Wednesday, September 2, 2009

How to Read the Business News

In Traders Batter Financial Shares (later renamed Investors Lose Appetite for Financial Shares), the New York Times misleads as much as it informs. Here are some parts of today's market report, with the Times language in italics and my rewrite in plain text in the following paragraph.

For weeks, pessimistic voices on Wall Street have been warning that stock prices were becoming too expensive. On Tuesday, investors started to listen, and sell.

For months, realists had been decrying the speculative activity in financial stocks. In recent weeks, what many increasingly said were lunatic moves in essentially insolvent names such as AIG had dominated trading.
At least for one day Tuesday, speculators took profits and/or short sellers stepped in to stop the one-way moves to the upside in many names.

For Wall Street, it was a third consecutive day in the red and its worst daily performance since mid-August, leaving some investors to wonder whether a summertime rally was beginning to fade.

Its third consecutive down day left the S&P 500 average a little more than 3% below its high of August 27, virtually unchanged from 1 month earlier, but about 13% higher than where it stood when summer began.

It was an odd day for the markets to lose their footing: a new report on the manufacturing sector showed that American factories were growing for the first time in more than a year and a half. And a real estate group reported that pending home sales had surged to their highest levels on record as buyers returned to the housing market.

The sell-off fit a common market pattern of selling on the good news, which today was centered in the manufacturing sector. The positive rise in the ISM Manufacturing Index may have been less impressive than the headline number, as prices paid for inputs into the manufacturing process rose at a faster pace than did prices received, suggesting shrinking profit margins. Good news in the real estate sector may have been tempered by the analysis that the first-time home buyer credit of $8000 may be costing over $43,000 in taxpayer money for each such purchase, a questionable value for the bulk of taxpayers who already own a home or may be happily renting.

President Obama hailed the manufacturing numbers as a sign the economy was pivoting, saying that things were “heading in the right direction, and that the steps we’ve taken to bring our economy back from the brink are working.”

The President tried to claim credit for the good news, even as jobs continue to be lost, his back-ended stimulus has yet to really take effect except for a reprise of President Bush's three tax cuts, and his party steadfastly refused to give any credit to Mr. Bush's tax cuts in 2001 in keeping that year's recession short and mild.

Analysts say the global economy is stabilizing and the big banks are no longer poised to collapse, but many are still expecting a market correction as autumn approaches.

Delete, as what unnamed analysts say is not news.

“The market is failing to rally on positive economic news,” said Anthony Conroy, head equity trader at BNY ConvergEx Group, who added that light trading volumes contributed to the rocky moves on Tuesday. “We’re seeing a change in the market direction that is breeding nervousness, and that nervousness is breeding volatility.”

This sort of substantial sell-off on light volume and no significant negative news is grist for the mill of professional traders, who will say anything to explain away and try to hide the fact that they make money when people trade, especially when the traders are the public (otherwise known as pigeons).

Copyright (C) Long Lake LLC 2009

1 comment:

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