The leaks yesterday regarding the stress tests and how they impact on Bank of America (BAC) are a wonderful example of good spinning (whether by design or by accident).
The first reports were greeted with a bout of selling in the pre-market and lots of earnest bloggers ready to tell their followers that maybe Armageddon was back on the agenda. After some further percolations through the blogosphere and CNBC etc. it now appears that the news is a positive for BAC as the bank has already have raised most of the capital it needs- and through a wonderful sleight of hand involving the way that Tangible Common Equity [TCE] is actually measured - the stock is now moving up.
Confusing... that was the whole point.
The essence of such first class spin is that the signal / noise ratio is calibrated to create the maximum ambiguity. Then the markets are tricked into believing that they have not, in fact, already discounted the news appropriately.
Whether they then go on to discount it appropriately is a different matter and can take a lot longer to manifest itself.
The big concern of course is whether those doing the spinning are as clever as they appear and whether they really know what's going on.
While the Treasury and Fed believe that they can get away with this kind of answer (even if left implied rather than explicit), and more importantly the essential cynicism that it belies, one can rest assured that the financial elite believe that they can, through constructive ambiguity, prevent a systemic financial meltdown.What will be the overall impact of tomorrow’s stress tests announcements on understanding of our overall economic and financial situation? To paraphrase slightly Larry Summers’ smiling response to a question (actually on the future of Fannie and Freddie) after his recent speech at the Inter-American Development Bank, “if you think that was a clear answer, you weren’t paying close enough attention.”
Not quite sure how, if at all, this fits in to this but one memorable quotation from Neils Bohr, the Danish physicist, comes to mind.
Anyone who is not shocked by quantum theory has not understood a single word.
Disclosure: No position
