Wednesday, October 12, 2011

Reasons and Excuses:Taking The Financial Media To Task

The financial media is at it again. "Stocks soar today because..."(you fill in the reason). "Stocks plunge tomorrow because"... (you fill in the reason).

What the financial media fails to recognize is that, over the past several decades, the structure of the market has changed. Today's short-term market moves are at the margin and being driven not by rational ivory-tower-pipe-puffing-erudite academics but by momentum chasing lemmings who have copycat methodologies that require they follow the mob.

High correlations and high volatility are market outcomes in this reign of the momos. Yet, from a real world economic perspective, the financial media insists on attributing their actions as rational. They are not. They are, however, rational from a personal perspective: they are animal-spirit driven creatures intent on maintaining a lifestyle they have become accustomed to. Who can blame them? They are simply exploiting the system as it functions today.

Investment Strategy Implications

Investors look for reasons to take action. The agnostic momos look for excuses.

Investors look for fundamental and/or technical analysis reasons to act. The agnostic momos could care less.

Keeping my house in Greenwich is how I first described this syndrome, in which the momos' relative performance vis-a-vis their "competitors" trumps all else. In order for them to keep their house in Greenwich, they must not underperform their "competitors". Hence, the mob rule of the momo lemmings' effect and its effect on the markets.

It, therefore, behooves the financial media to get up to speed and start educating the investing public about how the changed structure of the market has changed how the game is played. Which brings us to this question: Is the financial media's job to educate or to entertain? (I guess the answer to this question can be found every weekday at 6 PM eastern.)

1 comment:

Anonymous said...

You got that right Vinny. The recent volatility in the market is not rational. It is the result of computer driven momentum trading where there are no adults making actual decisions. As for the media, they need to tell a story every day. If there is no story, they have to make one up.