Thursday, April 05, 2007

Give us this day our daily propaganda

I saw a couple of news headlines recently that reminded me that I had an old screenshot I hadn't gotten around to blogging about.

This was from the morning of March 4th, when the Yahoo News editors were stupid enough to put up a headline about February 27th. It was typical mainstream media bullshit about February 27th's market decline, which they'd like to have people believe was a major crash. I debunked that a ways through this post, and let me update the figures. Year-to-date, the DJIA has gained only 0.8%. But if you had bought a Dow Jones Industrial Average index fund on February 28th, the day after it closed at 12216.2402, then your purchase as of April 5th's close would have already gained 2.8% (the DJIA closed at 12560.8301). If you had bought on March 6th, the day after the market "tumbled" to 12050.4102, then your purchase as of April 5th's close would have gained 4.2%. (Below I'll explain why I'm talking about buying on the next day, not that day.)

Well, this is how the free market works. When people are imprudent or desperate enough to dump assets that are declining in value, but the assets are actually worth more (whether at present or in the long term), then smarter people will be happy to oblige by buying. I don't know about the rest of you, but being far smarter than the average liberal, I like living in a reality where smart people are rewarded while stupid people are left behind. This isn't to say stocks always go up after a few months, but in addition to being wise about long-term investments, you can do well by spotting buy opportunities when a bull market dips (which is by definition temporary).

Oh, the article itself? I can't find it anymore, but part of it is reproduced here. The MSM's desired hysteria was over the fact that very heavy trading caused a delay in the recalculation of the DJIA -- but remember that its very name tells us it's an average (a weighted one, actually). Contrary to what the stupid headline implies, the DJIA didn't drop quickly because of a computer error or computer-decided trades. The only thing that happened was that the software calculating the average merely fell behind (which is strange considering there are only 30 stocks in the DJIA), whereas individual securities were fine. Smart investors, let alone the savvy traders on the floor, aren't going to pay attention to an average, no matter how major. Had there been problems with individual securities' prices, then trading would have been halted immediately, but there were no such problems.

Now, that post from a ZDNet blog was particularly stupid:
It will be interesting to see whether the SEC tracks down anyone making large arbitrage gains as the markets drifted further and further out of sync - something some one with early or even advance knowledge of the glitch could have used to make billions.
The fool doesn't know what he's talking about. There's a reason why I talked above about buying DJIA index funds the next day: such index funds are open-ended, meaning their values are based purely on the underlying securities (Net Asset Value). Open-ended mutual funds' values are recalculated only once a day, after the day's trading. Now, close-ended mutual funds are limited in shares, so their prices change with supply and demand, independent of their NAVs, just like they were individual securities. But I've never heard of any closed-ended DJIA funds: there really wouldn't be a point, because you'd spend too much time determining the underlying securities' value relative to the current market price. On a side note, part of my day job involves scrutiny of employees' trading in open-ended versus closed-ended funds.

So in short, such "arbitrage" is impossible with the DJIA, NASDAQ, S&P 500 and other major indexes. Even assuming he's correct, the DJIA was lagging behind, so yes, you could buy when the markets indicated something else. You'd also be throwing away your money, because you'd be buying DJIA index shares when the underlying securities were worth less. You could sell index shares short, but again, the share value is recalculated only once a day, after all trading, so what would be the point?

You can try such a trick with a close-ended fund, which you can buy at "par" (equal to NAV), at a "premium" (greater than NAV), or a "discount" (less than NAV). You just need to find a close-ended fund at a good discount, right? Well, by the time you find one, you might have spent so much in time and other resources that you'd miss out on a solid long-term investment.

All right, for our next piece of daily MSM propaganda:

This was from Thursday, April 5th. Is the first headline supposed to be for news or an op-ed? For crying out loud, who needs Iranian apologists at the UN and Arab League when the mainstream media will do just fine? A while back, the AP reported with an almost cheerleader tone, "U.S. Troop Deaths Show Sunni Resilience."

And of course, one headline is a jab at President Bush for meeting with Russian general Vladimir Shamanov, who has been accused by Human Rights Watch of committing abuses in Chechnya. The White House's official counter was that Bush didn't know of the allegations, which is entirely plausible: do we really expect the President's staff to keep up on what every little "human rights" group says?

On the other hand, where is the outrage about Nancy Pelosi's unconstitutional trip to kiss Bashar al-Asshead's terrorist behind? As our friend McQ of QandO notes, there was a whisper in mainstream media, but it was quickly drowned out. And the headlines read, "Pelosi Shrugs Off White House Criticism."

And then this morning, ah yes, a bunch of mountain climbers -- "some of whom have scientific training" -- talk about melting snow and shrinking glaciers as if they're "proof" that man is behind the Earth's warming. Whether the Earth is warming is not in question. There are very few genuine "climate change skeptics," and I'm not one of them. What I and others are saying is that the Earth has been warming as a matter of natural course, just as it has previously cooled on its own. Even extreme proposals like the Kyoto Protocol, as the NCPA notes the National Center for Atmospheric Research calculated, would reduce global temperatures by 2100 by only 0.19 degrees C at best.

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