October 12, 2008


The thing that has fueled the Information Age is communications and we have financed, encouraged and embraced communications with a fervor that is as surprising as it is immense. The very fact that you are reading this blog is proof of the incredible speed with which information can reach each of us. While many of us marvel at the miracle of email, newer and faster and even more marvellous forms of communication have taken us to places that could not be imagined just 10 years ago! The ability to access and create information is mind boggling and while we stand in amazement, we are only now beginning to see that this coin has two sides. Let's see if we can connect the dots....

The fuel of financial markets has always been information and was generally a question of who had it and who didn't. Information was somewhat dry and cold and numerically inclined and basically the purview of economists, accountants and people who could read a balance sheet that pointed out where a company had been historically. This was combined with information about what a company was currently doing and its prospects for the future and the people who shared that information often profitted rather handsomely, so various regulatory agencies brought in insider trading and public disclosure rules requiring information be made available to the investing public before the keepers of the information could use those facts to make an investment decision. The theory was that everyone operated on a level playing field but the communications apparatus was unwieldy at best and the importance of access to information became ever more apparent as the average investor or man on the street was forced to rely on various advisers who had their collective ear to the ground (or heads in the sand). Speed became the new religion when it came to financial markets and the 100 channel universe began to create very targeted delivery systems known as CNN, CNBC or in Canada, BNN, etc. We are in the 250 - 300 channel universe now and have access to instant information from almost every corner of the world that includes weather, political, environmental, financial and every other discipline imaginable, if you consider sports and entertainment disciplines.

OK, I know this is a long one, but in order to understand the importance of the last paragraph, we really need to cover this stuff first.

During the past 2 or 3 years, the amount of information available to anyone with a laptop computer and Internet access is staggering and the portals to this information have become easier, cheaper, faster and bigger while names like Google, Facebook, Blackberry, Yahoo and YouTube have reached iconic status in the blink of an eye. The fact that the successful sites have 100's of million of users is a power that most of us can't imagine. The fact that each of those users can add or receive information from this infinite source, in a split second, is beyond the ability of any government or legal and financial body to control, assuming they can even understand it. By the way, in case you are wondering, I'm not about to call for control or dis assembly or anything else like that, but you will need to read on to see how this connects to the world we are viewing and how YOU can profit from it.

In addition to the staggering amount of information available (and we haven't talked about the quality of the info yet), the easy and cheap availability is supported by the nano-second recovery time and these have combined to create a new paradigm while we still cling to many historical thought patterns that serve to create uncertainty in our financial markets. Instant access combined with shorter and shorter attention spans as we lurch from crisis to crisis has spawned a financial version of the perfect storm. Greed and lack of self control along with unfathomable amounts of debt to support wars and mortgages for the down and out (but who still have a vote), run away credit on every level and a desire to have everything right now, added to a multi dimensional media (desperate to offer "breaking news") that chases after negative stories with the fervour of a circus tent preacher has created a tsunami of gyrating opinions that all demand action right now! We have politicians in the middle of election campaigns making up policy on the run as the media demands answers and action immediately and public opinion is being created by so called panels of experts whose areas of expertise are marginal at best, but they look good on camera.

Can you see what I'm getting at? We think we need instant everything from breakfast to health care, from sneakers to wine aeration, from landscaping to travel times and anyone who offers immediate fulfillment from news networks to Dr. Phil are feeding the info junkie in all of us. The media is interviewing anyone with a pulse, seeking their opinion on the latest disaster and they keep repeating words like "financial meltdown," "recession," "banking crisis," "frozen credit," "bail out" and whatever they dream up today. This need for instant gratification has left little time for due diligence and sober second thought is now a distant memory. In their haste to provide opinions, the media has invited conjecture and hyperbole to create sound bites and headlines that masquerade as NEWS or fact. In order to attract the viewers attention in a universe that is powered by a channel changer, it has become necessary to create ever increasing amounts of drama and breathless "on the scene" reporting and the area that screams loudest gets all the attention. Today it is the stock market.

Yes, I'm getting to the point soon.

Ok, one of the keys is that we are being fed an enormous amount of OPINION in the guise of breaking news. We have made pseudo celebrities out of talking heads and treat their every word as gospel which gets repeated over and over until it sounds like truth. We are inundated as absolutely every media outlet jumps on the bandwagon and pretty soon we have been stampeded into a recession because we believe (and so do the politicians, pundits and economists) something if it is repeated often enough. Only a few months ago everything was upbeat, house prices were climbing, jobs were plentiful, people were buying second homes in the sunbelt, luxury cars were driving themselves off the lot and the stock market was on an endless journey up - go ahead, check the on line archives of your local newspaper - spring of 2008 editions!

Notwithstanding the fact that their are enormous and unprecedented pressures on the economies of the world, the race to the stock market basement has been overblown, over hyped and overheated by this relentless outpouring of conjecture in every media outlet on the planet. There seems to be a race to report the worst possible news and the whole affair has been exacerbated by elections in which competing parties trip over themselves to bring bad news (whether true or not) to the electorate. Rather than look at solutions, they get more press coverage by blaming ills on the party in power. Cheap thrills by cheap people that is affecting in a very real way, your world and mine. We have talked ourselves from "controlling growth" into a full blown free fall of the world's economies in a matter of months. Fiscal responsibility has morphed into printing money as fast as we can without any plan to change the system that got us here. There is over reaction everywhere and it is fueled by instant opinions and hypothesis that are totally untested and untried. Information is king but the information is tainted by the incessant need to be first with the breaking news. Everything is moving faster and faster from communications to the reaction time of stock markets. Computerized trading systems that spark automatic buy and sell orders can move markets by 10% in a single trading session.

So, how does that affect you and I?

Markets that can come down that quickly based on emotion and over reaction can turn around and go in the other direction just as quickly. There is no way to know where the bottom is and so there is no point in trying, nor is there any point in waiting. To jump back to historical reference for a minute, by the time the economists declare that a recession has ended, the market has already moved up about 25% . We may be in for some wildly gyrating markets as they jump to and fro based on what the darlings of the media speculate and postulate about, but it seems to me that a few ounces of common sense would allow us to find a way to gradually invest over a period of time, in a basket of well managed companies, in one of the world's strongest economies and create ( or re-create) a nest egg that may move just as fast on the upside as it did on the down. As an old stock broker (investment advisor, in the legal sense), I am reluctant to admit that a nice mutual fund might be the ticket, but it might be the ticket.....

A long range viewpoint is the best antidote to short term hysteria

No comments:

Post a Comment