Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
How Stagflation Effects Stocks - 5th Dec 21
Bitcoin FLASH CRASH! Cryptos Blood Bath as Exchanges Run Stops, An Early Christmas Present for Some? - 5th Dec 21
TESCO Pre Omicron Panic Christmas Decorations Festive Shop 2021 - 5th Dec 21
Dow Stock Market Trend Forecast Into Mid 2022 - 4th Dec 21
INVESTING LESSON - Give your Portfolio Some Breathing Space - 4th Dec 21
Don’t Get Yourself Into a Bull Trap With Gold - 4th Dec 21
GOLD HAS LOTS OF POTENTIAL DOWNSIDE - 4th Dec 21
4 Tips To Help You Take Better Care Of Your Personal Finances- 4th Dec 21
What Is A Golden Cross Pattern In Trading? - 4th Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - 30th Nov 21
Omicron Covid Wave 4 Impact on Financial Markets - 30th Nov 21
Can You Hear It? That’s the Crowd Booing Gold’s Downturn - 30th Nov 21
Economic and Market Impacts of Omicron Strain Covid 4th Wave - 30th Nov 21
Stock Market Historical Trends Suggest A Strengthening Bullish Trend In December - 30th Nov 21
Crypto Market Analysis: What Trading Will Look Like in 2022 for Novice and Veteran Traders? - 30th Nov 21
Best Stocks for Investing to Profit form the Metaverse and Get Rich - 29th Nov 21
Should You Invest In Real Estate In 2021? - 29th Nov 21
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Do You Follow The Hype Surrounding Economic Reporting?

Economics / Economic Statistics Dec 08, 2015 - 03:34 PM GMT

By: Rodney_Johnson

Economics When my children were young, one of the books we read to them was: “When You Give a Mouse a Cookie.” The point of the book is to follow a chain reaction stemming from providing a treat to a rodent. He will want a glass of milk, a napkin, have to sweep up crumbs, etc. It was odd, but entertaining.

I’m often reminded of this book when I see economic reports. It’s not that the numbers are frivolous, but taken as individual data points they can’t mean very much.


Everyone knows this, and yet the world hangs on each announcement as if it were the most important thing to ever happen. Maybe it’s driven by the media, but I think investors, as consumers of the financial media, are part of the issue. It’s just the way we are wired.

Warren Buffett once said that in the short-term equity markets are voting machines, but in the long-term they are weighing machines.

His point was that on any given day the equity markets are something of a popularity contest. Story stocks with a lot of sizzle shoot up the charts, posting dizzying returns, while those seen as ugly ducklings are cast out.

But over time, beauty fades. Investors tend to evaluate companies based on what they return to their shareholders in earnings and dividends, as well as what they expect in the future, and tend to view economic statistics as steps on a path, instead of each number being an end unto itself.

To shorten this up – we’re emotional in the moment, but rational over time.

Unfortunately, we live in the moment. The first Friday of every month is a great example.

At the start of each month, the Bureau of Labor Statistics announces how many jobs were added to non-farm payrolls, the unemployment rate, and a host of lesser statistics.

Economists, analysts, and a myriad of market watchers all have expectations of what these numbers will be. There is a build of anticipation right before the numbers are announced, then, at the magic moment of 8:30 a.m., the figures hit the tape. Bam!

The reaction to the announcements could be anything from yawning if the numbers are in-line with expectations, to wild market gyrations if the reports are a surprise.

Of course, it’s not the numbers themselves that send everyone into a tizzy, it’s what they might – might! – mean for the future. And that’s where the guessing game begins.

If the jobs report is weak, then perhaps the Fed will either refrain from raising interest rates, or maybe even lower interest rates, at their next meeting.

If interest rates remain low or fall, then money should be cheap to borrow. The low-cost funds allow consumers to borrow more to buy homes, cars, TVs, etc. The low rates also give companies more wiggle room for financing expansions or even takeovers.

This combination of consumer spending and corporate activity both spur purchases, which translate into orders for manufacturers and put money in the pockets of workers. They, in turn, spend money and keep the cycle going.

Voila! The virtuous cycle is born!

Unless, of course, the jobs report is a surprise to the upside, meaning more jobs were created, leading to a fear of inflation.

Then the entire cycle happens in reverse. The Fed might raise rates, making money more expensive to borrow, cutting into consumer and corporate spending, slowing economic growth, leading to layoffs, and further harming the economy.

In the final analysis, it all comes down to one very big, very important thing – the cost of credit.

If we open the money spigot a little bit more by lowering rates, then the economy should grow. If we close it just a bit, then everything should slow down.

It never happens that way, of course. Actual spending depends on a lot more than just interest rates, as we’ve explained for years.

But this doesn’t stop people from engaging in the guessing game. It happens just about every time an economic report comes out, including decisions by the Fed, jobs reports, new home sales, etc.

Maybe we all engage in the guessing game to keep it interesting. After all, who would read a newspaper with the headline, “Not Much Happened Yesterday.”

Still, most days when I read the papers and financial blogs that are part of my routine, I find myself wondering: do those writers really believe each report is that important?

Maybe they do. After all, if you give a mouse a cookie...

Rodney
Follow me on Twitter ;@RJHSDent

By Rodney Johnson, Senior Editor of Economy & Markets

http://economyandmarkets.com

Copyright © 2015 Rodney Johnson - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Rodney Johnson Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in