When the economic news is bad, an investment industry representative will tell some TV interviewer that the stock market has already discounted the bad news. By this, he means that the negative economic effects implied by the bad news has been factored into the price of the shares. This analysis is true, as far as it goes. The stock market’s prices respond to the initial phase of the bad news before the bad news hits the media. This market discounting phenomenon has been well-known among forecasters and academic economists for at least 35 years. The rule on news is this: … Continue reading The Argentine Fiasco