There’s something you need to understand about the stock market. The pros already know this and it’s about time you were told.
News stories and actual news developments don’t matter anymore. The only things that matter are the headlines about those news developments that the media put out.
Why? Because there are a group of people who are referred to as “algos” who trade huge amounts of money instantaneously on what those headlines say.
Algos, of course, is short for algorithms. They are a set of rules — or commands — that a computer is ordered to follow.
The people in charge of the computers don’t actually make trading decisions anymore. They aren’t fast enough. The computers — once programmed — have taken over the decisions of when money should be invested and when it should not.
Once the computers are programmed, humans don’t matter. They matter so little, in fact, that the people are now referred to by the name of the programs — “algos.”
So, when some lowly editor at one of the wire services puts out a headline like: “China, US Agree” the algos — the computers — will automatically buy stocks.
It doesn’t matter if the story under the headline says “China and the US yesterday agreed to have broccoli and not spinach during the trade talks dinner.”
Could a headline writer do that on purpose? I hope not. But stranger things have happened.
And where could a story like that come from? The cook. Someone who has seen the menu or a person who doesn’t like spinach and is hoping to influence what is served.
Maybe, even, someone who is intentionally looking to juice the stock market.
OK, I had to explain all that before I get to my main point.
Last week the stock market rallied sharply on “news” that China and the US had agreed to phase out tariffs that are at the center of the current trade war. One headline read: “China says it agreed with US to cancel tariffs in phases.”
Bam! The stock market flew higher on that headline and other ones like it.
The trouble is, the headline was wrong for a number of reasons.
The first reason is that the facts of the story were wrong. Who says so? President Trump did when he came out the next day and said he agreed to no such thing.
Huh! What went wrong?
For one thing, a Chinese Commerce Ministry spokesman who was quoted in English in that story allegedly said, “both sides have agreed to cancel additional tariffs in different phases, as both sides make progress in their negotiations.”
The spokesman didn’t give a timeline. Why didn’t he give a timeline? Because all the guy was saying is this: if progress is made, the tariffs will be phased out.
Well, no kidding!
But if you look at what the spokesman said in Chinese, the mis-translation and the headlines it begot show even worse journalism.
Now, my Chinese is limited to the words “won ton” and “chow mein.” But there are automatic translators readily available these days. I used the one provided by Google.
What the spokesman said, with some stumbles, in the Chinese version of the story was: “The important condition for the agreement between China and the US is to cancel tariffs at the same time.”
The Chinese version of the story also said “that if the two parties reached a first-phase agreement, they should … the content of the agreement … the simultaneous cancellation of the rate has been imposed. This is an important condition for reaching an agreement.”
The spokesman said nothing about an agreement actually being reached. The spokesman merely said that canceling the tariffs needed to be part of the negotiations.
Well, that’s obvious. And it does not warrant any kind of enthusiasm, much less the cheering that occurred on Wall Street.
I don’t know what went on with that translation and all the other nonsense stories that are coming out about the trade negotiations. But I do know this, faulty reporting is leading to people making a lot of money. And it’s suspicious.
And know this. The algos who trade in a split-second will also be the ones getting out of the market in a snap if the headlines suddenly turn negative.
Think of it this way. The average investor is like a kid playing Tee-ball who is competing against major leaguers. As long as your interests align you are fine. When they don’t, uh-oh.