"But the Solar System!" I protested.
"What the deuce is it to me?" [Sherlock Holmes] interrupted impatiently: "you say that we go round the sun. If we went round the moon it would not make a pennyworth of difference to me or to my work."
— from "A Study in Scarlet", Arthur Conan Doyle
After yesterday’s market excitement where many of us were glued to financial markets, two recent posts from friends got me thinking about business & finance news, and practical "macroeconomics" in general. The posts take opposite sides of the issue, with venture guy Brad Feld arguing that, at least for him, macroeconomics doesn’t matter, and Eric Norlin, of Defrag fame, arguing the opposite.
Here’s Brad:
I’ve learned that the day to day macro stuff doesn’t impact what I do. It’s just noise. And I have more than enough things that I chose to focus on, so I do my best to consciously filter out the noise.
For a different take, Eric watches and reads the stuff religiously (a fact to which I can testify from my conversations with him), and he argues that it matters. He has made money, presently and in the past, from his penchant for following macro/finance/business news, and he doesn’t expect that to change.
In any case, my single biggest takeaway from that whole experience was that the macro swings happen. That sounds stupid, but the natural human tendency is to believe that when the “market” is up (and everyone’s making money — whether in the silicon valley or the real estate market) that things will *always* be that way. Hence, the “pain” of a down market.
Knowing that you can’t avoid the swings only means that on both a personal and professional level you must be prepared for them. That’s it. Its really just that simple.
It is an interesting argument, and in the limit on either side it becomes unworkable. On the one hand you can reach truly Holmes-ian lengths of selective obliviousness, ignoring pretty much anything in the world that doesn’t touch you on a daily basis. On the other hand, trying to remain abreast of positively everything — financial and non-financial — that might one day have implications for you is a mug’s game.
Other takes? How do you make sure that the greatest source of realtime data out there — financial media and markets — doesn’t take over your life.
Related posts:
Although it is tempting to think unseen macro-forces are at work in one’s economic environment, I think the actual number of factors that measurable affect economic activity in a sector can generally be pared down to a manageable number in an Occam’s Razor-type argument. At the very least, macro-level trends are a great way to retroactively rationalize an event. We are imperfectly rational creatures prone to herd-behavior though, so macro-level trends can sometimes have very definite qualitative effects on economic activity.
I like to apply a nervous system analogy to how micro- and macroeconomic trends affect economic activity. The speed at which an electrical impulse spreads over a region of the body served with nerves would appear to be strictly a function of the number of nerves in that region and the number of connections between them (structural details at the micro, neuronal level). However, ambient chemical factors such as neurotransmitters or alcohol can also affect the speed at which an impulse is transmitted. Similarly, when certain macro-level trends become systemic, they can color economic activity in smaller, structurally well-defined contexts.
I don’t really buy the way financial media present their rationalizations, but I think the raw real time financial data might hold more potential.