Brimelow On Pundit Panic Over Brexit Market Twitch—Written In 1987
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When the Brexit vote happened, the world stock and currency markets definitely took notice with a notable temporary fall in the value of the pound. Whenever this happens, people argue about whether to call it a "crash" or a "correction." My own, inexpert view, is that it's usually a kind of spastic twitch or eructation, but the point is that I know I don't know. (It's calmed down now.)

There are people— Editor Peter Brimelow is one of them—who have spent years studying this stuff, and they find it very irritating when pundits whose only expertise is party politics start spouting on the subject. See Washington Post Gets Hysterical on Brexit, Center For Economic And Policy Research, June 25, 2016, where they feel the same way.

The thing is, this has happened before, repeatedly, and Brimelow wrote it up for the Times of London in 1987, shortly after the "crash" (it got better) called “Black Monday”.

As Brimelow wrote at the time, and turned out to be right,

It’s not inconceivable that the stock market can absorb the damage of the last two weeks, just as it absorbed serious breaks in 1937 and 1962. (The same cannot be said for stockbrokers—Wall Streeters are clearly nearing physical and emotional exhaustion, and some will bear the financial and psychological scars for life.)

However, it brought out the political pundits in force (George Will: "The sobriety induced by the stock-market shock will help Reagan resist a protectionist trade bill...") and Brimelow didn't think much of them:

Making A Meal Of The Market (Political Pundits Know NOTHING About Finance)
London Times, October 31, 1987

NEW YORK–The lot of a financial journalist is not, totally, a happy one. The subject is inherently intractable. None of your colleagues want to read about it. Your audience of specialized business troglodytes usually know more than you do. They don’t hesitate to say so.

How very different is the professional life of the political writer—courted by hostesses, fawned on by elected officials and, indeed, actually more influential than most of them. Adding insult to injury, those of us labouring in the financial field periodically look up from our tasks to find our humble corner invaded by these glamorous creatures. They grandly strike poses amid the potatoes and trample down the turnips before departing amid cries of self congratulation on their versatility.

In the second week since the Wall Street crash, this posturing is all-pervasive. The intrusion is all the more noticeable in America because the financial and political capitals are so far apart. New York and Washington are rarely talking about the same thing—the Iran-Contra agitation excited little comment here—and it is therefore peculiarly irritating when the latter starts to tell the former what financial market movements really mean. Particularly when this hidden meaning turns out to be something the Washington establishment and its media allies have been proclaiming for a decade—the imperative need to raise taxes.

My own conclusion, after years of writing about the stock market, is that no one knows what its tergiversations signify. In a general sense, the market reflects economic prospects, but its particular fluctuations are too wild to be satisfactorily related to anything other than themselves. Even its long-term movements can be anomalous—no one has explained why the American stock markets lagged behind inflation throughout the 1970s before exploding upward in 1982.

Listening to what active traders say is the most useless tactic of all. Notwithstanding their professional assurance, traders live by their viscera, not their intellect, and will abandon even the most fervently offered rationalization at the drop of a price. ‘In general, run quickly,’ wrote Bernard Baruch, one of the greatest of them, in a memorandum to himself about his experiences in the 1929 crash. It applies to ideas as well as investments.

This is not say that I think the market is completely unpredictable. I’ve even written a book arguing that some American investment newsletters have been able consistently to beat it. But consistently beating the market is extremely hard, requiring close attention and (probably) experience. Almost every major trading technique seems to work, in the right hands. Political prognostication, however, is not among them.[Read the whole thing]


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