I regularly watch news channels like CNN, Bloomberg, or read finance articles on Yahoo or Google. There are a lot of analysts who comment about the markets and try to rationalize the daily movements.
The disgusting thing about it is that they will find whatever reasons to explain the movements and changed their commentary as they deem fit.
Take for example an increase or expected increase in the FED interest rate.
Theoretically, when interest rates increase this increases funding costs which would decrease company profits. The natural reaction that markets would have is for stocks prices to decrease, due to reduced profits. Or in financial modeling, due to the increase in discount rate, the expected stock price would be lower.
So when markets move down after an expected increase in rates, market analysts have an easy time and are able to explain the downward drift in prices.
But when prices increase after an interest rate increase, they change the story, and instead say that due to market confidence, the FED has increased the rates, and the market participants also feel the confidence and thus are pushing prices upwards.
It's like heads they win, tails you lose.
And this is all over the financial industry, and yet the consumer just lap up the story like children listening to a bedtime story.
I've been in meetings with country heads of a financial institution. And the global head asks, "so what is going to happen in the next 2 years and how do we plan for it?"
The country heads all give a data based response, as in they just responded using existing data. "Current markets are like this......" And refused to commit on what they felt was going to happen in future. And the global head kept asking, "so what's going to happen and what are we going to do to prepare?" And the country heads keep talking about current situations and beating around the bush.
We always think that someone knows what's going to happen in the markets. We always think that there is someone smarter all that the bigger companies would be able to predict the future, or at least know something that we do not. And after I attended that meeting, I concluded, that no one knows anything. There is some slight expectation and predictability, but if we are talking about 2-5 years into the future, it's just a coin toss.
So now I take any market commentary with a large pinch of salt. Cos no one knows. And they always have an answer for anything, however irrational it may sound.
So above we have the lies of predictability.
Then, there's stuff like structured products which they sell to regular consumers. I won't say these products are bad, some people can make money off them, some are structured to be low risk cos of the mini bonds issue previously.
As a financial institution, I understand that they provide a service to consumers, providing a higher return. I'm sure they receive a large cut of fees for providing an alternative investment product.
However, my gripe about such products is not the fees or returns, but rather the understandability of such products. Many structured products are a bunch of derivatives patched together to provide a better return. Most consumers would not be able to understand them. Truthfully, even a finance graduate might not fully understand such products. Unless maybe he/she was a high performing student.
And the thing about it is... Usually the people who can understand these products won't buy them. And to me, that's just indicative of how appealing the product is.
So if DBS or UOB or whatever financial institution wants to sell a structured product, then I reckon it should be reasonable for the financial institution itself, or the executives to hold these products in their own portfolio.
Else, if you're not willing to eat the food, then why are you selling it to other people?
Note, I'm not talking about fees and commissions. Prudential has the highest fees and commission compared against other insurance providers, like Great Eastern. And yet many people still buy from Prudential, even executives and financially knowledgable people.
What I'm against is rather that structured products are typically bought by the average consumer and typically avoided by folks who have more financial knowledge. And I take that to mean something.
So yea... For me, I'm pretty saddened by the financial industry. It pays well. But if I had the choice, I would not return to it. I find that the industry as a whole is fluffy and airy fairy. I'm not saying I don't like the people. I still have many friends there and many people put in a good days work to make a living. Rather, I think that the industry as a whole is driven by wrong incentives. Due to the large bonuses, and incentives, it drives people to lie, sell questionable stuff and other questionable actions.
I read somewhere, that the markets is full of uncertainty. And if you want to sell to consumers, you have to sound certain. So market analysts all cook up fluffy stories and sound firmly confident in interviews so that consumers will believe it, cos consumers WANT someone who sounds like they know something, rather than someone who is doubtful and not confident.
And to me, that's just silly...
Think about it... If I told you I don't know what's going to happen in the markets, I would be truthful, but you wouldn't like me and wouldn't buy from me or listen to my market commentaries.
But if I told you confidently that markets will go up soon, you would probably like my story better and listen to me further. Although it's likely that I'm not being very truthful.
...(I didn't say how soon is soon right)
Although it next begs the question, are these people untruthful? Or are they so "confident" that they believe that they themselves are telling the truth?
The financial industry provides a service. I understand that, and it's a role that is very important in economics. Helping to reallocate resources, matching funding between different parties and providing liquidity to the economy. But beyond that, to expand and drive further sales, I think they have mutated to another entity which is not entirely truthful, and incentivizes unethical behavior with promises of large fortunes.
<<PREVIOUS POST // NEXT POST>>