VALUE OF NEWS

[skyreach]

By SKYREACH, IG Client blog, 2 September 2022

 

We all need some kind of “news” about financial and investing data.

But have you ever thought which sources of “news” are reliable and which are not? And have you tried to make logical sense of their contradicting statements, or do you just accept what is written?

Whether you look at Bloomberg, CNBC, Newsweek, fortune, trade or professional magazines, etc... Often you come across conflicting or illogical conclusions. For example:

The New York times august 12 2022, said: “stocks record best stretch of year, as inflation fears recede”. Same day Bloomberg suggested the market maybe out of the woods due to a bullish signal.

Reuters august 5 2022, reported: S&P500 ends down as jobs data rekindles rate hike fears”.

Seeking alpha august 22, reports : “the S&P500 registers small dip on gloomier economic outlook”.

By Aug 31 markets fell due to hawkish fed rate statements.

If by now you have stomach ulcers, I do not blame you! News create emotional reactions as they input emotional reactions in the first place. And their data reports are usually a general statement of a single factor or two only. Or you get a specific generalisation only.

So how on earth can you evaluate bits of headline news or its contents which one day say rates hike is good then another day that it is bad?

This is not based on any economic rationale but an emotional reaction to an immediate news story. The true economic and investing picture has metrics, indicators and probabilities and a longer time scale picture of the main direction of these metrics. Any short term picture can change like the flip of a switch. So none of this can be used as it is an immediate news reactions, and sometimes, hype. Human psychology affects us all, and hence how we then judge that information. Out goes any analytical thinking you had!!!!

It happens regularly. You can even go to media archives see tons of past examples.

Also, you maybe aware that all major financial companies ( as in all industries ) have and use market intelligence which is for their use only, and the PR department that feeds only the slanted news and data they want, to improve their image or to entice us for their products. The media facilitates this as a messenger. The media as a whole is good at sensationalising, hyping and slanted news at times as they like to push our buttons or get us to buy their news.

So relying on “news” for your investing, or to base your economic ideas can be fraught with dangers. Find a service that provides insights, like IG, you are now using, and books on the subject.

Note that any tom, **** or harry can be “great” investors in a running bull market. You may just randomly pick a stock and you are likely to have a winner. Usually the majority of the general public gets in on the last phase of the bull. The true smart big professionals have started getting out from that time (most do not).

Use the technical theories, laws, empirical formula and facts of your chosen subject. Do not just rely on “news”. News are short term for seconds to hours. It could be right or wrong on any given occasion by chance, usually not by design. So, even as an investor, be a professional. The big players in the market take advantage of us general investors.

And yes, it is difficult to navigate all this if only because: some professionals tell you xyz is going to go up, another recommends you do not: a professional economist tells you the economy is still bullish due to, say, the jobs report, another tells you we now heading for a crash. What do you believe?

Heck, if you believed everything they tell you in the media you will end up a nervous wreck!!! One minute this, next the other way, get in on this, now get out of it!!!

Hence evaluation of any information is of vital importance. And that depends on your skill of evaluating. See my past blog on this.

Every new generation of professionals think they “know what it is all about”. They do not have enough experienced wisdom, historical know-how, nor have they horned their skill base. Some are arrogant and over confident., but most not, from my experience. This is why mistakes get repeated and they fall into pitfalls in investing (when it is most unexpected).

And in recessions lot of companies ditch many of their experienced professionals for “cheaper” lower level professionals. Hence much experience and the valued insights are lost. And once it carries on like this for a few generations you have what i call the lost technology of expertise. Lot of industries lose their high quality products during recessions and some end with poorer quality products. Other company's might take advantage of this.

As regards the fed their record of evaluating cannot be said to be good as they get the economy into trouble and there is an inability to handle it before things get so bad. Economic predictions are ever changing. Fundamentals get flouted. So in my view any central bank is not causative but reactive in actions because their “cause” actions follow their reactions. It is similar to us reacting to news then we we get “cause” to do something - right or wrong. A true professional would know his know-how well enough to be able to have some foresight in doing something right before it gets worse.

Currently the fed tells us, rightly, we are going to have a recession. It is not because they have to tighten the rates, which will cause the recession, but because they know from experience that it always happens this way. So what was missed in the first place? This is never spelled out. What was the primary cause beforehand, to it? They know it is inevitable that a recession will follow. They cannot stop it. Some other central banks are in a denial. The odd thing is nobody realises that psychology affects them all too, in my view!!!!!

What do you think?

Read my recent blog on “financial conditions – red alert” for more on this.