2011 Quarter 2 Market Review
Headlines you may have noticed...
- Mideast Bristles at U.S. Policy
- China’s Gold Intake: Like Sending Oil to Saudis
- Euro Suffers on Greek Woes
- Few Easy Choices for Fed in Wake of Jobs Report
- Oil Prices Climb
- Stock Swoon Sets Summer’s Stage
- Commodities Could Boost Stocks
- Treasury Bears See Rally Turning After Big Selloff
- Sights Set on Grand Debt Deal
- Debt Talks Back to Square One
- Brewers Offense Quieted as Interleague Woes Continue
OK, I had to throw that last one in just for fun. All the other headlines could be found in the Wall Street Journal over the past few months. We have CNN "Headline News," Headlinesnews.net, and "headline inflation." I wonder how many of us simply read the headlines of our favorite periodical or website and don't dig very deep into the story behind them. We live in a fast-paced society that leaves little time for in-depth reading...we want information fast and we want it now!
It is no wonder how today's investors can be confused. Reading headlines alone can provide incredibly conflicting information, often in as little as one day's time. Even those who are curious and try to deeply digest all of the relevant issues of our political and economic society cannot possibly have a true understanding of the multiple layers of cause and effect of specific outcomes. Most people only read stories that concur with their own beliefs. Yet, there are multitudes of "experts" in the world today...from the journalists, to politicians, to talk-show hosts, to our neighbors and friends.
It is very difficult to be an expert at anything. It can certainly be accomplished by people who devote their life to a specific cause or trade, but not many can be an expert in multiple disciplines. Take for example, a WSJ headline from this morning: Tough Era for 'Macro' Funds. Macro-focused managers generally hunt among global financial markets in search of opportunities created by big-picture economic, fiscal and political trends.
It would seem that today's markets would be ideal based on themes that everyone apparently agrees on, such as the European debt crisis and the U.S. economic woes. Even when events play out as predicted, the markets haven't responded the way many had expected. For example, the euro has risen against the dollar even as the European debt crisis has worsened. How about the macro managers who jumped on a bet that prices of long-term Treasuries would fall after positive U.S. economic news in the first quarter? So far, they have lost on this bet, as the second quarter saw an economic "soft patch" and, despite political bickering over raising the debt ceiling, Treasuries rallied. The HFRX Macro Index had a year-to-date return of -2.2%, while the S&P 500 Index gained 5%.
I think predictions on the markets, economies, and politics can make for interesting cocktail party conversation, but making investment decisions based on reading headlines is not good practice.
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