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Some enterprising young absurdist novelist should write a book from the point of view of the stock market. I bet it has some interesting stories to tell:
I’m very surprised at the coverage of yesterday’s late-day sell-off in the stock market, which sent the Dow down 370 points in about ten minutes. Most news accounts wrote it off as simply another example of the inexplicable late-day volatility the market has been cursed with of late. But while I’m sure that played a small role in what happened yesterday, there clearly was a catalyst for the sell-off—a Dow Jones Newswires report that G.E. C.E.O. Jeff Immelt had said that he was anticipating that G.E.’s profits for 2009 would be flat, while its revenues could be down ten to fifteen per cent. That story hit the wire in the last fifteen minutes or so of trading, and the market basically went into a free fall from there.The only problem was that the story wasn’t true. Instead, Immelt, speaking at an event at a business school in Madrid, had imagined a hypothetical scenario in which revenues fell ten to fifteen per cent, and was making the point that even in that scenario he would want the company to keep profits up. He wasn’t, as G.E. quickly made clear in a press release, making any prediction about the company’s performance or changing its 2009 forecast. Unfortunately, all this news, and Dow Jones’ corrected version of the story, arrived long after the market had closed, and after the original story had wiped out all of the day’s gains in the market.As Surowiecki points out, these sorts of mini panics aren't accidents. They're a product of incentives set up to reward speed and punish reflection:
it’s a massive move when you consider that the story itself sounded, from the start, improbable. Why, after all, would Immelt have issued that kind of forecast at the end of the trading day? And why would he have felt the need to issue a new, massively downbeat forecast for 2009 when the future remains so uncertain? The answer, of course, is that he wouldn’t. But in this market, traders don’t believe they have the time to wait. When news breaks, they have to act.The second and more important point is that this is yet another example of how the cult of the scoop—of making sure your story crosses the wire five minutes ahead of your competitor’s—in business journalism can wreak amazing havoc. Someone at Dow Jones should have paused and asked whether or not this story was really plausible before putting it out there. But if true, it would have been huge, market-moving news, and for the newswires—D.J. and Bloomberg—being able to move markets is central to their business: if you’re in the market, you need to subscribe to these wires because otherwise you’ll be behind the information curve. So the story was published. And it did, in fact, move the market. Job well done.The news, of course, isn't all bad. Today, the market "realized" its mistake and corrected back to its pre-Immelt plunge. But still. Weird.
