When stock markets are volatile, the media careen from mass panic to euphoric relief to speaking in tongues. With the help of Fusion's Felix Salmon, we offer you another one of our Breaking News Consumer’s Handbooks -- this time, the Stock Market Volatility edition -- to make sense of market misinformation.
Song: "Slim J. Kenkins' Place" by Booker T. & the MG's
BOB: And I’m Bob Garfield. If you dipped into news coverage Monday morning, you might have done a coffee-spit-take. The news from Wall Street was ominous.
Blitzer: Happening now, breaking news, stunning slide… the Dow drops a thousand points at the start of the day… climbs back but plunges again. Is china sending world markets into a tailspin?
PBS: Panic on wall street leads stock prices to plummet. A global selloff sparked by china’s market meltdown…
ABC: That old adage about Wall street not being for the faint of heart… proving itself once again today…
BOB: And then, just a day later… the all clear.
CNBC: [over bell, clapping] There’s the opening bell, of course in almost the complete inverse of what we saw this time yesterday.
ABC: stocks shooting out of the gate after one of the worst days for the Dow in years. You see it right there, up 100 points right off the bat.
BOB: But I hope you didn’t let down your guard. Because...
NBC: Experts warn we may need a strong stomach because this up and down ride is likely not over…
MSNBC: It’s one thing to have a wiggle in the market, a little shimmy in the market. its another thing to see the markets wiggling and shimmying and squirming and freaking out, because the markets are worried about a slowdown in civilization…
BOB: Wait…what? Maybe we should be more worried about reporters wiggling and squirming and freaking out. When markets are volatile, the media careen from mass panic to euphoric relief to speaking in tongues. To help make sense of the coverage, we’re offering you another one of our Breaking News Consumer’s Handbooks. This time, it’s the Stock Market Volatility edition. Felix Salmon is a senior editor at Fusion, where he often writes about markets and the economy. Felix, welcome back to the show.
SALMON: Thanks, Bob!
BOB: The Dow Jones Industrial Average--
SALMON: -- is a really stupid thing.
SALMON: The minute anyone says the Dow is the first sign that something is wrong because the Dow is not even an index - it's an average. It's a stock price weighted average of 30 stocks. No one in their right mind would consider it to be representative of anything except for what the average price of those stocks are.
BOB: Well hold it. The Dow is a sort of a snapshot that stands for the overall value of a certain carefully selected clustered of mainly industrial companies, right? To those who follow it every day, it's fluctuations like the fluctuation in gamma radiation or tuna prices or the marmoset population have some significance to someone, but you're saying that the constant repetition has imbued it with a mystical significance it doesn't even begin to possess.
SALMON: The fact is that almost nobody trades the Dow. There is a broad stock market index which people do trade, which is called the S&P 500. That's the one that matters. That is the indication of where the broad stock market is on you know a minute to minute or year to year basis. The Dow is this bizarre media thing. The only people who care about the Dow are reporters. Traders don't care.
BOB: It's being used at moments like this when the markets are volatile as a broad indicator of the economy at large.
CLIP MONTAGE: There are growing fears about the health of the global economy after a day of market turmoil here in the U.S. the Dow Jones plummeted...
Stocks take a tumble - what's behind the Wall Street slump, and what does it say about the U.S. economy.
BOB: Among the things that the Dow Jones Industrial Average certainly is not, is a key performance indicator of the economy.
SALMON: Or any stock index for that matter. The stock index is mostly a measure of how rich rich people are. Rich people own most of the stocks, if stock are high, then that means rich people are rich, if stocks go down that means rich people are losing money. But neither of these things bear much relation to the performance to the economy as a whole.
BOB: There's one thing you can be absolutely certain of when stocks take sudden dip, and that is the kind of funereal tone of the reporting.
CLIP MONTAGE: A brutal, ugly morning for stocks today
A falling stock market is bad news for investors
And in business news this morning, Wall Street had just a terrible day yesterday, pretty bad.
BOB: But is there anything fundamentally bad about stocks being cheaper?
SALMON: Most of us are in our earning years, most of us are not selling stocks right no,w, we're buying stocks right now. We're trying to put money away, and the cheaper stocks are, the more stocks we can buy, the better off we're going to be in retirement. Cheaper stocks is a good thing in general. Expensive stocks is a bad thing. Expensive stocks means it's harder to buy a house, it means that maybe interest rates are going to go higher -- cheaper stocks we should be celebrating most of the time, and yet whenever stocks go down, the media makes it sound like that's a bad thing.
BOB: News report attributed the latest gyrations to economic troubles in China.
We've suffered the worst back to back days for the stock market since the early days of the financial crisis - you could chock it up to China. China's stock market has been tanking for three months now..
BOB: But can the media really divine a single factor that results in the buying and selling of billions of shares of stock?
SALMON: No, of course, it's ridiculous. you know you can't possibly ascribe a cause of something as global and inchoate as a general stock market sell off like this. Stocks go up, stocks go down, intra day stock movement, which is what we're talking about are inherently random. Sometimes stocks are flat, sometimes they're up a little bit, sometimes they're down a little bit, sometimes they're down a lot. The kind of movements that we saw this week are entirely within the normal range of stock movements you'll get - a movement like this once every three years, we haven't had a movement of this magnitude in about three years, so it's probably overdue - no one woke up one morning and said, "Oh! I'm suddenly worried about China! I'm going to sell all of my shares in IBM!" That's not how it works.
BOB: Luckily we can count on politicians to set us straight, and to reassure us and to help us properly assess events:
Presidential candidate Scott Walker called upon the president to cancel an upcoming state visit by Chinese president Xi Jinping. Walker's comments used the turmoil of US financial markets over the past week as a means for the president to show some backbone toward the Chinese.
Today Governor Chris Christie hosted his 18th town hall in New Hampshire. Christie began by blaming President Obama's reliance on borrowing money from China for today's stock market fall.
Today on the stock market mess, Trump bashed China:
TRUMP: China is taking our jobs, they're taking our money. Be careful they'll bring us down, you have to know what you're doing. We have nobody that has a clue.
BOB: So when Chris Christie and Donald Trump and Scott Walker all blamed monday's events on China, they were talking out of their hats.
SALMON: Yes they were. politicians like everyone else are subject to the narrative fallacy, we are human. We don't like being told that things are random and meaningless, so we have to ascribe narratives. We have heard this China story so many times that we just take it to be true. It's not true!
BOB: If not any of the things that we read about in the news paper. What is unequivocally true about what happened in the stock market on Monday.
SALMON: You know what Bob I would say that there's actually almost nothing that is unequivocally true about the stock markets. Markets are incredibly messy things. And incredibly complex things. And if we try and boil them down to some simple truth or some simple causality or some simple story that we're telling, we are going to be oversimplifying lying and basically negating the role of chance. The fact is that the media should not report on intraday movements in the stock market because they are random and meaningless. if you want to report on the stock market, you should report on what's happened over the past few months or past few years, not what's happened today. What happened today is never relevant or interesting or important.
BOB: So at the top of the hour on NPR news we should say how the Dow Jones is performing in the millennium?
SALMON: That would be great! Take those stupid little 10, 15 chunks that you slap onto the end of newscasts and replace them with something that says, "Look at this! Over the past 5 years the stock market has doubled!" That's something interesting. Rather than, "Hey guys look at this - the stock market a random amount today and it doesn't mean anything!" What it does when you do that is it makes people feel stupid because they listen to you saying "and the S&B went down to .03% and closed at 120014.3," and they think to themselves, I don't know what that means, I must be stupid. Why is it helpful to make your listeners feel stupid?
BOB: Felix, as always, thanks so much.
SALMON: Thank you, Bob.
BOB: Felix Salmon is a senior editor at Fusion. You can find a one page printable version of our Breaking news handbook: Stock Market Volatility edition at On the Media dot org.