WASHINGTON – Well, here we go again. Get a bad headline, the markets tank. Get a good headline, the market soars. This morning, headlines trumpeted President Trump’s umpteenth claim that a China deal was nearly in the bag. Mr Market promptly jumped for joy.
None of this Wall Street action has much to do with the fundamentals of individual companies: what they make and what they earn. But it has everything to do with high-speed computer algorithms that push markets to and fro at will based only on headlines. Headlines that may or may not be substantiated. Like this morning’s China deal headlines. It’s insane.
The latest market-moving China deal rumor
Innovative Income Investor guru Tim McPartland appears to agree, and says so in an early morning post.
“It is always disappointing to me to see the silliness of the marketplace in reaction to potential deals–such as trade deals.
“We don’t do politics, at all, on the website, but for once I would like to see both stocks and bonds trade on fundamentals.
“We have so-called ‘trade deals’ which move the markets and we have a FED that is being controlled by short term market movements. Then we have algorithms moving the market based on whatever key words are in the news
“Early this morning we had a quiet market–both interest rates and stocks were off just a bit–nice and quiet just like we prefer. Then a tweet and a meeting at the Whitehouse on China sends market sharply higher. Stocks up 1% and interest rates up 7 basis points (9 basis points higher from earlier levels) on the day.
“Now in the end it doesn’t matter too much to me–holding what I hold [i.e.,preferred stocks -ed.] there isn’t much movement, but I do worry about movements in markets getting out of control–irrational exuberance–as these things eventually (who knows when) come home to roost with movements in the opposite direction.”
Will Mr Market get “Scrooged” again tomorrow?
Similarly, strongly influenced by Tim’s income-oriented approach to investing, my preferred-stock heavy portfolios are mostly stable and don’t move nearly as fast, up or down, as, say, the stock of Alphabet / Google (trading symbol: GOOGL).
Even so, though, they do move, and are moving up rather nicely this Thursday afternoon, largely, it appears, based on President Trump’s positive comments on that elusive on-again, off-again China deal. But that’s not a good reason to move. Up or down. As noted in one of my previous commentaries.
China deal optimism? Is any deal with a communist a real deal?
The President is an optimist. I’ve never personally known a successful businessman who’s not an optimist. That said, trumpeting a potential China deal these days is getting a little bit like hearing more about “Russia, Russia, Russia” from hard-left #NeverTrump Democrats and RINOs. You tune it out.
The “Russia” crappola is discredited. It means nothing. Everyone knows, even most Democrat partisans. So why keep trumpeting it?
The “China deal is coming” story is likewise getting a bit stale. Like “Russia, Russia, Russia,” too much repetition – without delivering the goods – begins to resemble the story and the outcome of “The Little Boy Who Cried Wolf!” Should that wolf actually show up, the little boy’s friends and neighbors will likely ignore his desperate cries. Been there, done that.
We’d like to see a big China deal that gives the US most of what it’s looking for without giving away the store. President Trump should, too. But when negotiating with commies, it’s probably best not to tout a deal until and unless it’s signed. That’s because commies always have a way of weaseling out of a proposed deal, even though they’ve agreed to it, whether they’ve signed off on it or not.
Newtonian physics and the stock market
At any rate, I’d like to think that at least some stocks are going up because they reported better-than-expected earnings this fall, even when all the pundits told us the economy was tanking, never to return. Which they are, to a great extent. And which is why we’re seeing these weirdly furtive rallies, above and beyond the algos’ headline tout regime. One hopes the Chinese government sees this, too, and gets a little more reasonable when it comes to that government’s flat-out intransigence. We’ll see.
The new US tariffs are supposed to come on (or maybe off) this Sunday. So trading today (Thursday) and tomorrow (Friday) will likely reflect whichever China deal or no-deal headline the algos and high-speed computers happen to like at any given moment.
Which means we either have a big rally incoming, adding to the thrill of the usual year-end Santa Claus Rally. (Which has been furtive this month at best.) Or we’ll get a bone-crushing crash, perhaps as bad or worse than the one that ruined Christmas 2018.
Today has been fun thus far. But how about tomorrow?
It’s maddening to sit here and watch overhyped headlines drive both good and bad stocks in violent, unearned directions. But that’s what we have in today’s markets.
So I’ve gradually learned to study good potential stock holdings and evaluate them by the traditional fundamental and technical criteria. But I’ve also learned not to make a move until I confirm the trend of the headlines – right or wrong – that the machines tend to follow. They, and not individual or institutional investors for the most part, are what move markets short term. So you have to learn to outflank them.
Even when you know that the headlines you’re reading may very well be falsehoods, speculations, or outright lies. It’s come to this. Which makes me very nervous about 2020 and beyond.