Take Your Pick

It's often said that journalism is the act of writing history on the run. The danger in this endeavour, of course, is that random causes and effects get jammed together in the professional pursuit of a tidy narrative. Media coverage of recent financial market mayhem is a case in point.

You can see this 'define-the-narrative-NOW!' contest every day on CNBC's aptly-named 'Fast Money’ show. This is the place where hyper-caffeinated panelists - all talking very quickly and very loudly and usually over the top of each other - speculate about what caused the latest stock plunge.

Was it all due to an underwhelming US jobs report and a sense the Federal Reserve had kept the monetary brakes on too long? Was it a puncturing of the AI hype bubble? Was it geopolitical risk, with Russia looking to be arming Iran for a superpower confragalation in the Middle East? Was it a mass unwinding of the 'carry trade' where leveraged hedge funds had borrowed in yen and invested in US tech or Australian bonds or crypto? Was it a mass retreat from the 'short-vol' trade, where traders took options bets that underlying stock prices would not move much? Finally, was it just an overdue adjustment whose impacts were maximised by thin northern summer holiday volumes?

The truth is it could have been a combination of all of those things. But the questions the media inevitably forgets to ask during these periods of breakout volatility are, firstly, why should this matter to the vast majority of the population? And, secondly, what can anyone do about it? Such is the urge to piece together a coherent narrative from disparate theories of cause and effect in the most arcane reaches of the financial markets that journalists fail to take a step back from still evolving events and tell the audiences whether this will matter next year, or even next week. And, if it will, why?

Confronted with this criticism, journalists will reply: 'Of course it matters! Millions of people's retirement savings rest on how markets move. It's our solemn duty to keep the public informed.' To which I would respond: 'Yes, but are you really informing them? What useful information are you imparting, other than that none of your heaving panels of carefully chosen talking heads seems to have a full grip on what's going on? All you are doing is confusing people and increasing their already elevated levels of anxiety (which of course may be the real aim of the exercise.')

I've often thought that it should be mandatory in these talking head financial panel shows to always include a financial adviser reminding people about the virtues of diversification and discipline, as well as providing a perspective that extends beyond the past 24 hours. It's like the mandatory ''don't-try-this-at-home' risk warnings they used to run on shows like 'Mythbusters'.

Look, I'm not one to talk. I used to do this myself for a job. At Reuters Financial Television in the 1990s I regularly interviewed currency technical analysts about their incomprehensible charts showing head-and-shoulders patterns and 200-day moving averages and descending staircases. And this was usually before 7am and after three cups of coffee! I've been there. In my defence, we were at least broadcasting to market professionals who speak that language anyway. (Yes, that's me)

My point is so much of what is run on financial media is inside-baseball stuff. It's of interest to the market professionals. But for most people it's irrelevant. What happens on any one day in financial markets is like the weather, which is why the finance report traditionally sits alongside the weather report in TV news bulletins. In both cases, it's a man or woman in a suit pointing at charts. The only difference is one chart shows a looming cold front. The other a 200-day moving average. (Although, at least the weather report serves a useful purpose in letting you know whether to take an umbrella to work tomorrow!)

That's not to deny this latest bout of volatility is newsworthy. There are real questions about the extent of leverage out there and whether markets themselves - particularly in the use of derivatives - are a threat to macro-economic stability. Unfortunately, however, 95% of what you see in media coverage of financial markets is guesswork, speculation or somebody talking their book. It's like the car is in the process of crashing and the occupants are busy inside arguing about whether it's the brakes or the steering.

This fascination with the internal mechanics of things applies equally to much political coverage. Journos sit around in circles talking about how an issue will 'play' for one party or the other. There is rarely any substantive discussion about the issue itself and how it affects people, just a boffin's view of the noise that surrounds the issue and what it means for all the insiders in the 24-hour news cycle.

Is it interesting? Some people find it so. Is it relevant? If your investment or political horizon is 24 hours, almost certainly. What can you do about it? Almost nothing. Will it matter this time next month? It might, but the market more likely will be on to worrying about something else by then. In the meantime, by watching this stuff you deny yourself the pleasures of walking in the park, playing with your kids, reading a good book and generally focusing on things where you have some agency.

As to what I think caused this eruption of market mayhem, my guess is its genesis is in the derivatives market and the unwinding of short volatility trades in options. That's kicked on to the carry trade through Japan, which is why the Nikkei was hit so hard.

But what would I know? Take your pick, in other words.