Tuesday, November 06, 2007
Reasons & Excuses
Business journalists, analysts, business presenters, fund managers, strategists ... all need to have reasons to explain market movements. The reasons had to be somewhat sensible and printable, and coming from the mouths of experts, it sounds more believable.
We sometimes go searching for reasons and excuses when there is really none. We are all brought up to pull out one of maybe twenty or thirty reasons from the basket everytime the market goes up or down excessively. Its like an objective test. The basket could include reasons such as:
a) the Fed is willing/ not willing to loossen
b) the BOJ is staying firm / raising rates
c) the market is overbought
d) the market has discounted the US$90 oil
e) the market is discounting the Turkish situation
Are we really picking the right reasons? We can only pick what is most plausible. Its a hindsight harry situation - you ask the "experts" after the event, not before the event, hence the "experts" will go through his/her usual bag of tricks (sometimes updated) and pull one or two reasons out of the basket. Chances are, markets sometimes goes up and down just because there are buyers and sellers, no big underlying reason.
Sometimes, markets go up and down based on the most unimportant news or excuses. How about more sellers than buyers? HK and China are down because I read everywhere the "direct train" (allowing Chinese to invest directly into HK shares may be delayed)... Please-lah... the HK market went up because of the disconnect with US monetary policy and USD peg. The China markets all having difficult days probably due to the huge amount of funds being tied up in Petrochina or those wanting to buy Petrochina-A shares in the secondary market, .. and/or huge amount of funds tied up in Alibaba.com IPO in HK.
Isn't that the main reason why Beijing wanted more A-share listings? To soak up liquidity and to offer more choices to mainland investors. Naturally index will go down a few percentage points just to accommodate such a popular and mega listing. Everyone wants to own a piece of Petrochina, its not cheap, the funds has to come from somewhere ...
Sometimes the reason for a swing is not as academic or ingenious. In fact, most of the time, the reasons are simpler. I get tired when the papers, the Bloombergs, the "experts" all tout the same diatribe of reasons ... because they have all been schooled the same way. Stick to people who can really add value, people who can be honest enough to say "I don't know, man"... instead of churning out the same old, same old without much thought or logical argument in their heads.
Beware of "experts" commentary, 99% of them come from the same bag of tricks, the reasons are all the same ... after a while they all learn to deliver each line of reason with much gusto convincingly. The more often you hear the same reasons, the more you believe its probably true, that's propaganda, the convenient truth, but usually not the truth because these group of people are too lazy to think properly or are just not market-savvy enough to understand the nuances of the markets.
People who read markets better are generally: willing to stick their necks out on a prediction; give well argued and well thought out points; not wishy-washy; and the reasons are persuasive and engaging.
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