Mirror Image News

One thing you can always count on is that the news will explain why things happen in the financial markets. It will always give you a reason, but not necessarily the real one.

Consider the following 2 stories, 7 days apart, with 2 completely different reasons.

Asia Currencies Drop on Concern About Regional Capital Controls

Asian Currencies Fall to 6-Week Low on European Debt Concern

Both miss the real issue. Yes, capital controls are never good for currencies. And the European situation is a powder keg. But the cause and effect world of news gets everything backwards, if it gets it at all.

Asian currencies are falling simply because the dollar has been rising since November 4th, the day after the Fed's infamous QE2 announcement which was supposed to trash the dollar.

The only influence news has on the markets is that it tends to support the trend. The dollar was already going up for its own reasons when these stories appeared. Regional capital controls and European debt concerns only added to the trend of the strengthening dollar, yet the news headlines suggest a causal relationship based on the news itself. Not so.

If you recognize the underpinnings of the broad trends in the markets, you will not be swayed by news, nor will you be misled.