Take a quick look at the graph below:
From 1991 through 2007, we've seen CPI bounce around between 4% and a bit more than 1%. That's 16 years and only for a very brief period of time (in recent years) did we see the range broken. Consider this for a moment: look at all the news stories, all the business television reporting hours, all the speculation, all the hullabaloo, the much-ado-about nothing...all in the name of predicting and hyping up the Consumer Price Index. Think of the money involved in just publishing to the world all of this "news".
Now think about all the billions, even trillions, of dollars traded back and forth solely on the basis of this one economic indicator which, in the end, hasn't moved outside of a narrow range for 16 years.
Trading is about stories. It's about belief systems and emotion and hype. It's not about rock-solid facts. All those billions of dollars won and lost on interest rate / inflation speculation, when in reality the real CPI hasn't moved much at all. It was a non-story, really, for the last 16 years. But this non-story can create and destroy billions of dollars in wealth.
NOTE: I understand that small fluctuations in interest rates cause interest-rate based financial products to move a lot. But think about why those products are moving -- they're moving because of the stories behind the market, the belief systems, the hype.
