Don’t Be Misinformed By The Headlines

The AP headline this morning screams, “China leads world stock advance as dollar rallies”. Eight words and two totally disingenuous notions.

The problem is that people read headlines, and little else. Worse, they don’t give it much thought. Unfortunately, today’s mainstream media are not disciples of Walter Cronkite.

First point: The Shanghai stockmarket has been closed since September 30 for a week of celebration of the 60th anniversary of Mao Zedong’s Communist Party takeover in China. The heaviest weighted stocks in the Shanghai Composite Index are traded in Hong Kong and New York, which have been open for business and rallied hard during this time. Simple arbitrage in the morning today took the Shanghai index much higher, almost +4% of the +4.8% gain on the day. So it was catch-up and not rally, and AP writers knew it.

http://finance.yahoo.com/q/bc?s=000001.SS&t=5d&l=on&z=m&q=l&c=

Second point: The notion that world stock markets are rallying as the US Dollar advances is a flat-out deceit. The fact is that world stockmarkets are only advancing because the US Dollar is crashing. Let’s revisit this AP lie in a week. Better still, let’s look at the performance chart of the $USD versus (i) the Dow Jones World Index [$DJW], and (ii) the S&P 500 index (^GSPC) over the past 40 weeks.

http://stockcharts.com/charts/performance/perf.html?$DJW,$USD
http://stockcharts.com/charts/performance/perf.html?$SPX,$USD

Dollar down, market up; Dollar up, market down. The issue here is simply how low can the Dollar go. We here know that. But much of the world doesn’t, including many traders who have their eyes closed.

With regard to the first point, two hours after Shanghai closed today, at about 5am ET, the $USD started to weaken, which should help push up local market levels for another shot at higher prices. Meanwhile the headline sticks, and the casual reader is misinformed.

I learned my lesson 30 years ago in training to be a registered rep at Canada’s largest broker-dealer. Assisting a broker whose client was complaining of not getting a fill at the quoted market price, I called the floor trader who proceeded to scream, “Tell your client to go trade with the Globe & Mail!” before he slammed the phone in my ear.

Soon afterwards, I spent time with my mentor Ian Notley, who was perhaps the best technical analyst of the past 50 years. He told me to never, ever, listen to a financial reporter because they don’t report the facts, they sell stories. Only later did I realize why.

The world is not an honest place. If you believe it is, you’ll lose.

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