The Investment Scientist

“Market Bets on Fed Miracle” So Said WSJ

Posted on: September 27, 2011

Wall Street Journal

Wall Street Journal

If you think reading Wall Street Journal would make you a more intelligent investor, think again.

After a recent one-day market rally, WSJ wrote this:

U.S. stocks jumped on Tuesday as many investors sent a plea to Federal Reserve Chairman Ben Bernanke: Come to the rescue of the stalling economy and battered financial markets.

The Dow Jones Industrial Average jumped 322.11 points, or 3%, to 11176.76 as a new round of bleak economy data helped buoy investor hopes that Mr. Bernanke will step in with some sort of monetary stimulus.

That optimism comes despite all signs to the contrary. Federal Reserve officials are saying nothing to encourage market speculation that Mr. Bernanke will use a speech in Jackson Hole, Wyo., Friday to unveil further Fed actions …

I mean does it make sense at all? The economic data was so bad that many investors sent a plea to Fed Chairman by pushing up share prices 3%? The article is not only a very lame attempt at explaining the inexplicable (daily market movements) but also patently false.

  1. The economic data in August was not that bad. 80% of that data came in around expectations, 10% is worse than expectation and another 10% better than expectation. Like …
  2. If the data is soooo bad, shouldn’t the market fall? After all the Fed did not indicate at all that they would come to the rescue.
  3. If the investors want to send a plea, shouldn’t they drive down the stock prices, instead of up.

The reality is, with 80% of the trading volume done by bots, the market could go up or down 5% every day for no apparent reason.

I am very sympathetic to WSJ though. If they tell it as it is, what they gonna write?

One August 8th: “The market went down 6% out of fear.”

On August 9th: “The market went up 5% for no apparent reason.”

Before long, they will be out of business. That’s why they need to come up with whatever to fill the pages.

Don’t take them too seriously!

Get my white paper: The Informed Investor: 5 Key Concepts for Financial Success.

2 Responses to "“Market Bets on Fed Miracle” So Said WSJ"

Your post does not mention the month of February at all, so I’m guessing the title should read “Fed” vice “Feb” miracle. Yes, I know, it’s a minor quibble compared with the point of your post. Anyone who has read your work for any length of time knows you’re right. Who called news like this ‘financial porn’? (Investopedia has a great definition. It fits.)

Oops, stand corrected. Thanks Jerry.

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Author

Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC. He is also a regular contributor to Morningstar Advisor and Physicians Practice. To explore a long-term wealth advisory relationship, schedule a discovery meeting (phone call) with him.



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