cause and the newspapers

As a sage, LI is tickled by causal statements that are casually put out by newspapers, since they beg all the great philosophical questions about causes, while collectively they show us exactly how ideology works. The New York Times would not, for instance, publish a headline like: “400 murders happen across US – poverty blamed.” But the NYT headline about the daily doings of the stock market are invariably couched in causal terms. Today, for instance, it is: Stocks Fall After Disappointing Earnings. Day after day a story about the stocks rising and falling has been woven, a story in which a big, broad, rough, easily seen causality is spotted to explain rises and falls. It is always, of course, local. Thus, the fall today comes about because of this:

“Wall Street retreated moderately Tuesday after disappointing reports from aluminum producer Alcoa Inc. and chip maker Advanced Micro Devices Inc. raised concerns about weaker-than-expected first-quarter earnings overall.”

Now, of course, that begs the question: do the traders on Wall Street suffer from complete short term memory loss? Have they read a paper in the last six months? Have they seen that we are entering into, or in, or coming out of, etc., etc. a recession?

Having established the convention of attributing some local cause to the rises and falls of the stock market, the newspapers then stick to it even if, at a certain point, to do so means they have to trip over themselves – even if the news they present is ‘novel’ in the causal chain only if you haven’t read a newspaper in the last six months.

In fact, the newspaper reader is continually finding him or herself in this bind, especially on stories that continue for a long time, such as the occupation of Iraq. We are presumed to know enough about it to want to know about the news there, but are treated, at the same time, as if we have forgotten so many details that we need specialists to give us causal diagnoses. And, of course, these specialists are always: a., non Iraqi; b., entrenched in a position which depends on their adhering to one or another ideological line; and c., as anxious that we forget what we know about Iraq. Thus, the NYT that reported about the huge ammunition dumps which were merrily raided by guerillas, insurgents, militias and what have you in 2004 has moved on to the idea that the only supplier of weaponry has to be the Iranians, because the military said so – thus forgetting the fact that the military case, made last year, for the provenance of weaponry from Iran was almost funny, it was so laced with contradictions, wishful thinking, cherrypicking and lies.

The problematic relationship between the new and its causes – one of Bergson’s major concerns – is embodied in the standard newspaper story, which tries to skim the causal surface, as it were, to show how emergents – new events – can be generated by old conditions.

It often turns out that the new emergents never existed in the first place – which then becomes news. For instance, today the NYT pretty much erases a scare story from 2004:
“Fears of Iraq Becoming a Terrorist Incubator Seem Overblown, French Say

“After the Paris police smashed a cell suspected of sending insurgents to Iraq early in 2005, French authorities predicted a new and dangerous threat: young Muslims lured to the Iraqi battlefields who would return, radicalized, to use their newfound battlefield skills in terrorist acts inside France.

Dominique de Villepin, then the interior minister, singled out the cell in a speech two months later as proof of a risk that Iraqi-trained jihadists would “come back to France, armed with their experience, to carry out attacks.”

Judge Jean-Louis Bruguière, France’s senior counterterrorism magistrate at the time, later warned that Iraq was a “black hole sucking up all the elements located in Europe.” Some of them were coming back to Europe, he added, and some of those were armed with chemical and biological weapons training.

Now, as members of the cell are awaiting a verdict in their case, French and other European intelligence and law enforcement officials are saying those fears appear to be overblown. The logistical challenges and expense of reaching Iraq has been one deterrent, they said, particularly with Syria’s making episodic efforts to halt the use of its territory as a transit route. Compared with the thousands of European Muslims who joined the fight in Afghanistan in the 1990s through organized networks in Britain, the number of fighters going to Iraq has been extremely small, according to senior French intelligence officials.”

Of course, when a story is erased, the fact that it has been engrained in the stories since is ignored. Because the past is officially flat, for the newspaper – yesterday’s jigsaw puzzle – that one of the puzzle pieces was jimmied into place – or even that all of the jigsaw puzzle pieces, when you look back on it, don’t fit together at all – is of antiquarian interest only. But of course the past is not flat, and the news the newspaper reports, with the reports always incorporating the controlling voices of experts so that the reader will know what to think, enshrines a choice about the past. Bertrand Russell once asked how we would know if the world was created yesterday if that creation included our memories of the past and all the elements that make us deduce that there was a past - which is an elaboration of Philip Gosse's theory that God created Adam with a navel for the same reason that the art forger browns the paper on which he proposes to create a seventeenth century drawing by Rembrandt. Russell's puzzle is at the dark heart of journalism.


Anonymous said…
I found this enlightening, from Accrued Interest (
"So if the market isn't manic-depressive, and fundamental buyers don't tend to jump in and out of their investments from day to day, who really is moving the market and why?

The answer is so-called fast money. Mostly prop desks at the big dealers and some hedge funds. One way to think about these traders is that they're trying to front-run the fundamental investor. But since it isn't immediately clear where the fundamental investor will buy or sell a given security, they are left guessing what every piece of news is worth.

But remember, they don't actually care what any security is actually worth. It doesn't matter. Only that they can get in at a certain price and get out at a better price. This is why securities sometimes seem to operate on momentum. Someone wants to buy XYZ CDS at 100. Someone offers at 110. That's lifted. Now someone thinks it's a good short, so they offer at 120. That's
lifted. Suddenly traders start to think someone has a buying program on, so now there is momentum. The next offer is 130, and it just keeps going until they stop getting lifted. All that could easily happen in a thin market with no fundamental change in the company."

Active managers seeking alpha. Isn't alpha the real reason we're in this mess, the core reason the markets are unstable? "Excess risk-adjusted returns" - theft?

Anyway, I was going to comment on beta corresponding to alea (risk/return) and alpha corresponding to ilinx, the thrill of anonymously mugging someone without having to deal with any of the consequences, like getting blood out of your clothes.

But then I read past your third paragraph and realised I missed the point.
roger said…
I don't doubt the importance of those movements for an instant, but - although the market does not instantly register information as per the Efficient Markets Theory - still, its trends should be broadly in synch with the economy. So when they are so broadly out of synch - when we have a market that rises on the news that a bank is marking down 19 billion dollars of securities - we know that it is responding to something that is overriding information about the economy. The override is the moral hazard brought about by hooking the banks up to Fort Knox.

However, as we shall discover soon enough, piracy isn't all its cracked up to be.

Back in September of last year, in some post, I speculated myself that the Fed, being out of bubbles, had decided to target equities as bubble material - or, you might say, as a counterbubble to the bursting of the mortgage bubble. I'm sticking with that call.
Anonymous said…
Well, news doesn't seem to be information at all, except for investors who are supposed to act on what they hear in the news, and if they don't it's suspicious.

It seems like you say that movements in the market are not in synch with the economy as reported in the news, but then go on to impugn the news, without then saying that perhaps markets are leading indicators of the economy.

You couldn't possibly think that the first the largest investors of UBS heard about the write-downs was when it was published in the news.
P.M.Lawrence said…
"Bertrand Russell once asked how we would know if the world was created yesterday if that creation included our memories of the past and all the elements that make us deduce that there was a past..."

This is trivial, once we have the philosophical machinery of nomena, phenomena and epiphenomena in our toolkit to handle it. The past would in fact "be" that same embedded artefact, not what our naive understanding tells us it should be, and either way we can deal with it in a transparent and indifferent manner much as mathematicians use analytical extension to fill out structures where they are not directly defined by applying the requirements of consistency. That wouldn't tell us what the nature of the past "really" was, of course, but since we don't know at that deep level now, we are not throwing anything out anyway.
roger said…
Mr Lawrence, I'm not sure what you mean by trivial. If you mean, Russell's problem doesn't keep anyone awake at night, that's probably true - because nobody thinks they were created yesterday, with exactly the memories they have in exactly the world they assume has always, in a manner of speaking, been here. If you mean trivial as a philosophical problem, however, I think you are wrong. And I'm not quite sure what this means:
"once we have the philosophical machinery of nomena, phenomena and epiphenomena in our toolkit to handle it." Actually, once we have those in our toolkit, according to Kant, the one thing we discover is that we can't handle it at all - hence, the antinomies of pure reason.

Anonymous, if a thing is not reported in the news, that doesn't mean it doesn't happen. Unemployment, inflation, corporate profits, household debt - these are things that are not factoids. The complaint is not that they are reported, but how they are reported. And by looking at how the market is responding - linking those responses, the reports of businesses and government agencies, etc., with what the Fed has done - you can come to your own conclusion. I've come to my conclusion, but it is one that definitely has no place (as yet) in the news.

If you notice that the speedometer of your car goes immediately to sixty when you are sure you are traveling at 20, you can conclude that the instrument is broken even though your only evidence for that is that you feel like you are doing twenty - other cars are passing you, when you stop and start, the speedometer shoots up immediately to sixty, you are hardly pressing the gas pedal at all, etc.
roger said…
PS - anonymous, for a handy summary of the way the stock market is "calling" the recession this time, look at this James Montier article (via the Big Picture)
Anonymous said…
Same anon here - Thanks for letting me come to my own conclusions. I'm trying to reconcile them, or discount them if necessary, with your insightful and often prescient conclusions. Sometimes when I try to trace the trajectory of your thought, I just don't seem to follow it. It's probably my speedometer.

One last logic-chopping Q - in your analogy, the speedometer is ... the news? or the markets?
Anonymous said…
ah, the markets, sorry.
Anonymous said…
Mais ces histoires dormaient dans les journaux d'il y a trente ans et personne ne les savait plus.

(Proust, Le Temps retrouvé)

Anonymous said…
"Montier has a substantial following because he focuses on things that are fundamentally different from the rest of the stuff I get in my inbox," says Curt Custard, head of asset allocation at Schroders in London, one of Montier's clients. "He is next to useless when it comes to telling me what the markets are going to do. But he has been incredibly helpful in leading us through self-critical examination of what drives our internal decision making at Schroders."