A consistent pattern since the DC sanitation engineers swept up the trash from the Inaugural Hope And Change Bash. Market has pretty much said pfffft to this President since election. Seems to be the response from those companies whose executives did not arrive on Capitol Hill, tin cups in hand. Which is to say the majority of entities trading shares, Non Financial Services Division. Probably means panicked trips north on Amtrak to have heart to heart chats by new Treasury Secretary Timmy The Tax Dodger Geithner. As in c’mon guys get with the program. Doesn’t happen that way. To look at stock markets, take a rational view of the irrational. Fear greed worry over the future always mixed with the number. Any amount of jawboning by the Paragon of Hope and Change or his Tax Dodger/Treasury Secretary may not help. Meantime sit tight. Buy good Americano companies. The market always goes up and may do so around June. Regardless of any Porkapalooza Bills.
I would agree with Henry (Karlson that is, not John). When the stock market goes up or down, there is a tendency for analysts to look around for some piece of news that might plausibly explain the change, and then assume that the news caused the change. A funny example of this is recounted in Nassim Taleb’s book. On the day Saddam Hussein was captured, Taleb recalls getting a news alert from Bloomberg News: US Treasuries Rise; Hussein Capture May Not Curb Terrorism. Half an hour later, he got another: US Treasuries Fall; Hussein Capture Boosts Allure of Risky Assets. So if bond prices go up, that’s because of Hussein’s capture, and if they go down, that’s because of his capture too.
Right, and then we just need to invent theories to explain why his capture either caused the bond market to go up or down. I would agree in principle; but when the market drops 4% on the same day as a significant financial event (or non-event based on the lack of specificity in the plan), I think there is a much stronger argument for causation rather than just correlation.
If you are making the general observation that reporters can draw erroneous conclusions, I agree. If you think in this specific case that the announcement of the Banking plan had little to no effect on the market, despite a 4% drop, well, you are in a distinct minority. That minority may be right, but generally the minority (as with AGW) should produce a stronger argument than ‘maybe they aren’t linked’. Do you really think they are unrelated?
Sure, reporters look for narratives to sell papers/attract traffic, and all these people could be wrong. But you’re tempting me to accuse you of armchair thinking. 😉
TGC
Tuesday, February 10, AD 2009 3:19pm
Semper ubi sub ubi.
blackadderiv
Tuesday, February 10, AD 2009 3:21pm
John,
In the case of global warming, the consensus is based on more than a bunch of people looking at the same single data point. If it weren’t, then I’d see no real reason to defer to it.
If I had to guess whether the stock drop was related to the Treasury proposal then I’d say it was. But I don’t have to guess. And more generally, I think that trying to infer much about the wisdom of a particular policy based on the day to day (or even hour to hour) movements in the stock market strikes me as being a very bad idea.
“I think that trying to infer much about the wisdom of a particular policy based on the day to day (or even hour to hour) movements in the stock market strikes me as being a very bad idea.”
Agreed. But if the plan is meant to reassure the market (which is one of its primary goals), it wasn’t initially successful. Many commentators have suggested this is because there was little detail presented in the ‘plan,’ which creates uncertainty and undermines market confidence. Maybe the details, when they come, will be brilliant. Maybe they won’t. But either way, the initial presentation did not go well.
Phillip
Tuesday, February 10, AD 2009 3:33pm
I always where under where.
Matt McDonald
Tuesday, February 10, AD 2009 4:32pm
Blackadderiv,
In the case of global warming, the consensus is based on more than a bunch of people looking at the same single data point. If it weren’t, then I’d see no real reason to defer to it.
but if the globe stops warming and starts to cool almost 10 years ago, can you still say it follows that it’s man-made? If the warming was man-made, was the cooling necessarily man-made?
Henry K,
Post hoc ergo proctor hoc, is a question, it’s not an argument. Just because the thing follows doesn’t mean it is NOT causative. The market is not completely random, it responds to internal and external stimulus. These stimulus can be examined, after the fact and likely causes can be analyzed.
but when the market drops 4% on the same day as a significant financial event (or non-event based on the lack of specificity in the plan), I think there is a much stronger argument for causation rather than just correlation.
Henry’s right about the fallacy employed here by both John Henry and some analysts. As a college philosophy instructor, I am particularly sensitive to the post hoc ergo propter hoc fallacy as it is raised repeated by those who really possess no real knowledge about the connections and correlations of data in a given field. That’s what we find here today in this post.
The problem with the post is twofold: 1) Who here really is an expert on economic analysis and is equipped to interpret a few hour drop?; 2) As of 9:30am this morning, the markets are rebounding.
So using the logic expressed in some of these comments, shall we conclude that the stimulus bill caused the rebound today? Probably a bit too hasty for that. I think Blackadder, who along with MM are better read on economics than anyone at Vox Nova and here (this is a belief, not something I can prove), nailed it. In a world of internet news and soundbites, it’s good to know that at least some people actually study this stuff before posting on it.
Post hoc ergo proctor hoc, is a question, it’s not an argument. Just because the thing follows doesn’t mean it is NOT causative.
Of course, this is a trivial and obvious point. The fallacy (it’s not a “question”) was imputed because a causal relation was implied in some of the comments without sufficient evidence. No one argued that that there was NOT a causal relation, so your point here is rather irrelevant.
“The problem with the post is twofold: 1) Who here really is an expert on economic analysis and is equipped to interpret a few hour drop?; 2) As of 9:30am this morning, the markets are rebounding…In a world of internet news and soundbites, it’s good to know that at least some people actually study this stuff before posting on it.”
A few responses:
1) Your supercilious tone is unnecessary and unappreciated.
2)It’s a stretch to call a .5% uptick after a 5% drop a ‘rebound’. But even a rebound wouldn’t disprove that the initial reaction to the plan was quite negative.
3) If you think working as a financial analyst for five years, and having an MBA and extensive legal academic coursework in corporate finance topics makes me unqualified to comment, then I hope you hold yourself to the same standard. But since you obviously do not, perhaps you’ll be more generous to others.
4) Please, cite one expert in the field who has stated the market drop was independent of the bank plan roll-out yesterday. Until then, hold fire on the “I’m a philosophy professor and an expert in logical fallacies” argument. Notice, everyone’s favorite nobel laurete is making the first part of the argument (i.e. the plan was unspecific and uninspiring). When an uninspiring plan is followed by a sharp drop in prices, we have a pretty good case for causation, as BA more or less conceded.
While it’s true that a short term (though very sharp) drop in the stock market isn’t an economic indicator in and of itself, there’s a sense in which the stock market as a whole can serve as a sort of informal predictions betting market. A broad sell-off can indicate an expectation that the economy as a whole will either not get better or will in fact get worse. Thus a broadly held expecation/bet of this sort right after a major financial policy announcement is essentially an prediction on the part of those holding securities that the policy will not do any good.
It’s not something I’d take as armor-plated proof that something was a bad idea (for instance, it might be that there were widely held unrealistic expectations about the policy) but it strikes me as a moderately good indicator of lack of confidence.
[…] Ipsa Loquitur (II) By John Henry I posted last week about the negative reception to Geithner’s bank plan. To review, here was Paul Krugman’s take: It’s really not […]
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A consistent pattern since the DC sanitation engineers swept up the trash from the Inaugural Hope And Change Bash. Market has pretty much said pfffft to this President since election. Seems to be the response from those companies whose executives did not arrive on Capitol Hill, tin cups in hand. Which is to say the majority of entities trading shares, Non Financial Services Division. Probably means panicked trips north on Amtrak to have heart to heart chats by new Treasury Secretary Timmy The Tax Dodger Geithner. As in c’mon guys get with the program. Doesn’t happen that way. To look at stock markets, take a rational view of the irrational. Fear greed worry over the future always mixed with the number. Any amount of jawboning by the Paragon of Hope and Change or his Tax Dodger/Treasury Secretary may not help. Meantime sit tight. Buy good Americano companies. The market always goes up and may do so around June. Regardless of any Porkapalooza Bills.
Post hoc ergo propter hoc.
Though its not always a fallacy. Others agree with John Henry.
http://www.marketwatch.com/news/story/us-stocks-slide-geithner-unveils/story.aspx?guid=%7B311F5316-CF3D-4ABB-BD26-4FC327EBEEFB%7D&dist=msr_1
adversus solem ne loquitor
His Messiahness (PBUH) seems to have failed in ‘inspiring’ investors.
Don’t be fooled. 0bama likes what he sees. A slipping market means more government intervention is warranted.
Let me try this…
…ipso facto mucho taxo…
I would agree with Henry (Karlson that is, not John). When the stock market goes up or down, there is a tendency for analysts to look around for some piece of news that might plausibly explain the change, and then assume that the news caused the change. A funny example of this is recounted in Nassim Taleb’s book. On the day Saddam Hussein was captured, Taleb recalls getting a news alert from Bloomberg News: US Treasuries Rise; Hussein Capture May Not Curb Terrorism. Half an hour later, he got another: US Treasuries Fall; Hussein Capture Boosts Allure of Risky Assets. So if bond prices go up, that’s because of Hussein’s capture, and if they go down, that’s because of his capture too.
Right, and then we just need to invent theories to explain why his capture either caused the bond market to go up or down. I would agree in principle; but when the market drops 4% on the same day as a significant financial event (or non-event based on the lack of specificity in the plan), I think there is a much stronger argument for causation rather than just correlation.
If you are making the general observation that reporters can draw erroneous conclusions, I agree. If you think in this specific case that the announcement of the Banking plan had little to no effect on the market, despite a 4% drop, well, you are in a distinct minority. That minority may be right, but generally the minority (as with AGW) should produce a stronger argument than ‘maybe they aren’t linked’. Do you really think they are unrelated?
Here are some of the accounts I’ve been reading:
Noah Millman (arguing the rollout of the plan was very poorly handled):
http://theamericanscene.com/2009/02/10/might-not-want-to-bother-unpacking-tim
McArdle (the same):
http://meganmcardle.theatlantic.com/archives/2009/02/im_from_the_government_and_im.php
Major financial news services linking the two:
Bloomberg: http://www.bloomberg.com/apps/news?pid=20601087&sid=aC.r9M_1vPd8&refer=home
Yahoo: http://finance.yahoo.com/news/Wall-St-tumbles-on-bank-plan-rb-14312204.html
Reuters:
http://www.reuters.com/article/ousiv/idUSTRE5160AM20090210
Sure, reporters look for narratives to sell papers/attract traffic, and all these people could be wrong. But you’re tempting me to accuse you of armchair thinking. 😉
Semper ubi sub ubi.
John,
In the case of global warming, the consensus is based on more than a bunch of people looking at the same single data point. If it weren’t, then I’d see no real reason to defer to it.
If I had to guess whether the stock drop was related to the Treasury proposal then I’d say it was. But I don’t have to guess. And more generally, I think that trying to infer much about the wisdom of a particular policy based on the day to day (or even hour to hour) movements in the stock market strikes me as being a very bad idea.
“I think that trying to infer much about the wisdom of a particular policy based on the day to day (or even hour to hour) movements in the stock market strikes me as being a very bad idea.”
Agreed. But if the plan is meant to reassure the market (which is one of its primary goals), it wasn’t initially successful. Many commentators have suggested this is because there was little detail presented in the ‘plan,’ which creates uncertainty and undermines market confidence. Maybe the details, when they come, will be brilliant. Maybe they won’t. But either way, the initial presentation did not go well.
I always where under where.
Blackadderiv,
In the case of global warming, the consensus is based on more than a bunch of people looking at the same single data point. If it weren’t, then I’d see no real reason to defer to it.
but if the globe stops warming and starts to cool almost 10 years ago, can you still say it follows that it’s man-made? If the warming was man-made, was the cooling necessarily man-made?
Henry K,
Post hoc ergo proctor hoc, is a question, it’s not an argument. Just because the thing follows doesn’t mean it is NOT causative. The market is not completely random, it responds to internal and external stimulus. These stimulus can be examined, after the fact and likely causes can be analyzed.
but when the market drops 4% on the same day as a significant financial event (or non-event based on the lack of specificity in the plan), I think there is a much stronger argument for causation rather than just correlation.
Henry’s right about the fallacy employed here by both John Henry and some analysts. As a college philosophy instructor, I am particularly sensitive to the post hoc ergo propter hoc fallacy as it is raised repeated by those who really possess no real knowledge about the connections and correlations of data in a given field. That’s what we find here today in this post.
The problem with the post is twofold: 1) Who here really is an expert on economic analysis and is equipped to interpret a few hour drop?; 2) As of 9:30am this morning, the markets are rebounding.
So using the logic expressed in some of these comments, shall we conclude that the stimulus bill caused the rebound today? Probably a bit too hasty for that. I think Blackadder, who along with MM are better read on economics than anyone at Vox Nova and here (this is a belief, not something I can prove), nailed it. In a world of internet news and soundbites, it’s good to know that at least some people actually study this stuff before posting on it.
Post hoc ergo proctor hoc, is a question, it’s not an argument. Just because the thing follows doesn’t mean it is NOT causative.
Of course, this is a trivial and obvious point. The fallacy (it’s not a “question”) was imputed because a causal relation was implied in some of the comments without sufficient evidence. No one argued that that there was NOT a causal relation, so your point here is rather irrelevant.
“The problem with the post is twofold: 1) Who here really is an expert on economic analysis and is equipped to interpret a few hour drop?; 2) As of 9:30am this morning, the markets are rebounding…In a world of internet news and soundbites, it’s good to know that at least some people actually study this stuff before posting on it.”
A few responses:
1) Your supercilious tone is unnecessary and unappreciated.
2)It’s a stretch to call a .5% uptick after a 5% drop a ‘rebound’. But even a rebound wouldn’t disprove that the initial reaction to the plan was quite negative.
3) If you think working as a financial analyst for five years, and having an MBA and extensive legal academic coursework in corporate finance topics makes me unqualified to comment, then I hope you hold yourself to the same standard. But since you obviously do not, perhaps you’ll be more generous to others.
4) Please, cite one expert in the field who has stated the market drop was independent of the bank plan roll-out yesterday. Until then, hold fire on the “I’m a philosophy professor and an expert in logical fallacies” argument. Notice, everyone’s favorite nobel laurete is making the first part of the argument (i.e. the plan was unspecific and uninspiring). When an uninspiring plan is followed by a sharp drop in prices, we have a pretty good case for causation, as BA more or less conceded.
While it’s true that a short term (though very sharp) drop in the stock market isn’t an economic indicator in and of itself, there’s a sense in which the stock market as a whole can serve as a sort of informal predictions betting market. A broad sell-off can indicate an expectation that the economy as a whole will either not get better or will in fact get worse. Thus a broadly held expecation/bet of this sort right after a major financial policy announcement is essentially an prediction on the part of those holding securities that the policy will not do any good.
It’s not something I’d take as armor-plated proof that something was a bad idea (for instance, it might be that there were widely held unrealistic expectations about the policy) but it strikes me as a moderately good indicator of lack of confidence.
[…] Ipsa Loquitur (II) By John Henry I posted last week about the negative reception to Geithner’s bank plan. To review, here was Paul Krugman’s take: It’s really not […]