Friday, January 2

All the news that's fit to scramble your brains, and a lesson in Global Village Math for unscrambling them

Take a look at the wildly different headlines and lead paragraphs about the reason for the U.S. dollar troubles, as reported in two Bloomberg articles published on December 30, 2008:

Report filed by Ron Harui:
Dollar Declines as Israel-Hamas Conflict May Reduce Oil Supply
The dollar fell the most in almost two weeks against the euro after Israel’s assault on the Hamas-controlled Gaza Strip raised concern that oil exporters will reduce crude supplies to U.S. consumers.
Report filed by Jamie McGee and Michael J. Moore:
Dollar Falls on Bets Fed’s Zero Rate Will Cut Greenback Demand
The dollar declined against the euro and the yen on speculation the Federal Reserve’s zero target lending rate will weigh on demand for the greenback.
Harui does note in his second paragraph that the dollar:
... also dropped versus the yen before a U.S. report today that may show home prices dropped the most on record in October, adding to concern the recession will deepen in the world’s largest consumer of oil.
But if you contrast his analysis with the one filed by McGee and Moore you'll see that he is so focused on the Gaza crisis that his report is virtually worthless when it comes to understanding the dollar's present troubles.

Of course any hot conflict in the Middle East will cause the price of oil to rise on fears of an interruption in the supply of oil from that region, which can impact the USD. But one has to look beyond the oil issue and its relation to the USD to grasp why the dollar is facing long-term weakness. From the McGee-Moore report:
"With the Fed reverting to non-conventional monetary policy, the whole notion of a strong dollar goes out the window,” said Shaun Osborne, chief currency strategist in Toronto at TD Securities Inc., a unit of Canada’s second-largest bank. “The risks are skewed to dollar weakness."
This doesn't mean that Harui's report is useless; on the contrary, it's a clear window on Tokyo's very grave concerns about any crisis that could suspend oil deliveries from the Middle East. How do I know this about the report? Because:

> Ron Harui is based in Singapore and his reporting focuses on financial issues in East Asia, notably China and Japan.

> Three of the four sources he quotes in his report are Japanese based in Japan.

> Japan imports almost all of its oil and is the world's third-largest oil consumer after the United States and China. Since the severe oil crises in the 1970s the Japanese have striven mightily to reduce their dependence on Middle Eastern oil, but they are still heavily dependent on oil from the region.(1)

McGee and Moore, on the other hand, are based in the United States. And while the U.S. and Canada are of course worried about anything that could suspend oil deliveries from the Middle East, the concerns in Washington and Ottawa are not as severe as Tokyo's about the same issue.

So. No use to complain about subjectivity in news reporting and analysis. The situation I outlined above is just the way things are in today's world of news coverage: people study situations from their particular self-interest, and reporters talk to the people on their own beat. But to lessen confusion about differing views in news stories on a major issue, do the math; develop the habit of noting:

> the location and interests of the major sources quoted in a report,

> the reporter's beat (check via Google for a history of the reporter's filings), and

> the official view(s) of the situation under analysis in the region/country that the reporter covers.

Reading news stories in this manner gets easier with practice and soon becomes second nature. The payoff is that you're better able to spot the currents and eddies swirling around the foreign policy decisions of world powers.

And always look for a second opinion from a region of the world not covered in the first report you read. This exercise might seem self-evident when you're trying to understand an event with global impact. But as the example I've given points up, often the contrasting views and the reasons for them are not immediately obvious.

1) Although it's two years old this report from the Asia Times, Oil-hungry Japan looks to other sources, is excellent background on Japan's heavy dependency on Middle Eastern oil and their steps to reduce the dependency.

Psychologically the Japanese have never fully recovered from the 1970s Middle East oil shocks and for good reason: the panic in Japan sent Japanese scrambling to stock up on household necessities for fear that stores throughout the country would run out.
This entry is crossposted at RBO.

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