Bailout

Adventures in market reporting, part 492

By Felix Salmon

European stocks went up today, and European bonds went down. That happens, sometimes. But there was lots of news floating around about a possible eurozone rescue fund, which resulted in stock-market reports saying that stocks went up “as euro zone finance ministers inched towards improving a rescue fund”, while the bond-market reports said that bonds fell “after the Dutch finance minister said the Eurogroup had rejected enlarging a rescue fund for the region’s more indebted states”.

All of the market reports did this: I’m just linking to the Reuters reports because they’re the first ones I have to hand, and because that way no one can accuse me of bashing my competitors. The point here is not about the reporting, it’s about how silly it is to read and write market reports in the first place. They all basically follow the same rubric: first you say what the market did, then you mention some piece of news which happened that day, and then, depending on how bold you are, you either assert or else you try to back away from the necessary implication that there’s a causal relationship between the two.

Only on special occasions do you find reports contradicting themselves like this: if bonds and stocks had moved in the same direction, then they both would have cited the same piece of news — even if, and this is the important reason why market reports are so dangerous, the big news was actually the other one. So if the big news of the day was the move towards improving a rescue fund, but all market reports concentrated on the Dutch finance minister because what he said was bearish and markets fell, then that would give far too much weight to the Dutch finance minister (who, similarly, would have been ignored if markets had risen).

In reality, the chances that there’s any causal relationship between the actions of euro zone finance ministers on the one hand, and intraday market movements on the other, are pretty slim. The markets moved, and as is the case 95% of the time, we have no idea why they moved, or even whether there’s a reason for the move. (There doesn’t need to be a reason: left to their own devices, with no news at all, markets will follow a random walk, they won’t stay flat.)

What’s more, the emphasis given on how much markets moved today serves to distract attention from much more important moves over a period of months or years. No real person can or should ever care what markets did over the course of a typical day, yet every major business-news outlet seem compelled to tell them anyway. It only serves to cheapen the news on the rare occasion when a single day’s market action is newsworthy.

Today is Heidi Moore’s first day at Marketplace, the best daily business and finance franchise in US radio. She joins the excellent Kai Ryssdal, and is going to be spending the next month with him and the Marketplace team in Los Angeles. My challenge to Kai and Heidi: somehow, over the course of the next four weeks, put your heads together and come up with some way of getting rid of the market report which takes up precious time in your broadcast, to no good end. If anybody can smash this particular sacred cow, it’s you guys, broadcasting to a mass audience which has no business being recited such pointless factoids. Go on, just do it. You know you want to. It’ll feel great!

Full post as published by Macroprudential on January 18, 2011 (boomark / email).