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Interlocking Markets and Their Analysts

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The truth of a world-wide recession (and in some places a depression) is told by an article like this in Friday's San Jose Mercury, the major newspaper of Silicon Valley in central California, which is monitored daily because of its centrality to the high tech sector in our own economy. When one part of the interlocked international markets suffers a hit, the rest of the world hurts. This "referred pain" is the result of an "organic" connection between national economies. The inference you should draw is that we need to know a lot more about markets and their managers. While reading this article I also found myself questioning (again) the role of "analysts," especially since I am now aware that these guys do not agree very often. Yes, they agree, for instance, that The Royal Bank of Scotland's performance over the past 90 days is not what The Royal Bank of Scotland said it would be (or hoped it would be), but beyond the numbers (which were "purposefully stated" at the beginning of the period) there is the real meaning. Who determines whether the meaning is correctly interpreted or not? This is an important question, since public attitudes toward the Royal Bank of Scotland, say, are based (as we see in this article) on the nameless analysts' pronouncements. Well, I think there is a lot to discuss along these lines, especially since the basis of analysts' integrity may differ in different cultures. This goes from tethering to honesty to outright collusion and misrepresentation. I am not satisfied that reporters report based on a "feel" for which are the truly intelligent analyses and which are not. "Feel" is much too subjective, and when cloaked in anonymity, I am left outside the loop and wondering. Inside the loop there is a mechanism that we could depend on, if we knew more about it. That is the competition among analysts and the mechanism that end-users have for discriminating among the prowess and efficacy of analysts. As far as I know this is a very murky area with financial rating organizations like Standard and Poors being themselves rated on the basis of general reputation, rather than detailed individual prognostications. Investment analysts are $1000 a dozen and completely at liberty to say any damned thing they want that will keep customers. Keeping customers is just as likely to be keeping them comfortable in false hope and spurious information as actually analyzing companies and their prospects. In other words, in the area of analyzing the analysts we are very much at the mercy of rumor, reputation, and networks of information that dodge behind closed doors when we most need them to be open, transparent, and tethered to discernible facts. It seems to me that analysts are very much behind on the employment of technological means and rigorous formulas in the practice of their craft. Dow Theory analysts, on the other hand, seem to me to be in thrall of their graphs, leaving common sense out to dry as the tectonic murmurs of industries record on the seismographs of the markets. Reading some analysts' interpretations of Dow Theory is like auguries taken from the entrails of sacrificed goats. There is a centuries old industry in stock market advice that we now call analysis. Given the globally integrated nature of economies and markets, and given the disaster that has befallen us in some measure directly attributable to feckless and dishonest and deluded analysts, the slack is out of this rope now, and we need to get scientific (in so far as that is possible) about market analysis. JB
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James R. Brett, Ph.D. taught Russian History before (and during) a long stint as an academic administrator in faculty research administration. His academic interests are the modern period of Russian History since Peter the Great, Chinese (more...)

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