Media and the Market Place I: Buy the Rumor, Sell the News

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11 January 2009. David Caploe PhD, Chief Political Economist, As someone who’s never been particularly obsessed with making money – much to the chagrin of girlfriends / wives / parents etc. – and whose intellectual interests have tended to be macro – large-scale – in nature, e.g.

11 January 2009. David Caploe PhD, Chief Political Economist, As someone who’s never been particularly obsessed with making money – much to the chagrin of girlfriends / wives / parents etc. – and whose intellectual interests have tended to be macro – large-scale – in nature, e.g. world political economy and / or the dynamics of long-wave economic activity [i.e., Joseph Schumpeter] etc., I’ve never been especially interested in the stock market, an attitude reinforced by my generally negative personal experience with “people” from Wall Street.

It all seemed really short-term-oriented and money-crazy, so I left it for others, like many classmates from schools in Cambridge, Mass and Princeton, New Jersey, and watched as they simultaneously became incredibly wealthy, then screwed up the world political economy in a worse way than anything since the Great Depression.

But all that began to change when I met my friend Conrad Alvin Lim, who, for the first time, showed me it was possible to be a totally cool person / a real intellectual / AND interested in stock trading.

So now I’ve become quite intrigued in what he and the “community of traders” he is building – not just in Singapore, but Kuala Lumpur and Jakarta as well – are up to, and have been delighted to find them generally as fascinating, curious , and intellectually active as Conrad himself.

In so doing, I’ve become friends with many of them, both on, and outside, the new “world wide web,” Facebook, and in that context, discovered how concerned – if not to say obsessed – they are with following every shimmy and shake of the global – albeit usually, though not exclusively, business – media, through which, of course, they find out about not only their particular investments [ short or long term ], but, even more significantly from my point of view, the vast array of political economic forces that affect those investments.

Now for me, this concern with media comes as no surprise, since the basis of the PhD / MA Program in Critical Thinking with which I am currently involved is a graduate program I developed in San Francisco for working adults that was a humanities-based, critical theory-oriented Masters Degree in Media Studies – one of whose key premises was that we are living in the age of what I call “the global media society.”

So while I wasn’t surprised by the obsession with media these dedicated stock traders display, it did get me thinking in a slightly new way about how being able to analyze media critically is important not just for all us “global citizens” to understand “who’s zoomin’ who”, as Aretha Franklin put it,

but is especially so for people like my trader friends, for whom both detailed knowledge AND a sense of its significance can make a huge difference in whether they make – or lose – money on any particular day with any particular stock.

And this, of course, immediately brought to mind the saying that forms the sub-title of this first of three pieces – “buy on the rumor, sell on the news”.

Now this saying far pre-dates the emergence of the Internet, but becomes especially important in its wake – and not only because one of the major problems WITH the Internet is the “publish it now, fact-check it later – if at all” ethos that is creating major difficulties not just for news consumers,

but also for established news producers, who have invested a lot of time and effort in establishing “credibility”, with, to be sure, mixed results, given how easily the “mainstream media” [or MSM] has shown it can be bullied and manipulated by the powerful – see not just Iraq but also the “it’s all right, Jack” attitude that contributed mightily to the general societal acceptance of the chicanery and downright dishonesty of the financial sector that has created the economic disaster through which most of us are now living.

In this context, the media has become increasingly important to traders – for whom rumors are ever-more impossible to disentangle from news, especially with Fox “News” and CNBC, which has been such a warm home for charlatans like my college buddy Jim Cramer,

but also as a source of “information” and “analysis” of both the detailed happenings and large-scale trends in, literally, every corner of the world – all brought together instantaneously by the Internet and other more established media institutions like tv, all of which together constitute “the global media society” whose dynamics I’ve been theorizing and tracking since teaching at Duke in the mid-1980s.

The heightened economic and financial importance of media is enhanced as well by two other evident, but no less significant for that, features of today’s economedia © landscape – the 24-hour trading day and the, er, emergence of emerging markets, whether major like China / India / Russia / Brazil [the so-called BRIC countries], or less powerful, at least at the moment, as in the GCC [ Gulf Co-Operation Council ] / Eastern Europe / SE Asia / Hispano-America et al.

As a result of these two separate, but nevertheless deeply inter-related, phenomena, both production and consumption of economedia © have become activities with, literally, NO LIMITS – either in terms of time or place.

Significant markets are open somewhere in the world at every moment of the day – and with instantaneous global inter-connection, trends in one area CAN – not necessarily WILL, but CAN – become a global contagion in a matter of hours.

Now, this doesn’t mean there aren’t significant regional variations.

Indeed, during the post-Black September 2008 world, Asia has performed notably better than either Europe or the US, for reasons not totally relevant here, but which we have examined in the past and will do so again in the future.

But the fact of regional difference in no way obviates the possibility of global “viruses” that can – and have – spread with the click of a mouse, even if there comes an eventual “correction” – a word that, in the new economediatic © world, can take on an entirely new meaning, even in the parlance of traders.

So too geographically, the rise of emerging markets means the famous metaphor about the flap of a butterfly’s wing initiating a series of events culminating in an earthquake halfway around the world is no longer simply allegorical, but quite real.

That is, in a world of both real global supply chains and inextricable financial inter-connectedness, the seizure of a Panamanian-registered ship by Somali pirates in the Indian Ocean can have significant and immediate ramifications on Wall Street – which can in turn affect the fortunes of a winery in the San Francisco Bay Area’s Napa Valley, whose main investors come Shanghai etc etc etc.

In all these ways, then, the inter-connection of media and markets has become a 24-hour a day / 7 days a week / 365 days a year phenomenon – what we call the world of economedia ©.

While some have intuited the importance of this new economediatic © world, relatively few have even commented on it, let alone outlined and tracked its internal dynamics.

Consequently, this brave new world of economedia © will obviously become a crucial and on-going theme for us here at Economy Watch, where we take pride in being on the cutting-edge of the analysis of global political economic trends, of which media is an ever-more integral part.

In the second installment of this initial three-part series, we will do a detailed case study of how the timing of the publication of a MAJOR investigative report in the New York Times gave a HUGE break to the object of that report – the ever-powerful Goldman Sachs.

And in the final installment, we will examine how the timing of the placement of a whole series of OTHER “bad news” items – also in the New York Timespromotes a disturbing “double game”,

in which major media organizations like the Times can claim they are doing their job as journalistic watchdogs, on the one hand, while, on the other, doing their best to minimize the damage to those whose activities they are supposedly keeping track of “in the public interest”.

For the moment, however, the key point is to recognize, and reflect upon the significance, of how closely interpenetrated the world of economics / finance / trading has become with that of the surrounding global media society – an interconnection we call economedia ©.

David Caploe PhD

Chief Political Economist

President /

About David Caploe PRO INVESTOR

Honors AB in Social Theory from Harvard and a PhD in International Political Economy from Princeton.