every word of his [except on this web site], this is a Friday, also a volatile options expiry day, and there's been a little bit of recent upward momentum. I'm sure (well my guess anyway is that) the Feds asked Buffett that if and when he did start buying, to let them know so they could time the announcement to maximum effect.

Steve Leslie writes:

Interesting philosophical question "When is news news". Answer: All news is news. I suppose your question truly is when is some news more important than other news. Obvious answer: news that is unexpected is important news and news that the consensus is keying on or deems relevant at that particular moment in time.

For example if one were to study the movie Trading Places with Eddie Murphy and Dan Ackroyd we see that by having information that was not available to the general public ahead of time, it gave them a great advantage to trade ahead of the news and make a great deal of money in Orange Juice futures.

We also see in the movie Wall Street which is based on the life of Ivan Boesky and his corrupt methods, Gordon Gekko makes huge fortunes trading ahead of public informations but is driven under by manipulation of information by Charlie Sheen into the marketplace. Boesky was written of more thoroughly in Den of Thieves by Stewart

Years back there was a scandal at the Wall Street Journal where one of their writers for the Heard on the Street column was secretly sharing his column with a few people before it was published. This was back when a mention of a stock in the "column" was worth a few points. This landed him a jail term as I recall.

Dr. Doom Henry Kaufman of Salomon Bros fame, used to have profound impact on the markets esp the bond market with his prediction on interest rates. This was when interest rates were very sensitive.

Farther back, Joe Granville market maven could move markets with a special call on stocks.

Dan Lundberg could move the oil markets with his release of data on the oil industry back during the oil crisis of the 79's and 80's. We see this to an extent today with Pickins when he decides to publicly discuss oil.

Efficient Market theorists will explain that the market adjusts to all available news in the world eventually. I suppose the psychology and sensitivity (volatility) will determine to some extent how profound that impact will be immediately and blended out over time. Thus from this perspective all news should have only an ephemeral quality to it.

A pure technical analyst like Stan Weinstein author of Secrets of Profits in Bull and Bear Markets will state that the charts tell all. It is just a matter of being able to read them correctly. Bob Prechter became famous by his trading in the 80's using Elliot Wave Theory then fell out of favor by "losing his touch" and making a series of bearish calls during the greatest run in the equity markets in history.

Back in 1942 with the World War still very much in doubt the US stock market performed very well. Was this due to the massive ramping up of the US military machine or was the market anticipating a victory by the allies a full 2 years before victory in May of 1945.

Perhaps the real answer lies in blending of thought. Similar to Einsteins Theory of Relativity and Quantum mechanics. Neither fully explains the universe but a unified theory gives a much better heuristic.

I hope these comments are helpful.


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11 Comments so far

  1. Craig Bowles on October 17, 2008 6:20 am

    That global rate cut certainly enhanced the upside. Most news is just an obstacle or fuel for what's going to happen anyway. Stockbrokers say folks like a good story.

  2. david higgs on October 17, 2008 1:03 pm

    "If Fed Chairman A Greenspan were to whisper to me what his monetary policy was going to be over the next two years, it wouldn't change one thing I do." — Warren Buffett. And "The thing that most affects the stock market is everything" — James Palysted Wood, 1966

  3. Lawrence Schulman on October 17, 2008 9:05 pm

    It probably would not rallied the 4%. Daily news stories can have huge effects. But many of them are like radar blips and cause mass confusion. The most significant stock market news story I remember that happened at the market bottom was when Henry Kaufman predicted in August 1982 interest rates would drop. I suspect the end of this bear market will happen when a big name calls the rise in housing prices or an economic reports shows such news.

  4. Anonymous on October 18, 2008 7:29 am

    Time out anyway! What inning is this on the charts, the fifth leg to downtown? Oops for now. Gone fishing somewhere else for now. Bottom fishing radar could make one's line of stress test break if its this inning… time to listen… Regards, and try not to buy that new 09 Phateom RRoyce

  5. David Whitesel on October 18, 2008 8:02 am

    The market is a system of systems, and still the sum of its parts.

  6. dunnage on October 18, 2008 10:42 am

    Of course the news is manipulated by whomever whenever. But look at the results.

  7. Steve Leslie on October 18, 2008 11:00 am

    Interesting philosophical question “When is news news”. Answer: All news is news. I suppose your question truly is when is some news more important than other news. Obvious answer: news that is unexpected is important news and news that the consensus is keying on or deems relevant at that particular moment in time.

    For example if one were to study the movie Trading Places with Eddie Murphy and Dan Ackroyd we see that by having information that was not available to the general public ahead of time, it gave them a great advantage to trade ahead of the news and make a great deal of money in Orange Juice futures.

    We also see in the movie Wall Street which is based on the life of Ivan Boesky and his corrupt methods, Gordon Gekko makes huge fortunes trading ahead of public informations but is driven under by manipulation of information by Charlie Sheen into the marketplace. Boesky was written of more thoroughly in Den of Thieves by Stewart

    Years back there was a scandal at the Wall Street Journal where one of their writers for the Heard on the Street column was secretly sharing his column with a few people before it was published. This was back when a mention of a stock in the “column” was worth a few points. This landed him a jail term as I recall.

    Dr. Doom Henry Kaufman of Salomon Bros fame, used to have profound impact on the markets esp the bond market with his prediction on interest rates. This was when interest rates were very sensitive.

    Farther back, Joe Granville market maven could move markets with a special call on stocks.

    Dan Lundberg could move the oil markets with his release of data on the oil industry back during the oil crisis of the 79’s and 80’s. We see this to an extent today with Pickins when he decides to publicly discuss oil.

    Efficient Market theorists will explain that the market adjusts to all available news in the world eventually. I suppose the psychology and sensitivity (volatility) will determanine to some extent how profound that impact will be immediately and blended out over time. Thus from this perspective all news should have only an ephemeral quality to it.

    A pure technical analyst like Stan Weinstein author of Secrets of Profits in Bull and Bear Markets will state that the charts tell all. It is just a matter of being able to read them correctly. Bob Prechter became famous by his trading in the 80’s using Elliot Wave Theory then fell out of favor by “losing his touch” and making a series of bearish calls during the greatest run in the equity markets in history.

    Back in 1942 with the World War still very much in doubt the US stock market performed very well. Was this due to the massive ramping up of the US military machine or was the market anticipating a victory by the allies a full 2 years before victory in May of 1945.

    Perhaps the real answer lies in blending of thought. Similar to Einsteins Thoery of Relativity and Quantum mechanics. Neither fully explains the universe but a unified theory gives a much better heuristic.

    I hope these comments are helpful.

  8. George Parkanyi on October 18, 2008 11:53 am

    Just one more thing to add. I don’t put all that much significance on the “positive” news day rallies because they are driven by emotional knee-jerk responses (just look at the ridiculous spikes at the market openings). They’ve actually been useful for re-loading the short positions in my allocation strategy.

    More interesting is when you get a rally when nothing much else is happening. The one I took note of was this past Thursday’s (Oct 16) 800 point Dow reversal off the bottom of an ugly morning. Commodities also responded. But there didn’t seem to be any particular news. I found that to be more useful as potentially indicative of a more sustainable short to intermediate term rally.

  9. Matt Johnson on October 18, 2008 3:04 pm

    Sometimes the news has a significant influence over the markets. I’ve tested this here’s what I found.
    The news is more influential when: 1. the news is emotional based. 2. If there is an emotional picture to go along with that news even better. 3. If the market is deemed to be in an overbought/oversold area the news can be more influential. and finally, 4. A news article can and often does coincide with a market turn.

  10. Alice Allen on October 18, 2008 6:03 pm

    In 2004 on a beautiful Florida fall day without wind, I gazed through the window at a serene, moss-laden live oak. In a moment, without warning, the sunny stillness was broken by a very loud cracking. I watched in amazement as a gigantic branch—attached for over 100 years—broke off and fell to the ground for no apparent reason. The next day the first of four hurricanes roared through, downing many other trees.

    Did pre-hurricane conditions cause the branch’s apparent suicide on a clear day? Relationships undetectable by me surely must have been operating (e.g., upper-level winds related to the coming hurricane, elevated humidity, branch saturation?) While this seemed mysterious, I knew the branch’s falling did not cause the hurricane or damage the other trees.

    News of the “mortgage crisis” was first introduced when mortgages in default were still a relatively small percentage of all mortgages. For the public, this vaguely associated all the financial storms to come and their bailouts as being primarily about “risky mortgages” and “keeping people in their homes.” “Help our neighbors with the bailout” justifies to the public the private profit/nationalized risk and global benefits/localized costs.

    But was the “mortgage crisis” a sufficient causal trigger for all the financial hurricanes that have followed—the rapid felling of so many large financial institutions, the “toxic commercial paper,” the “credit default swap crisis,” the global credit freeze, and the unusual stock market behavior? Will history’s statistical model reveal a more powerful factor than the “mortgage mess”?

    Back in my post-hurricane yard, I noted that the city workers cleaned up my premonitory suicidal branch and all the other hurricane-damaged trees without distinction and didn’t ask any questions.

  11. David Whitesel on October 19, 2008 10:20 am

    Steve leslie says “Perhaps the real answer lies in blending of thought. Similar to Einsteins Theory of Relativity and Quantum mechanics.”

    Its already happening, the emergence of multi phased logics into main stream thinkin is moving at a rapid pace.

    I consider this a defense mechanism against anothr of your comments; ““When is news news”. Answer: All news is news. ”

    Not really, because some high % of news is contrivance, extrapolated programming to meet systemic demand for control and sustenance of entrenched momentum.

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