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10.10.13 futes



A touchstone of my investing philosophy is the importance of investors tuning out what is unimportant. Lose the News is the counter-intuitive way I first expressed this idea back in 2005. However, since then, I have repeated several variations on this theme: Whether its The Price of Paying Attention or advising people to Avoid the Noise or simply counseling investors to focus on What They Can Control, these overall themes have been very consistent.

The signal to noise ratio as of late has been nearly overwhelming — all noise, no signal — which, in no particular order, includes: Syria as the potential flashpoint, then the Summers/Yellen horse race, followed by more European Bank problems, then the US political situation, yet another dust up between Greece and Germany, then the Tea Party war on ObamaCare, no wait government shutdown, no wait the debt ceiling, grabbing center stage.

While the market’s up/down, back and forth make it appear over the short term that these things are oh so important, the simple reality is they are utterly meaningless. There is ALWAYS going to be some crisis, some news event, some MOST IMPORTANT THING IN THE WORLD RIGHT NOW, and always has. I am here to tell you that all of these “earth shattering events” each end up being tears in the rain — a momentary emotional blip of little consequence, mostly international back fence gossip, with next to no significance to the overall global economy. They are all noise, no signal, at least in terms of what matters to the intelligent investor’s perspective. As an example, consider the simple truth that despite this immense distraction, we are spitting distance from all times highs on S&P500.

So much for trading the macro news flow.

This theme was repeated by lots of very smart and insightful people at our conference this week. Regulars on FinTV admit how unimportant most of what goes on air actually is (I call it useless filler); our flawed cognitive views leads us to putting way too much emphasis on these unimportant issues,, especially when they are more recent. The charming and delightful Art Cashin even told the lesson he learned early in his career as to why a reports of a nuclear attack offered the smart trader a buying opportunity.

Thus, while I am not suggesting we are past whatever idiocy the jackals in Washington DC have dreampt up — and there always exists the possibility it all comes tumbling down in a disastrous Mad Max canned food and bottled water dystopia — I doubt thats the likely outcome. Indeed, investing history has taught those who pay attention to such things, however counter-intuitive it may seem, that tuning out the noise, and staying with the higher probability, most likely outcome is the way to go. I suggest you consider doing the same.

Remember, the end of the world bet has been a money loser since the beginning of time.


Category: Markets, Psychology

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

16 Responses to “Melt Up, Government Shut Down / Debt Ceiling Deal Edition?”

  1. PeterR says:

    The “Yellen Bottom” is in?

    The Big Churn (1997-2021) has ended early?

    SPX 5000?

    Follow the Fed IMO, and from all reports Yellen may be Greenspan/Bernanke Redux for easy money going to you-know-who . . .

    Fasten seat belts.

    [charts at link above]

  2. Ted Kavadas says:

    “Deciphering” what is noise here is particularly challenging. While as you mention, the S&P500 is still close to its highs, at the same time momentum (even before the shutdown / debt ceiling issues) seems to be flagging and the 200dma isn’t far off (at 1599.41). Not to mention a variety of problematical issues in the economy…

  3. [...] melt-up – is a debt deal in the works?  (TBP) and is it being driven by – gasp – Paul Ryan? [...]

  4. Concerned Neighbour says:

    It looks like the epic plunge of ~4% from all time highs on the SPY has sparked fear has put some fear into the powers that be.

    Now we can resume the perpetual rise in the “markets”. All the factors are in place to make it happen:

    - worsening economic fundamentals
    - lots of earnings warnings and continued tepid top line results
    - Ms. Yellen makes Bernanke look like an amateur… will QE be bumped to $200B a month before all is said and done?

    These “markets” have demonstrated that infinite and perpetual QE is never priced in. With a Yellen bump, who hears Dow 36K by Christmas?

  5. MayorQuimby says:

    Agree w/ last sentence but every party ends….every bubble bursts.

    This 5 yr rally has been way too easy to trade and with few potholes for bulls. That should end before long imo.

  6. lburgler says:

    To quote Jean Luc Marion, “the real crisis is that there has been no crisis.”

    There will surely be a crisis, just as some people surely win the lottery; and we daydream about a crisis just as even reasonable folks daydream about what they might do with their lotto winnings.

    But the terminal crisis, which will represent the type of change we are looking for, will not come out of Washington. We are talking about a round of new plagues (the end of antibiotics), or the sudden mass-migration of billions of people (probably linked to a climate event), or the utter loss of control via the biotechgenetic revolution (something like ‘the singularity’ gone wrong).

    Fortunately, or unfortunately–depending upon how happy you are in your own life, the terminal crisis for capitalism is probably at least 50 years, 100 years into the future.

  7. [...] Stocks are rallying this morning, here’s why (WSJ);  see also, Melt up? Debt ceiling deal edition (TBP) [...]

  8. VennData says:

    Business Groups See Loss of Sway Over House G.O.P.

    ​So if business isn’t in control of them, and Democrats are controlled by the consumers…. then uhh.. the logical question is… uh… who is controlling the GOP?

    Oh! Southern Car dealers and insurance agents! Those bastions of free markets, good wages, efficient energy use, education, enlightened American use of power, and health insurance for all.

    Your crazy-neighbor’s GOP reminds me of the scene in Blazing Saddles where Cleavon Little Points the gun at himself and threatens to kill himself…

    Speaking of crazy men with a plurailty of African descent, for you fiscal conservative types, Obama has been THE most fiscally prudent president since Eisenhower, (crazy I know, if you watch Fox)

    Just let Obama do what he’s doing, stop letting Fox News and the WSJ convince you he’s on the verge of impeachment and that the debt default is no problem…

    And you’re fine with leaving the GOP. As a business person, you’re also a consumer, right?

    Dump the WSJ. leave the GOP, then you won’t be losing arguments to people with the facts.

    • victor says:

      Thanks for the Forbes link on Obama the “non-spender”. Buried in the article, did you notice this? “No doubt, many will wish to give the credit to the efforts of the GOP controlled House of Representatives. That’s fine if that’s what works for you”.

  9. pintelho says:

    And this is why you and the people you respect are on my daily reading list. TY BR

  10. [...] you can see, we are about 3 S&P points below where the quarter ended, despite all of the noise. This is why I suggest investors tuen out the short term, and focus on the longer term [...]

  11. ByteMe says:

    The best thing on CNBC is the GE ad with Hugo Weaving. Everything else is filler for that.

  12. MaxThrax says:

    ‘Remember, the end of the world bet has been a money loser since the beginning of time.’

    I remember when we used to wear togas and speak Latin. Wish there was some policy that was really at the heart of this, that means reason and logic could be used to find a path. Unfortunately, this is all about race and culture. Read the Carville/Greenberg report. This is a Cold Civil War. There’s a portion of the white population that cannot abide the demographic changes happening, Obamacare, a conservative approach to hc reform, is just a symbol to them, not a policy.

  13. Angryman1 says:

    Max, if that is the case, they would be pushing for national socialism instead of crony free market fantasies. There is something going on bigger, much bigger than you get.

  14. [...] During the TBP conference this week, several of the commentators noted how little wisdom gets disseminated by the financial press.As we noted this morning, lots of noise, very little signal. [...]

  15. [...] a variety of things. It seems this week we have already done a good deal of that (see this and this). Given this, let’s briefly discuss some of the investor issues with the artificial construct [...]