Consider The Source!
Vol. 1, Issue 03 The Information Age is well upon us, and in the markets this is a good thing. For the US resin markets in particular, this increase in information illuminates what had been in the dark for many decades. We not only know what energy prices are doing in real time, we also now know how crucial chemical markets perform throughout the day, such as ethylene, propylene and benzene. Resin market information is updated and available each day.
In addition to my own daily newsletter, the PetroChem Wire, I also receive more market information than ever before - analyst reports, auction results, trader notes. This is where the resin markets are beginning to face a new issue: information overload.
Information overload is nothing new to, say, energy market traders. They receive hundreds of reports from many sources. The information can sometimes be conflicting. Goldman Sachs may say something that is in direct opposition to T. Boone Pickens. One newsletter may say something that is slightly different from another newsletter.
Certainly, they can’t all be simultaneously true! Or can they? The can - and they are - if you Consider The Source.
Consider the information proliferating about the US resin markets. Increasingly, trader notes are a compelling source of information. This information is free, and often quotes from external news sources. When viewing this information, however, consider the source, and its purpose. Is the purpose to illuminate you about the markets? Perhaps. Is the purpose to market the trader’s services? Bingo! Of course it is, and there’s another marketing aspect in these notes as well: the marketing of opinion. If a trader note advises that a commodity price is going to perform in a certain way in the future, this trader is not only telling you their position, but also encouraging you to believe it as fact. The best scenario for the trader is that you read their report and call them to transact on the commodity. The next-best scenario is that even if you don’t transact with this particular trader, your own behavior in the market supports their market position. They know that you matter to their market, and that’s why they send you their personal reports.
These reports are very illuminating, and as I journalist I deeply appreciate them - they tell us what the traders are thinking, and this is very valuable.
However, these reports are only a piece of the information puzzle, and their inherent bias must never be ignored.
Analyst reports are also useful. They often explain market data or events in great detail, and can illuminate readers to important market drivers, such as a particular company’s cash position or profitability. More often than not, analyst reports also contain forecasting. Forecasting is compelling information, and analysts are uniquely qualified to make educated guesses on how a commodity will perform in the future. The word to consider very seriously in that last sentence is GUESS. The guesses are educated and often supported by mountains of historical data, but they remain guesses nonetheless.
When an analyst predicts that a commodity will have a massive sell-off in the fourth quarter, for example, that analyst is imparting their guess. They are not personally going to sell off that commodity; they are not actually a member of the market, like you are.
When a trader advises that a commodity will have a massive sell-off in the fourth quarter, that trader needs that to happen, and you can bet that they are working to achieve it.
This brings us to news reports, and newsletters. Traders and analysts may call their reports such, but as we know, newsletters are the product of journalistic efforts, rooted in the unbiased portrayal of past events. Newsletters gather information from traders, brokers, analysts, producers and consumers. True journalistic newsletters do not discuss the future; they, like your morning newspaper, depict only what has already happened and what people are saying about it.
I receive many calls from people in the resin markets asking where prices will go next month. My answer is always the same: “If I knew that, I wouldn’t be writing this newsletter - I’d be trading the market.” Newsletters have no financial stake in where commodities perform. Newsletters, unlike much of the information proliferating through the markets, are typically not free. If your only market information is free information, you probably aren’t getting the whole story.
Now, newsletters themselves are not all created equal and it’s also important within this space to Consider The Source. Do you know the person writing it? You might want to contact them and see how well you think they understand the market. Does the newsletter frequently quote the same exact sources? If a newsletter only attributes its information to traders, they probably aren’t getting the whole story either.
It’s not easy to see the proverbial forest through the increasingly large number of trees, but it’s there. All information has inherent value, but creating a value stream from that information for your business takes a bit of attention and often requires some discriminating questions. First and foremost, you must Consider The Source.
For more podcasts in this Transparency series click here.
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The PetroChem Wire is a daily newsletter serving the petrochemical industry. It counts every major chemical and refining company among its subscribers, as well as many major manufacturing concerns, global conglomerates, industry consultants, equity analysts and government agencies.
Contact:
Kathy Hall, Executive Editor
+1 720 480 6288
kathy@petrochemwire.com
www.petrochemwire.com
Copyright 2009