Tuesday, April 26, 2005

Headline fiasco of the day, I

On any given day, there’s a 51% chance that stocks will gain and a 49% probability that they’ll end up lower. Most likely, the loss/gain will be between +/- 1%. Over short periods, stock prices move randomly. It’s only possible to detect patterns over long horizons (which means several months or even years).

So pity the poor hacks who have to write the daily market wrap ups in the financial media. They have to assign meaning to what are essentially meaningless, random and absolutely unimportant price changes. But they can’t admit that. As a result, they’re constantly tempted to draw readers by wild exaggerations, misleading analogies and other tricks of the trade.

They face and impossible task day after day, so I figure these guys deserve a tribute. Starting today, I’ll attempt to chronicle the most outrageous, unbelievable, tendentious and, yes, stupid financial headlines I come across on a daily basis.

Today’s winner is:

Headline: Investors Lack Faith in Future
Appears in: The Washington Post
Author: Jerry Knight

My take:
Is the economy about to collapse? Did oil reach $80 per barrel? Did China say that it would no longer invest its reserves in dollars? Any of these events would certainly shake my faith in the future. But, according to Mr. Knight, investors despair rather easily. Apparently, all it takes is a drop in U.S. consumer confidence, a very volatile indicator. This piece explains what it means:

The lower confidence reading points to dimmer view of both current conditions
and more caution about the coming months, said Lynn Franco, director of the New
York-based Conference Board's Consumer Research Center.

"Looking ahead consumers do not anticipate an improvement in economic growth nor in their
incomes. And they expect an even tighter job market over the summer months,"
Franco said.

Not good news for sure, but not the kind that generates suicidal thoughts. Besides, did I mention that the S&P 500 fell just 0.9%?