Hyperbole and the Never-Ending News Cycle

Wall Street has developed a worrying tendency in recent years. Always somewhat skittish during bull markets and amazingly prone to making mountains out of molehills, since the financial crisis began in 2008, investors of all types have simply been nervous.

Combined with an incessant flow of so-called news and information from a dizzying array of gadgets, this nervousness has resulted in an ever-more tactical outlook. Wall Street has never particularly embraced strategic thinking, given the requirement for the movers and shakers to basically think in 12-week increments, but trading over the past few months has seemed especially short-sighted.

Think about how the weather is now featured in the news and information you now consume. Until recently, unless you lived in a hurricane zone, no weather system had a name. Now, even snowstorms in the Northeast (which in years past were not considered particularly biblical events), are blown out of proportion and become major emergencies. “Nemo” even made the news 5,000 miles away and elicited worried calls from Europe. We’re not social scientists, but the permanent need to feed a never-ending news cycle must be partly behind this trend toward general hyperbole in everything we do.

Some of the markets seem especially prone to this kind of thing. If you read the hype, emerging markets are constantly alternating between booms and crashes, when in fact they are simply volatile markets whose capital flows exhibit a greater degree of back and forth than, say, Denmark.

Ditto for commodities, which have become the favorite yardsticks for financial journalists to cite for anything going on in Asia, particularly China. Even trading in gold, one of the most stable (strategically speaking) stores of monetary value on the planet, falls victim to this kind of thing. News that George Soros lightened up on a very profitable position in SPDR Gold Trust (GLD) has turned into “Famed Investor Dumps Gold” and the like. Hyperbole indeed - Soros is first and foremost a currency trader, and given movements in the Japanese yen, his decision to reduce his GLD position likely had a lot more to do with the price of gold in yen than the price of gold in dollars. Nothing – we repeat, nothing – has changed within gold’s fundamental outlook.

The Italian election, apparently the "cause" of last Monday’s decline, means that come spring, Italy will be the cornerstone of yet another season of handwringing about Europe’s debt situation. This will be similar to what happened in 2010, 2011 and 2012, albeit with different nations (Greece, Spain, Portugal, etc.).

This pervasive hype surrounding everything all the time is surely unhealthy. And we’re doing much of it to ourselves; the infamous sequester cuts are as good an example of a self-inflicted wound as you’re likely to find, and it is so easily blown out of proportion. Things like furloughed airport security workers and unimmunized children make great sound bites, and there is certainly nothing pleasant about the way in which these cuts could be enacted. Economic growth will undoubtedly be impacted. Mathematically, however, we're talking about $85 billion in cuts within a $3.6 trillion annual budget (i.e. 2.6%), which is not going to move the needle very much from a long-term perspective. Makes great news, though, and certainly scares everyone to death.

Our advice? Keep cool, keep things in context and perspective, and don’t let the hype get to you. Nothing has changed too dramatically, in spite of what you are reading and hearing.

Source:  Scott Chan, Leeb's Market Forecast
  
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