Wall Street Journal Reporter Sets New Standard for Awful Journalism

Despite its attempts to predict the future, I'm generally a fan of the Wall Street Journal; I know of no other publication that so succinctly and clearly gives you the day's most important business news. People who read the WSJ thinking they're getting an edge on where the markets are headed couldn't be more self-deceiving, but if you're just looking for the basics of what happened in the markets, you'd be hard pressed, in my mind, to find a much better source. Also, for those scant of us who follow commodities, the WSJ is one of the few places I know among major media outlets that actually gives page space to the markets (albeit succinctly and usually on the back of section C).

Okay, now, with that caveat out of the way, I have to say that yesterday's article: "Traders Bet on an Oil Breakout," which purports to be the day's "Commodities Report" is unquestionably one of the most shallow, poorly researched, amateurish articles I have ever read. Anywhere. In my life.

Let's start with the headline:

"Traders Bet on an Oil Breakout"

Is that so? Which traders? What kind of break out are we talking about here? Up? Down? How big are these bets? Surely the article will expand...

Moving on, from the second and third paragraphs we get this:

"Since October, prices [of oil] have largely ranged from $70 to $80 a barrel, the narrowest four-month band since mid-2007. An oil "fear gauge"—the CBOE Crude Oil Volatility Index—early last week fell to the lowest level in more than two years.

But in the past few sessions, trading in the crude-oil options market has shown signs of reviving... While oil prices remain within that trading band, the volatility index has bounced off the bottom, according to some traders."

Note that this does not say that the crude oil market has picked up, rather the crude oil options market has shown signs of reviving, and we're given this graph of the volatility index to, I have to assume, support that statement. See if you can pinpoint the obvious bouncing off the bottom mentioned in the above paragraph:

See that big, significant bounce way down at the end there? Neither do I. It looks much more like random movements typical of every single market everywhere on the planet since the invention of markets. Which traders claimed the volatility index has jumped off the bottom? Oh right, some traders.

Back to the article, jumping ahead to the seventh paragraph, the author switches gears to talk about what's driving oil prices, and we get this doozy, possibly my favorite series of sentences that I've ever seen in a serious publication about financial markets:

"New swings, either up or down, likely will be triggered by expected changes in supply or demand. Some expect oil prices to tumble, taking a cue from last week's selloff in stocks, which fell on fears of another downturn in the global economy. Others say prices will soar because of stronger economic growth and fuel consumption."

Go ahead and read that again. Maybe think about having a calligrapher write it out and then frame it and put it on your wall. It would almost make a nice zen koan were it not so idiotic. Consider that this reporter, whose job is, apparently, to write news stories about financial markets, actually took the time to write that first sentence and pass it off as legitimate reporting. Did anyone read this article and suddenly have the epiphany that changes in supply or demand of a commodity might affect the price (either up or down, remember)? Next, we get two fantastic sentences telling us that some people think the price of oil will go up, while other people think the price will go down. Does this reporter have some insider on the NYMEX who's sending her tape recorded conversations from the back rooms, or has she made this inference all by herself? In other news from the world of logical tautologies:

• If P, therefore P.
• Q or (not Q).

The rest of the article goes on to talk about the proposed oil position limits by the CFTC (which I've previously discussed at length) and how they've caused some speculators to exit the market. This second half, so to speak, in its own right is actually a reasonable bit of reporting, but it certainly doesn't belong under this headline of "Traders [Betting] on an Oil Breakout". It's sort of like reading two different articles, one written by a reporter, and one written by that reporter's (admittedly precocious) 9 year old child.

What could have been improved? Other than "everything", this article is essentially three different articles, none of which is actually meaningful in its current incarnation. If this were an article discussing the signs pointing to a return to volatility in the oil market (as the headline purports) then a lot more work should have been done to determine if that "bounce" in the CBOE Volatility Index reported by some traders as the bottom is the result of explicit returns to the market by speculators and/or hedgers, or if it's just random noise. There is a mention in the article that Southwest Airlines, Newfield Exploration Co, and Chesapeake Energy all "recently" increased their hedging positions. If the CBOE volatility index increase is the result of hedgers taking greater positions, that implies less volatility than if these were speculators reentering the market. Do some reporting and figure out which it was.

If, on the other hand, the article were to focus on this crazy "supply and demand" theory that's been posited by the author, it should actually show some trends and figures for supply and demand. Is there a correlation between oil reserve estimations and volatility? How have global import/export numbers looked for 2009? What do the fundamentals suggest?

And lastly, if instead the article were to focus on the proposed CFTC regulations, maybe it could talk about how those regulations will affect volatility. The article ends with a quote from the global head of energy trading a Société Générale (a European corporate bank I've never heard of) talking about why hedging is important for companies that produce and consume oil. This is altogether worthless information. Of course hedging is important for companies that produce and consume oil. A better, more meaningful question to end the article would have been: "If enacted, how do you imagine the CFTC imposed position limits on speculators will affect volatility and/or liquidity? What does your bank plan to do if these limits are enacted?" At least then we would have seen an opinion that may provide insight into the the current state of the market.

Seriously Wall Street Journal, proofreading means more than checking for spelling or grammatical mistakes.