Monday, May 12, 2008

Market Update

My latest market update is posted at the website. Click on the title to read the whole thing. Here's an excerpt:

With all the information on the economy and markets that gets released on a daily basis, it is easy to get bogged down in the details and lose sight of the more important, bigger picture. Traders react with lightning speed to the latest news on the economy or earnings at a high profile company and average investors wonder if they should be reacting as well. Was that employment report really that important? Is it significant that XYZ, Inc. missed their earnings estimate by $0.01? What news is important and what can safely be ignored?

Having done this for a long time, I can say with complete confidence that most of what passes for economic and market news is not worth the paper (or electrons) expended in its dissemination. This can be demonstrated by the simple observation that reports once deemed market moving are now routinely ignored. Back in the 1980s, traders waited for the weekly money supply figures as if they were being delivered from Delphi. Now, I’m not even sure what day those figures are released. If the reports were important in the 80s, why aren’t they important now? The obvious conclusion is that they weren’t that important to begin with.

In the short term, the markets are moved by the constant flow of news. This constant bombardment of “news” can divert our attention from the long term trends that remain in place even as short term divergences emerge. There is very little that is truly new or “different this time” and the only way to separate the noise from the truly important information is to look at the long term trends.

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