Top positive review
The market is the message
March 2, 2004
CNBC anchor Ron Insana's second book on the stock market, "The Message of the Markets," follows "Traders' Tales" in 1996, and does an excellent job of selling you on the idea that the market does send signals for anyone who's interested in looking for them. Using Insana's words, "Many times the prices of stocks, bonds, and commodities accurately anticipate or forecast future events. "But what is a "market?" If a market is where buyers and sellers come together and agree to exchange assets - stocks, bonds, futures, options, wheat, oil, gold, cloth, Beanie Babies, guns, drugs, etc., then the "message" of the market has to be the PRICE resulting from that exchange. That price level conveys enough information that if you know what you are looking for, you will be able to anticipate future events solely on the basis of price and its trend. Why? Because there is what Insana calls "smart money" and "dumb money."Smart money belongs to insiders, those closest to the action who see and know what is happening. They act on their knowledge, leaving their tell-tale footprints of transaction prices for all to see. Then there are the outsiders; the ones who wake up one morning and read about something that just happened, realize that it is significant, and decide to catch the obvious trend already in progress, invariably buying from those same insiders who got in months ago anticipating exactly that outcome. What Insana doesn't say is that without smart money to indicate the way, all markets would be chaotic, panic-driven price spikes in either direction as everybody tried to react to the same thing at the same time. He is particularly correct when he warns to watch out for the price move "with no apparent reason." It can signal momentous events on the horizon.The real message of the book thus becomes that if you learn to track where the "smart money" is going, then in addition to profiting along with the insiders on the various price moves, you can also make more intelligent business, investment, and career decisions. Insana uses the interest rate yield curve as well as popular averages to predict the onset of recessions; market internals (Advance/Decline Line, diverging Dow Jones Averages, etc.) to predict the stock market; and commodity price movements to predict geopolitical events.
He gives industry/sector group relative strength rotation credit for frequently predicting the economy's strengths and weaknesses and cites ways in which this can be used in selecting career paths as well as suggesting business trends. He uses commodity price moves as signals that foretell future events such as Chernobyl, the Gulf War, the Egypt-Libya potential war, and other geopolitical upheavals. However, I believe he makes too much of the market selling off just prior to the announcement that JFK had been shot. There is a story about a certain well-known network newscaster in Dallas making the call back to his NY newsroom, then ripping the pay phone out of the wall to keep other reporters from using it to get to their newsrooms. So there may have been real reasons for the news delay. Anyway, the market was shut down with the Dow suffering only a 3% decline. After remaining closed one additional day, the market continued its upward climb for the next 3 years. While a member of the Pacific Stock Exchange, I witnessed the same momentary "front-running" when Reagan was shot on March 30, 1981. On that day something "felt" amiss when we suddenly got hit will an avalanche of sell orders. Minutes later, the news tape announced that the president had been shot. But like in the Kennedy situation, the market dipped momentarily, then continued its rally. In these two cases, the message was inconsequential, financially speaking. After giving numerous examples of what market signals are and how they've fared over the years, Insana asks his most thought-provoking question: "So why was it that most investors, all the world's politicians...failed to notice trouble signs on the horizon? Once again, it was the failure of many observers to pay attention to the market's ominous message." The implication being that the rain clouds were forming but nobody took notice. The answer is simple yet unsatisfying: As long as we listen to what "they" say instead of watching what "they" do, we will always fall victim to "their" market. What Insana is making a case for is a market discipline termed Technical Analysis. It looks at market action, valuing above all else the constant interplay between the supply and demand for a any tradable entity, and considers Fundamental Analysis (Wall Street research) as so much hot air. It is not a particularly popular stance, but it is much closer to allying yourself with reality than anything else.