Thursday, March 12, 2009

How Media Manipulates Investors to do the Wrong Thing

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

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As anyone who reads this blog knows that we have watching oil closely for quite awhile now and recommended buying DXO on the evening of February 17th. Oil double bottomed the next day. Did all the media investing pundits tell you to start buying at that point like the New York Investing meetup did? No, not at all. All of these geniuses missed it. So what happens when Wall Street misses the bottom, as it invariably does? Suddenly negative articles permeate the media about how dangerous it is to invest in that stock or asset... how its likely to go even lower yet... how you better get out in case you thought you timed it right. And while you're selling or staying on the sidelines the big money is picking up bargain goods behind the scenes. I have seen this ploy over and over and over again. You should be aware of it and make sure that you don't let yourself be shaken out of a profitable investment.

What is going on in the oil market right now is a quintessential example of how the media allows itself to be used by big money sources to misreport to the average investor what is really going on. There has been an unending drum beat in coverage of the oil markets about how demand is going down (while exaggerated, this is in and of itself a true statement), but with little or no mention of the supply side of the equation. We pointed out yesterday that a drop of 1.4 million a barrels a day globally is projected and sometimes in the same article you can find out that OPEC has cut 4.2 million barrels a day of production. Kindergarten economics tells you when supply drops much more than demand, price goes up. Not only is this simple analysis missing in media articles about the oil markets, the headline usually screams something about demand dropping for oil and how negative this is. I have seen this mindless idiocy echoed on comments on numerous investing sites. Many investors became irate when oil started going up and insisted manipulation was going on in the market because how could price go up when demand is going down? The average investor is indeed quite gullible (and knows nothing about economics).

Even when the mainstream media reports oil supply, it does so in a misleading way. The big supply news is always U.S. oil reserves in Cushing, Oklahoma (as if on one outside the United States uses any oil). Oil sold off sharply yesterday after a 'big' increase in supply was announced. 'Oil glut' and 'awash in oil' were phrases investors heard from the media. Oh really? Let's analyze just how big this 'oil glut' is (figures thanks to Bob Pascazio). U.S. oil inventories rose 700,000 barrels. Sounds like a lot if you don't know that there are 351.3 million barrels in storage. The increase in oil reserves was less than a 0.002%. The U.S. uses 833,000 barrels of oil an hour. So the 700,000 increase represents less than one hour more supply of oil. We have only a little over 17 days of usage in total storage. Even a minor disruption in supply and we would be out of oil before you knew it. Some glut!

This blog is being published late today because I wanted to see if suddenly oil went up today after all the negative press yesterday. DXO was mostly flat during the morning, but then started zooming in the afternoon. How surprising! Maybe all of those articles that appeared in the press yesterday saying OPEC isn't going to cut aren't true after all. The media not given investors the real story? Now I wonder who could benefit from that?

NEXT: Market Will Reward Real Value Going Forward

Daryl Montgomery
Organizer,New York Investing meetup

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

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