Back when I did more reporting on mergers and acquisitions, I used to get a lot of calls from merger arbitrageurs. Merger arbs, as they’re known, are the traders who are a cross between journalists and Hercule Poirot; their whole professional lives are devoted to constructive investigative panic over whether two companies that agree to a merger will actually close the deal. It’s a bit like betting that two engaged people will actually walk down the aisle; chances are that they will, but the ones that don’t will leave you traumatized and questioning life forever.
So it was with the arbs. Back in 2007 to 2009, when big mergers were failing monthly, many arbs lost their will to live (as arbs, not as humans.) They were distraught. There are no higher-strung people in the financial markets. No amount of investigation, information or sourcing would put their fears to rest. Because their paranoia was a professional survival instinct, nothing would comfort them or assuage their fears. Very often, if they got me on the phone I would have very little talking to do. They would just launch into their version of the narrative of a merger, asking me almost nothing. It was almost like they were saying their prayers, or as if repeating their version of events would make it true. They just needed the soothing presence of someone to hear and witness the story they had woven.
I called this practice “Bedtime Stories for Arbs.”
Days like today show it’s not just arbs who need that kind of ritual. The Dow, Nasdaq and S&P were all victims of a bloodbath. The Dow fell 512 points.
And all the news reports were some variation of Bedtime Stories for Arbs. I turned on CNBC at one point to find no fewer than 8 faces in little squares, like a panicky Brady Bunch. Their theories to explain the drop - and oh boy, were they theories - were innovative. It was hard to follow, but at least two contributors were making a compelling case that German bunds and Swiss francs had conspired with the Japanese yen to create a whisper of QE3 in the U.S. I wondered how Colonel Mustard had escaped suspicion, what with his candlestick in the library.
(My theory: yesterday the Onion published a story with the headline “Drunk Bernanke Tells Bar Patrons How Screwed Up the American Economy Really Is.” Obviously that’s a “sell!sell!sell!” moment.)
It was hardly just CNBC. Other news outlets suggested that the problem was that investors had lost faith in policymakers to handle sovereign affairs. This was amusing. That’s been going on for 3 years at least, people. The truth behind this blind-men-and-the-elephant farce is that people need to hear voices and theories to comfort themselves. And naturally, you can’t have dead air or blank space when people want some insight into the markets freaking out.
But here’s what none of those people will tell you: they don’t know. No one knows. There is no education, no MBA, PhD or even market experience, that can now or will ever pinpoint a reason or reasons for a market rout that is not directly spurred by some piece of news. You can’t find a single reason to explain why “the market” is behaving a certain way. You can’t even plausibly define “the market.” It’s too large, too sprawling, and is filled with people moving their own investments for their own reasons. Saying “the market was worried about recession today” is like saying “all the waves in all the oceans started to worry about global warming.” Is that a thing that’s happening? Yes. Do “the waves” act on that or move in tandem? No. Panic doesn’t have a reason. Don’t anthropomorphize stock prices. (They can’t hear you, and if they could, they wouldn’t give a crap what you think.)
The days of animal sacrifices have been highly underrated. At least then people had an outlet for their superstition. It was bloody, but crisp and decisive. Today, we have to hear investors just bang on about their hopes, dreams, worries, fears, panic, and listeners and viewers are somewhere between a captive audience and unwilling therapists. Now we have no way to appease the market gods, or our personal demons.