There’s Nothing New About Uncertainty

July 7, 2012 | By
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Barry Ritholtz - Washington Post

There’s Nothing New About Uncertainty, however, uncertainty has become a news media darling since 2008.

Washington Post

Back in fall 2010, one of those absurd memes began circulating in think tanks, on the Internet and around trading desks regarding the impact of uncertainty. “Oh no!” declared pundits. “The economy cannot recover so long as it is racked with uncertainty.”

Not coincidentally, the first go-round was right before the midterm elections in the United States. The “uncertainty trope” is back again, and — what a surprising coincidence! — during another election year.

Indeed, Google Trends reveals that there is a pattern to the media use of the term “uncertainty.” It starts high in the beginning of the year, as media outlets trot out their year-in-preview pieces. It hits its nadir over the summer as families vacation and the latest fun and sun articles are de rigueur. It ramps up to a distinct peak in October and November, just as voters head to the polls in state, local and federal elections. In a fairly evenly divided country, there is surely uncertainty about election contests. Then it bottoms out around the holidays. While you may not know what you are getting for Christmas, Google’s not high on “uncertainty” either.

Uncertainty has become a news media darling since 2008. The recession, credit crisis and market collapse drive lots of interest in the idea.

It does not take much deep thought to recognize the utter nonsense of this. Anyone complaining about a lack of certainty — in policy, in the economy, in markets or even the weather — simply reveals how little they understand about all of these things.

From the investor’s perspective, markets require uncertainty to function. Indeed, they thrive on doubt, imperfect information and a lack of consensus. Uncertainty drives the market’s price-discovery mechanism. Investing requires differences of opinion, for when there is broad agreement about an asset’s fair value, trading volume falls.

Read the whole story: Washington Post


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