The 2 Derivative Theorem means that if all paticipants are looking at the same data (like a car Dashboard),they most likely will all come to similar conclusions.
Therefore you don't look at the NEWS, DATA itsself but at how the "HERD" will interpret this info and decide whether you find the "herds' view"compelling or not.
Warning: Once everyone is looking at the same Indicators (technical and/ or macro indicators) you can easily change the Sentiment or better the perception of reality by massaging the "commonly accepted true economic and market indicators".
The good news is that this can never be a perfect "crime" and that there will always been vestiges (it feels a bit like CSI)
So how could this work:
......
1) start with a trust building media blitz incl. homestory with Ben Bernanke/ Obama
2) Stock market rally
3) Interventions in the Fixed Income market
(must read from Contrary Investor http://safehaven.com/article-13233.htm)
4) Fed statments that alludes to an end of the worst of the crisis
5) Ignore the dire realities and sell hope
Pls ask your self whether the current "green shoots" euphoria reflects the current global realities.
For this pls have a look at the graphs from the St. Louis FED provided by Barry Ritholtz
(hat tip barry)
6) Distract from economic realities and trigger emotional comfort/ solidarity by crusading hedgefunds and other ultra capitalist targets
7) Promise Welfare programs you know you can never effort
All the above buys you time which could suffice to turn the recession around, with the risk that if you fail you wind up in a position where
you have doubled down....
Don't get me wrong this could work ! But it feels like gambling in a casino where the they put all our money on red and if they fail we loose.
This seems to me as the ulimate MORAL HAZARD !!
Conclusion:
Price is the ultimate arbiter, Price is truth, You have to respect the market even if it defies your anchored believes.
On the other side we can experience temporary inconsistencies, i.e. diverging price signals in different markets due to distortions or adaptive processes (read interventions) that will trigger alerts that have to been taken very seriously.
Therefore coherent price signals are key rather then single market signals.
At the time of this writing the Inconsistencies are everywhere, in the stock market (look at previous Golden5 posts) and ever more important in the fixed income market (see again Contrary Investor http://safehaven.com/article-13233.htm).
On the other side as Keynes used to say that the market can stay longer irrational that the participants solvent, meaning we don't know to what extent the market can and will defy gravity .......
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