The typical investor certainly has a real dilemma on their hands these days. The diversity of opinion as to the direction the markets are headed reflects as broad a range as I can ever recall. So let’s say you’re obviously concerned with the economy and the markets and you decide to turn on the typical financial news stations such as CNBC and/or Bloomberg. You are doing that with the expectation that these financial professionals will provide clarity to your investment decisions, right? I would venture to say that at the end of the day you have only succeeded in giving yourself the biggest Excedrin headache that you can imagine.
To be fair, the networks should be unbiased and by providing guest commentators that take both sides of the argument they are attempting to meet that responsibility. Where I see the predicament for the mainstream investor is the gusto with which many of the guests take their stand on portfolio positioning and that creates a lot of “noise” as we have often referred to in the media. I’m sorry if I am allowing my own bias to get in the way here but the facts, as I see it, is that there is no one who really knows what is going to happen. Consequently, it is all the more important that an investor learn that they need to separate noise from facts and that is easier said than done!
As an example of that difficulty let’s look at recent news that has been coming out of China. For several weeks now there have been rumors of major economic and financial policy changes within the country to modify its growth rate as a precaution against a risk of inflation rapidly developing. The consequence has been significant moves both to the upside as well as the downside in their equity markets. The pattern seemed to be that some announcement would be made regarding policy and within a short period of time there would be clarification by a more senior official of the government moderating the earlier statement. In the meantime there were swings in the Shanghai equity markets of as much as 5%. How would you really know what was just noise?
More immediate was the global panic caused by a Financial Times news article of a rumor that China was considering diversifying itself away from the Euro, given the significant risk issues that are in play as to its stability and even viability. Within twenty four hours the State Administration of Foreign Exchange in China denied such action being contemplated. Realistically it does not seem like it would be in China’s best interest to telegraph any possibility of such a move given its obvious large holding in Euro currency within foreign reserves. A huge selloff would take place further devaluing the currency.
So the point, once again, is that you need to, as an investor, become more aware of what is noise and what is fact. It is not something you will learn overnight and you need to recognize that reality.
