Thursday, May 18, 2006

More propaganda: financial news reporting...

I don't get is why the financial media reports this garbage (speaking about yesterday's market tanking):

"We should have a bounce here," said Michael Metz, chief investment strategist at Oppenheimer & Co. "Certainly, any upside momentum that the market had has been lost, but the selloff yesterday was overdone."

"There are a lot of short-term-oriented traders right now and when the market is not performing well, they want out at all costs," Metz said. "There are a lot of hedge funds and a lot of program trading now and this makes the market very quick to overreact to any stimulus.

Now how does Michael Metz know this?

Now, yeah, yeah, I know, the financial media's a capitalist enterprise and they get ad revenue from folks like Oppenheimer and all that, and it's like US auto mags saying glowing things about US cars, but let's go a bit deeper here, OK?

Now first of all, let's note the apparent conflict of interest: Michael Metz works for a mutual fund company, and therefore has a vested interest in not saying, "Fire! Fire! Get out of the theatre!" metaphorically speaking, about how the nasty state of our markets is reflecting our nasty economy. If all Oppenheimer investors headed for the exists, they'd have a liquidity problem.

There are some statistical thingies about equities prices that are well known (although these should be held somewhat suspect too): for example, how P/E's are historically out of line. But that's an average behavior. There's no reason - outside of some interesting statistical behaviors that approximate the modelling of equities but dont' exactly model them - that a 214 point drop in the Dow can't or shouldn't happen. It can, and did.

It's not just rah-rah statements from guys with an axe to grind that make financial reporting among the most dismal aspects of the dismal science.

As another example, take continuing references to so-called "chartism," or "technical analysis" - it's bullshit- it's the "Intelligent Design" of stock markets - and yet a) it's reported on and b) I think some companies even hire these clowns to do this sort of thing still. Now "technical analysis" is not "quantitative analysis," - the latter generally requires an advanced degree in physics, mathematics or engineering, and deep knowledge of stochastic processes, game theory, optimization theory and so forth.

"Technical analysis" is the "reading the tea leaves" of financial reporting.

I don't think I've ever seen a quant on television.

Finally, there's the stuff left out of even good financial and business reporting. Take this week's PBS Frontline on retirement.

On that show they advocated a "buy and hold" strategy, which is not a bad strategy in a truly random market. (And again, there was a tad bit of conflict of interest on that show by putting on the show Jack Bogle, founder of Vanguard funds, which made its bones marketing low-cost index funds which are essential to a "buy and hold" strategy.) But that's the catch: the market is not truly random. And Frontline not only didn't report that, but they also didn't report that it's difficult and expensive and riskier than it needs to be for people to take essentially short positions in an IRA, and can't do it in any 401(k)'s that I know about.

In the 90's the financial market reporters always said, "Buy! Buy! Buy!"

The bias is still there. Caveat emptor.

No comments: