European Debt Issues Test Investors’ Twitter-shrunk Attention Spans

How would you feel about your property value if there were a growing fire destroying an entire block of houses two miles away? Sure, it’s a little smoky when the wind blows the wrong way but you just slapped on a fresh coat of paint. Someone’s going to put the fire out, right?

The European sovereign debt/banking crisis is the fire for US investors at the moment and investors’ attempts to change focus to more positive thoughts – the ADP report this morning is the latest example -  have been continually thwarted by events.  Traders are increasingly banging their heads on the desk after another series of “false break-outs” as Italian bond yields play hopscotch with the 7% level. As the 2011 S&P 500 non-performance clearly showed, we’re stuck.

The thing is, we’re not good at this anymore. Trained by immediate, excessive news flow our collective attention spans have shrunk to the time it takes to read 140 characters. Large research reports? Forget it – if its important FT Alphaville, Felix Salmon or Megan McArdle will summarize it for us into a neat 500 word post. Next.  KardashianNFLPlayoffsADPKimJongIlIranNuclearWeaponsObamaSucksRatigan’sNewBookGorillaLooseatMall. Beer. Eat. Nap. Jon Stewart. Sleep. New day – new story, please. Oh, and if someone could just fix Europe for me overnight, so I can go back to safely piling money into the market on new economic data and attractive technical set-ups, that would be terrific.

The starting date is arguable but the origins of current developed market debt problems are at least 20 years old – 1982 and 1994 are the two most-cited start dates – which implies that expecting a quick solution is unreasonable, whether our modern attention spans can handle it or not. Even if the ECB kicks the can down the road by printing (the most likely eventual outcome from all I’ve read), there is still the issue of Basel III-related forced bank recapitalization, as Unicredit was nice enough to remind us of yesterday.

The “Wall of Worry” remains a helpful metaphor and it is entirely possible that the global economy “muddles through” the host of hurdles before it. It is also likely, however, that the investor contrarian reflex to buy dips, or whenever sentiment is poor, will be a perilously unproductive one if its primary basis is boredom with yesterday’s negative news. In order to understand complicated credit issues that are a) almost unfathomably enormous if we include the shadow assets and b) decades in the making, we will probably need to learn more, maybe finish a few of those large research reports, and act less. Waiting for a bottom, when the fire is either truly out or at least shrinking towards embers, may take considerably more discipline than the era of the Great Moderation has trained us for.

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11 thoughts on “European Debt Issues Test Investors’ Twitter-shrunk Attention Spans

  1. Mario says:

    damn now this is a great freaking post!!! You’ve topped yourself on this one….again. ;) I couldn’t agree more….except for the “deficits are a problem” point….as you know my POV and stance on that one (see MMT policy, etc.). But all the rest I completely agree! Crazy world…paradigm shift perhaps.

  2. Kev says:

    Good post. Out of curiosity, what are the 1982 and 1994 events that are brought up as the origins of current developed market debt problems?

  3. Rohit says:

    Very sobering. If this was decades in the making, its going to take decades to clear out. What does a 33 year old do? My generation is screwed.

    • Mario says:

      I’m 30 and I’m beginning to feel the same way. I’m having a hard time just landing an accounting position. I went for an interview today for a VERY basic bookkeeping job and the guy told me that CPA’s were applying. WTF?!?! That’s insane.

      The thing is that the “deficits” aren’t the problem. It’s a lot more corrupt & complicated than that. Deficits are simply a function of sectoral balances in our economy and in and of themselves they are harmless. The concern with deficits is inflation and over-leveraging certain industries, people, classes (like banks, oil, ag, etc.).

      We have a huge problem on hands but we don’t even realize WHAT the problem is. We all know it’s getting dark in the house but no one is really able to turn on the light switch (yet). We are all contributing to the problem(s) and solution(s) in various ways and to various degrees and measures…and that’s one of the other issues….no one body holds all the answers….which means by NECESSITY that we need to work together and we need to learn to synthesize various discrete truths across wide fields of study. The comprehensiveness necessary for such a task is by all estimates daunting to say the least and it doesn’t seem that there are many people (yet) truly capable or available to fit the bill (OWS, Tea Party, RP, Obama, PhD’s, “we the people,” all included)….it’s like we are truly living in some post-modern hell of complete subjectivity. The objectivity of today IS subjectivity.

      Things may (or may not) get worse before they get better. Buckle up? If you have one that is.

      • jem says:

        This post feels like a straw man argument to me. Yes attention spans are shrinking and investors have no idea what is going on with the Europe situation and just want it to be fixed, but I don’t necessarily see how these two issues are related. Moreover, two of the most crowded trades right now are treasuries and gold, which are (supposedly) safe havens, and equity volumes are sharply lower from a year ago. Everyone is afraid, and it is showing. The fact that nobody has any idea what is going on in Europe isn’t because we aren’t reading long research reports, but rather that a bunch of politicians with wildly misaligned incentives are attempting to solve a seemingly insolvable problem.

  4. Interloper says:

    Jem: all fair points. I’m only talking about one piece of the puzzle, namely those active traders that are jumping in, reflexively looking for a bottom while ignoring the likelihood of European problems rearing their ugly heads. At base, the huge increase in technical traders who completely ignore fundamentals are the subjects of the post. They have been, in a lot of cases, the most successful over the past few years, but I think the down side of the approach is evident now, although I am not ruling out the possibility that they will be most profitable again in near future.

    • jem says:

      Fair enough. Thanks and I enjoy the blog

    • Mario says:

      come on man that’s even worse of a statement! You’re digging yourself into a rut with a statement.

      Seriously man….what fundamental trader/investor is clear on where to go and what to do here? By definition a fundamental investor does NOT look at the chart like a technical trader so they shouldn’t be “upset” by such charts if they really did “know” what they wanted to do. Think about this man.

      This is NOT about a few kids in their parent’s basements trading cup and handles and double tops with a mean reversion off the 50-day ema. Seriously man that’s just so lame.

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