I will provide you with an accurate description of why the market is down, one that differs from everything you have read in the media. Not only that, I’ll make a bold prediction about where markets are going next. And I’ll tell you how to interpret every article you read about the market.
First, here’s why the market is at it’s current level.
Stocks are at the exact point where investors who feel their prices will go down are in perfect balance with investors who feel their prices will go up.
This is absolutely true and deeply unsatisfying. I’m sorry. The truth is far less entertaining than reading about China, employment prospects, and gas prices. But financial reporters have space to fill. Investors are anxious. Unfortunately, nothing you read is at all useful.
Why? Because you are not smarter than the entire market. Do you think you’re smarter than hundreds of analysts at Fidelity or Goldman? Do you think the information they got yesterday, filtered through a reporter’s brain, is going to give you an insight they missed? Are you really the next Warren Buffet?
Every article about markets is bullshit. Just as an example, let’s take a look at Beth Healy’s article in today’s Boston Globe, “China woes, Fed questions drive down stocks. Assume you’re reading this to learn if stocks will go up or down. What’s your takeaway? (I’ll highlight all the weasel words in bold and the blindingly obvious but useless statements in bold italic.)
“I would buckle in, this isn’t going to be graceful,’’ said Mark Zandi, chief economist at Moody’s Analytics. [After a week of violent swings, more volatility, got it. But up, or down?]
A government report showed that manufacturing and factory activity in China slowed in August, adding fuel to concerns that economies around the world could stumble as a result. [So all these global economies are connected? Ah, now I have clarity.]
Questions about the US Federal Reserve’s direction on interest rates, coupled with late-summer vacation absences on Wall Street, also helped set a negative tone for the session Tuesday. [Luckily, I have a mole inside the Fed who tells me which way they’re going on interest rates, so I’m set; the rest of you, not so much. But . . . . damn, my mole’s at the beach this week! So I’m clueless just like the rest of you.]
[I]nvestors did not appear optimistic Tuesday, driving the price of stocks lower at the start of trading and keeping them down for the rest of the day. The Standard & Poor’s 500 index fell nearly 3 percent, to 1913.85. [OK, I think I have this straight now. When the top 500 stocks shed half a trillion dollars in value, that’s not a sign of optimism. Thanks.]
[According to Bernard R. Horn, Jr., president of Polaris Capital Management, China’s Economy is] “not going to come grinding to a halt.” [Well, I’m glad that economic activity in the largest economy in the world won’t stop completely, because that would be really bad for stocks — and tragic for a billion Chinese people, too.]
Oil producers worry about slowing demand, even though globally it “has never been higher,’’ according to Jeff Mortimer, director of investment strategy at BNY Mellon Wealth Management. [Oil demand could be going up, or down. I bet oil prices could be going up or down, too!]
“We’re not used to seeing oil trade like this,’’ he said. US crude oil dove 8.3 percent Tuesday, to $45.12 a barrel. But that followed its biggest three-day rally in 25 years. [Called it!]
The volatility of stock and commodity prices isn’t making the Fed’s job easy, near term. The central bankers want to start slowly moving rates higher to reflect a stronger economy. But they don’t aim to make a swooning market worse. [Good, so now we know that interest rates could go up, or not. At least we’re not Fed governors. Apparently, those jobs are really hard.]
David Stubbs, global market strategist at JP Morgan Asset Management, wrote in a market report Tuesday that “a lot of the more experienced, more sensible heads are sitting on a beach rather than in the office, which could also be contributing to the sell-off.” [So when the wise guys get back, the market will go up. Maybe. Or maybe the wise guys will decide to sell. And I ask you: do you really think a smart financial thinker on vacation doesn’t know what the markets are doing this week and has taken no action? I’m guessing, but this is just a guess, that they have smartphones with them.]
So financial coverage is useless. (I do like those artistic shots of troubled investors silhouetted against big digital displays of glowing numbers and Chinese characters, though, those are pretty.)
But I owe you an uncannily accurate market prediction. Here you go:
In the future, some investors will change their mind about the value of shares. If more of them perceive that shares will be more valuable, prices will go up. If they perceive that shares will be less valuable, prices will go down.
And unless you have inside information, you will be the last to know.
If you believe in the long-term prospects of the U.S. and world economy, buy an Index Fund and hold it for a decade. If you do not, invest in something else. But when you read finance news, recognize that it’s for entertainment purposes only.
Photo: Lukas Jackson/Reuters