Friday, April 13, 2007

The new source of power:The economic analyst

It has been common that any economics events or shocks, might have three kind of impact on economic activity :
a.- The impact the shock itself induces, which is evaluated by its own nature, for example a decrease in oil prices, an increase on interest rates ,a drop in unemployment and the like.-
b.- The second impact ,comes along the interpretation of such a economic or political shock. This interpretation is usually done by experts well in control with the implications they are trying to communicate. However, this is when the other side of the story begin ,because it is hard to find two expert who agree on something . Different judgment about the scenario surrounding the event, might explain deep differences in opinion and confused guidelines for markets. The so called mixed data, make thing worst to get the right interpretation. when it comes to explain to the markets the expected effects of any of such shocks. The quality of judgment, matter to make the difference.-
c.-Markets reaction , make the third line of impact when an economic shocks occurs. But markets reaction are strongly influenced by expert judgment about what it is happening with some key macroeconomic variable. This experts` judgment, means information wrapped in such a way that improves its value, for investors and decisions makers.-
There is a book (The twenty fist century Capitalism) which analyses this new source of power , arising because of the necessity of information on real time for markets to make the best decisions .He (R Reich) called them the “Symbolic analysts”. Who are they?. Well educated people ,usually with high level social capital , highly committed to make clear the differences between them and others. It is like the new global source of power in the sense that “opinion(judgment) is money”, besides they are everywhere with the same capacity of focusing on global events, given that economic information flow freely ,which make it accessible at lower transaction cost to elaborates reports which shapes markets moods .-
A current Latin America President made some comments about this analysts ,saying that some decisions are not constrained by others` judgment ,but by its moral justification or its necessity. Sure, sometime it is so powerful the effect of any comments of this analysts, about expected effects for changes in policy priorities, that it seemed political leader might also have a new source of control to their economic acts. In this global economy , with quick moves between different profitable economic options, it is not free to be left outside of such options just because an analyst suggested that the economy is getting out the line concerning its risk level or macroeconomic performance.-
The recent event when global stock exchanges got into a “volatility zone” because of remarks made by Former USA Federal Reserve Chairman , reflects quite clear what this discussion is about. His judgment of 30% of chances for the American economy to go into recession, was enough to ignite the wide spread reaction against stock prices . Nobody wanted to be left outside of the winners, before the market face the assumed road of a recession .However, was that probability a real one ?.Probably not. Some later clarification suggest so. But the market reaction did not wait for such clarification.-
This new source of power, comes along the continuous flow of information that market has to assimilate in a short period of time to shape its expectations. Any one capable of doing that analysis will have the power ,because of being the first , the others will follow.-

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