Traders who have played the markets for a very long time tend to believe that news does not move markets long term. Though I have not played this game for very long, I do believe that news is mostly irrelevant. News may wiggle markets, but unless it is some sort of enormous development like a world war or the discovery of cold fusion, capital markets will keep doing what they were doing before anyway.
The reaction to the news is what matters. It betrays the market mood, what traders’ plan B’s are. If a minor piece of news causes a 5% plunge, it means that positions are being held by weak hands, looking for an excuse to sell. If they’re all looking for an excuse to sell, you don’t want to get caught up in the stampede if and when it happens. That’s why last Friday’s 5% Macau plunge, though brief, was interesting. The excuse for the selling is yet again another crackdown on junkets. It’s getting boring already, repeating this same thing over and over. Suncity Group apparently warned its employees to be very careful moving money from mainland China to Macau. Traders panicked.
Fair enough, but don’t junkets say that every day? Be careful. OK. It’s not like Beijing is suddenly cracking down on junkets. They’ve been doing that since 2014. So why the 5% plunge on Friday? I believe two reasons. First, the difficulty in moving money may have something to do with the fall in bitcoin and other digital currencies. Moving money with bitcoin may be technically easy, but converting it back into Patacas or Hong Kong dollars is the hard part. That takes time, and time is dangerous when your currency is wildly fluctuating. As long as bitcoin is more or less stable, it can be used to move fiat money, whatever its fiat price may be. If it isn’t stable, it can’t. That may be partly why junkets are suddenly having a harder time moving money.
The second reason, which I believe to be the main reason, is that the money supply in the United States is about to collapse to zero growth for the quarter. It will happen in about 4 weeks. The last time it happened was in 2008/2009. It has not happened since. The closest we got to zero growth was in late August 2015. Stocks crashed globally, though briefly in the US. Chinese stocks generally still have not recovered. From June to August the Shanghai composite was cut nearly in half, 45%.