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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