While trying to make sense of the "market" seems like a lost cause today more than ever, and it certainly led Bloomberg's Richard Breslow to flip out on Monday, here is Breslow again, stoically trying to uncover the fundamental logic in what has devolved to nothing more than carefully calculated central banker verbal outbursts (and in some cases, actions) and the corresponding pre-programmed algorithmic reactions to a flurry of headlines. Which, incidentally, is precisely his lament today: that trading has devolved to doing noting more than reacting to flashing red headlines.
From Richard Breslow
Don’t Get Lost Without the Details
An unfortunate consequence of the instant information age is that humans have an utter inability to process the deluge of news raining down on them. Their defense mechanism has led to a superficial approach rather than greater insight. There is so much to read, we end up merely judging the book by its cover.
The investing equivalent of this is trading by the headline. The body and context of comments or data be damned.
Policy makers constantly, and futilely, bemoan the fact that their nuance is missed. They can’t afford to speak with Delphic flourish and blame it on the listeners. The “normal” they enjoyed at the Princeton Debating Society doesn’t exist any longer. And they won’t get any help from a press judged by beating the competition to the punch.
This is true as we head into the blessed blackout period before next week’s FOMC meeting. And, no, they’re not going to tighten and if they’re hawkish about June, the rest of the world will vomit on them.
Under the wire, we had two Fed speeches of note this week. Boston Fed President Rosengren spoke and the headlines screamed hawkish. Fed is likely to hike faster than market expects. Futures pricing too shallow a rate trajectory. He was talking about the next three years, not June, not September. He isn’t a dove suddenly gone rogue.
Vice-Chairman of the FOMC Dudley had headlines accompanying his speech range from “gradual and cautious” to economy is “significantly improved” and Europe outlook improving, depending on the news source and the last few ticks of the S&P 500
It’s the worst of the Nash equilibrium. Everyone chasing the chaff not the wheat because there isn’t money to be made evaluating the details.
Sorry, Richard, but it's not so much the media's fault - it the algos who have a few microseconds to "read" any given headline in their collocated boxes and make a simple decision: "buy" or "sell." Lately it has been mostly the former.
Finally, when one is exhausted of competing with algos for reading "market-moving' headlines, there are always other options...