REDUCED REASONING & FINANCIAL MYSTICISM
18 March 2003

Much financial reporting seems to rely on almost mystical assumptions about collective behavior. For some, this renders the information useless; for others, it is thought to be perilously misleading and imprecise, not only to those who listen, but also to those who have to do business with them.

It may be one of the side-effects of soundbite journalism, or it may be the result of an attempt to reason the chaos of a global society (as Thomas Friedman suggests): much reporting regarding financial markets, trends, and trading indices, tends to revolve around explanations which are closer to wild speculation than to cogent and well-researched analysis. This is not to say that malice is to blame, nor incompetence, but rather expediency. There is an appetite for "up to the minute" reporting, and for immediate analyses of financial occurrences. Some might even speculate that a lack of such reporting would itself be interpreted as a sign of destabilization, or "uncertainty".

The conflict is obvious: speculative trading markets contain only so much certainty, and the true motivation of a market shift is the sum of private thoughts driving millions of private trades, information which is totally unavailable to analysts, especially in the moment.

For example, "geopolitical uncertainty moves markets down" or "action by Fed Chairman inspires confidence". Such analyses make a series of sweeping assumptions: that all players in the market have the same interests, at all levels, that no one stands to benefit from geopolitical crises, or from a specific conflict or upheaval, or that reaction to central bank intervention is universal, obvious, and to the benefit of all parties. There is also an exclusion of one vital factor: the reaction within the market to other actions within the market. Selling can trigger selling, even in the absence of a clear indicator. Buying can stimulate buying, even when all traditional economic indicators argue against it.

There is also a tendency to overlook the fact that a certain degree of uncertainty is required in order for the market to perform abnormally well. Without a minimum of volatility, the very meaning of speculative trading markets is negated. So not all uncertainty is likely to create discomfort for all.

The question becomes: at what point does the nature of financial reporting begin to eclipse the demand for information? [s]