Sep 22nd, 2008 at 3:59 pm
Financial Journalism
Oil prices up: “Oil prices posted their biggest one-day gain on Monday, jumping more than $25 a barrel as investors dashed into commodities on concerns about the government’s plan to bail out the financial system.”
But of course if crude oil prices had gone down, we’d be “explaining” this as “concerns about the government’s plan to bail out the financial system” driving pessimism about growth. The truth is, none of the people writing this stuff have any real idea of why things are happening.
31 Responses to “Financial Journalism”
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September 22nd, 2008 at 4:06 pm
I don’t think that’s true in this particular instance, Matt — everyone’s looking at the price of the Paulson bill and the far superior Dodd bill and forecasting dollar weakness (due to the hole that even the Dodd bill is going to blow in the budget). All major commodities rose sharply.
September 22nd, 2008 at 4:06 pm
Yeah, in one of the Market Wizards books a guy who worked as an analyst says he used to keep two piles of news reports on his desk: one for the good news of the day and one for the bad. When journalists would call him and ask “why did the market go up today?”, he’d simply quote the top item on the good pile, and when they asked him “why’d it go down” he’d quote the top item on the bad pile.
September 22nd, 2008 at 4:07 pm
You may not have any idea of why things are happening, but that’s not true of people who write about this stuff for a living. In fact, oil shot up because investors are worried about the effect of adding $700 billion to the deficit on the strength of the dollar, and so are trading dollars for commodities. Might want to rethink this reinvention as an economic guru…
September 22nd, 2008 at 4:09 pm
I agree. I’m not so sure today’s oil (futures… and that’s important) rush has much to do with folks flocking to commodities. Rather the anticipation of large amounts of crud on the Treasury’s balance sheet forebodes a weaker dollar and drives up futures prices.
September 22nd, 2008 at 4:09 pm
The truth is, none of the people writing this stuff have any real idea of why things are happening.
How do you know that? Reporting on why people are buying what they are buying isn’t really that hard. You just ask them.
September 22nd, 2008 at 4:09 pm
The truth is, none of the people writing this stuff have any real idea of why things are happening.
Um, folks, this is 100% true. Or if you’re Steve Schmidt, 150%.
September 22nd, 2008 at 4:15 pm
Just ask Larry Kudlow. He knows.
IMHO when Great Depression II starts those oil futures may not be the way to go.
September 22nd, 2008 at 4:19 pm
Dollar is falling in anticipation of the huge bailout $$$$$ Uncle Sam will borrow from the rest of the world.
Add higher gas prices to the bailout bill. Every time you gas the jalopy up, just think about how you’re helping some Wall Street Billionaire hold on to his private jet.
September 22nd, 2008 at 4:31 pm
Gold has gone from around $750 an ounce on Sept 11 to $900 today –most of the 20 percent rise coming in last few days.
Any questions?
September 22nd, 2008 at 5:11 pm
kafka got it. Oil is jumping because of the strong influence the dollar has on oil prices, and the market is anticipating the evisceration of the US Dollar if a trillion in debt is taken on by the government.
September 22nd, 2008 at 5:12 pm
Igloo, I second your notion: NONE of the people writing, pontificating or posing as experts on finance/economics has any idea what they’re talking about.
There is so much hyperbole and bluster out there its hard to stomach….
k1
September 22nd, 2008 at 5:13 pm
Good boy! News is noise. In the very shortest term markets sometimes do move on certain news noise but it’s usually more coincidental than a causal relationship.”
In centralized auction type markets, commodities, stocks etc., prices move on the relative profit and loss position of the holders of the thing being traded and the amount of money available in that market. Bull markets attract ever more speculative money and prices tend to rise. In bear markets money leaves the market so the market falls. Bull markets are more common than bear markets because the amount of money in our fiat currency (not a pejorative term, by me), fractional reserve banking system rises 99% of the time. In fact if the amount of money declines, deflation, the system crashes. Which is where we are now.
The ‘values’ of huge amounts of financial instruments were inflated during the credit bubble. Inflated by more money worldwide, as the amount of money in existence has been calculated to have doubled since 02. Then too much of this fancy complicated financial paper was thought to be almost money, having the property some call moniness. The crisis is because so much of the stuff is now revealed as crap, which makes really bad money. So now they will fall. All the Kings (Paulson) horses and all the Kings men will not reinflate the mortgage backed securities even with his $700 billion. It’s a fools errand.
The panic by Paulson last week was caused by the imminent collapse of his old firm GS. Now that is taken care of, at least for awhile as they leave the now dead investment banking business, the panic is off, on his part anyway.
When examining Paulson’s moves, or any of the financial pigmens moves, think of them as criminals. Or if your generous think of them doing what people used to be understood to do. Acting in their own self interest. Trust no one, assume nothing. The study of the crisis is a forensics exercise.
Stocks took a big dump today because I did.
September 22nd, 2008 at 5:16 pm
I was curious about the $25 jump, because when I checked the crude oil futures prices, I wasn’t seeing this at all. Instead, it seemed as if crude “only” went up about $6.
If you scroll down to Sid’s comment on this post, apparently the difference is due to which contracts you look at.
Just so you know.
September 22nd, 2008 at 5:21 pm
“The panic by Paulson last week was caused by the imminent collapse of his old firm GS.”
Anyone catch the announcement that Goldman Sachs will now become a bank holding company? I’m sure this has nothing to do with their wanting to qualify for more of Hankey Pankey’s (our) money. The corruption has already started.
September 22nd, 2008 at 6:07 pm
The crude price jumped today because somebody got caught short on the last day of the contract: teh october contracts expires today. so this trader could not find anybody having crude availablke immidiately to sell, so had to bid prices and probably failed to clear his shorts. November prices, now teh spot barrels if you want, are at $109. This is a fluke if you want, and does not tell you much about anything. it is not clear that it is a hedge fund or a speculator that got caught short, it could be a physical player, i.e. an oil company.
if anything, the lack of liquidity that we have seen in the last two month can explain that, which menas less speculators, since they seem to have lost their shirt in the last two months.
September 22nd, 2008 at 7:14 pm
a number of people have already made the point about oil prices, so kafka, i want to turn to something you wrote: goldman sachs has indeed turned into a bank holding company, which means that the smartest firm on wall street has now accepted the case for regulation.
i think that’s a good thing.
September 22nd, 2008 at 8:31 pm
As the oil guy said, as I said, moves in these markets are determined by the relative positions of traders. In derivative markets, futures and options, the big strong hands often run the market up or down against small speculators at expiration time. It should be noted that last week was the expiration of the big Sept. stock options contracts. The late week stock rally was a classic example. A huge number of put buyners got reamed just hours before they thought they’d hit a home run. Let me suggest many FOH (Friends of Hank) made or made back big bucks at option expiration last week. It isn’t fundamentals, it’s forensics. In oil today if he’s right it was a classic short squeeze in oil.
The stock options market should closed. At a minimum profits there should be taxed heavily. Tax policy favors speculation now. Little wonder speculation, which serves no real economic function, has run rampant. More broadly finance is said to account for 15% of GDP but in recent years has accounted for up to 40% of all profits.
The stock market has been making hay periodicly for years on short squeezes. The ban on shorting the financials is bearish.
September 22nd, 2008 at 8:32 pm
I’ve noticed Matt has a unique talent for taking interesting, if somewhat well-worn, insights from finance and finding terrible examples or hypotheticals to support them.
September 22nd, 2008 at 8:56 pm
But Matt: maybe last night the financial analyst said to himself, “Okay, I have empirically determined there are two likely scenarios. Either the investors’ concern about the bail out will drive them into commodities, or it will cause them to divest from commodities. It all depends on whether they are concerned enough to be pessimistic about future growth. I will check the oil prices tomorrow to see which scenario ends up being the case.”
What’s wrong with having that reasoning and then saying the next day: oil prices went up due to concerns about the bail out? It would be a valid and sound thing to say.
Now, of course you might be–in fact, you probably are–right that these people don’t know what they’re talking about. But my point is, if this is true, it is true empirically, not a priori. Even if we grant your counterfactual–that if oil prices went down then the analyst would have said what you think he would have said–then it still requires some empirical knowledge about markets and finances to determine that the analyst doesn’t know what he’s talking about. So I think this kind of criticism can only be taken seriously if the critic has authoritative empirical knowledge about markets and finances.
September 22nd, 2008 at 9:33 pm
David, et al.-
I think the point was that anything happening in the markets (especially in times of meltdown/crisis/endofdays) can be attributed to almost anything. I could be the smartest, bestest, seer of oil futures in the history of the world and be so far wrong as to be laughable. IMHO Great Depression II will cause oil to go to $20 a barrel. Prove me wrong.
September 22nd, 2008 at 9:50 pm
Hi nukev,
I don’t think Matt’s point was that “anything happening in the markets…can be attributed to almost anything”–that’s trivially true. I think his point was more like: financial reporters pawn off post hoc rationales as bonafide empirical analysis. To which my response was something like: well, that might be true, but really that’s the kind of judgment that requires some domain expertise to credibly make, so maybe you’re better off leaving that sort of observation for actual economists, e.g. Paul Krugman.
Of course I might be completely confused and wrong about all of this–wouldn’t be the first time.
September 22nd, 2008 at 11:47 pm
david morris, to follow up on your point, it is often true that journalists are just winging it.
however, today’s oil price action really did have a legitimate market basis.
September 23rd, 2008 at 1:06 am
Speaking of financial journalism, Matt, you’re just back from a weekend in Vegas, where you did for fun what buchaneer financiers have spent the last six years doing for a living. Insights, please.
September 23rd, 2008 at 3:11 am
Looks like a fund blew up and had to close out a position in an expiring contract. It was just the October contract that went up, for maybe an hour or so.
It was crazy to see, though.
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