Fake News

I really can't stand most of the financial news media.  They are seriously like a pack of lemmings just following each other around mindlessly.  Personally, I think that CNBC has probably lost more money for people than Madoff and Ponzi combined.

Let me review the news of the past two weeks with regards to the so-called 'Trade War'.  'Markets fall on trade war fears', 'look how bad the market is acting because of the trade war', 'Markets roiled by trade wars', 'Trade Wars this, trade wars that, BLAH BLAH BLAH BLAH!!!...'   The Fake News Financial Media wants us to believe that the world is coming to an end yet again.

But guess what?  Since Trump announced the $200 billion of trade tariffs against China on June 20th, the Dow Jones is down a total of -.58%.  That's basically unchanged.  Look at the action back in April and May.  It looks much worse than the past two weeks have been.  Do you even remember what was happening then?

The point is that probably 95% of the time market moves are not driven by news.  The main things that cause markets to move are underlying trends, the levels of supply and demand that exists at certain price levels, and random noise.

Prices in markets are always doing one of three things.  Going up, going own, or staying the same.  When they are going up, the forces of demand are overpowering the forces of supply.  When they are going down, the forces of supply are overpowering the forces of demand.  When prices aren't moving the forces of supply and demand are equal.  These trends are fractal in nature, meaning that there are trends within trends of varying time horizons.

And there are certain levels that are more important than others with regards to the amounts of supply and demand that exist at them.  There are certain levels where there is so much supply that the forces of demand can't break through them.  These are resistance levels.  And there are certain levels where there is so much demand that the forces of supply cant break through them.  These are support levels.  Often times, trends stall or reverse when they reach these levels.

There is also movement that is caused by random noise.  For example, say a client of Fidelity needs cash and they sell $200,000 worth of their mutual fund.  Then the traders at Fidelity would need to sell a basket of securities that are in the fund to raise this money. 

Now suppose that at the same time a different client deposits $100,000 into the same fund.  Now the traders need to buy a basket of the same stocks that they are selling!  This dynamic will cause these stocks to move and it has nothing to do with fundamentals or trade wars or what some idiot on CNBC is saying.

The trouble with the media is that when these dynamics occur, they always need to try find some sort of story that is driving it.  The media is in the entertainment business and not legitimate journalism anymore.  If the market happened to hit a support level and rebounded at the same time that the Trade War was announced, the media would be saying that the market is up because stocks will benefit from a Trade War!

If you hadn't looked at the markets and just listened to the news over the past two weeks, you would probably think that equity markets crashed.  But in reality the Dow is only down -.58%.  The lesson to be learned here is that you should have the confidence to shut the news off and think for yourself.