Wednesday, January 18, 2017

What Is A Word Worth?

We are definitely in new times when a just a quick tweet or statement can send things spiraling in either direction.  Now for traders this phenomena is old hat for them.  They are well aware of the consequences of new communications technology, and reaction times.  However for long term investors, and casual followers many are probably not aware of how quickly our markets respond to news, or ahem, tweets & posts. I'll use two recent examples to highlight this.

One is when Donald Trump cautioned the dollar is to strong yesterday. That sent the currency, currently in a bull run, back on it's heels. That sent the Dollar Index down from roughly 101.60 to 100.30 in quick order. That's a big move for currency.

Then the week before politicians, including Trump again, came out lambasting medical companies for making to much money. I'll add the healthcare sector also had the same patterns when Hillary Clinton chided the industry a few times during her campaign. Ironically some of their "profit problem" arises from the governments own stupidity the last couple decades which allowed politicians to be swayed by campaign contributions.  I guess politicians like to work in their own self interest at the expense of everyone else. Who would have thought that.  Either way this sent the whole healthcare sector down sharply as it's the new favorite political whipping boy. You can see when the statements came across screens as evident by the sharp drop

These types of events aren't isolated to politicians. Big investors like Warren Buffet, Carl Icahn, and the list goes on elicit the same type of movements in the market their comments target. A simple tweet or interview clip can send traders across the globe scurrying to get in and out of positions quickly causing heavy volatility from anywhere to a few minutes to a few days.

The thing is these types of events generally have very little effect on the longer term trends. They show up merely as small blips on the chart, that's if they even show up at all. I'm highlighting this to show people that the way our markets work has definitely changed, and there is no going back.  Trading, investing, and markets never stay static. It's a constant evolutionary flow of capital, technology, and emotions.

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