thevicenarian.com

The Power of Rumors

Posted by T.W. Hanson - Feb 22nd, 2008 at 21:02

Late in today’s trade, the equity markets reversed course. Stocks that had been down for most of the day moved sharply higher in the last thirty minutes of trading. The reason for this was a rumor of a split and bailout for one of the major bond insurers. The rumor came from someone at CNBC who falsely speculated last week that the bond insurers would likely be downgraded this week.

I am not judging the behavior of CNBC, the reporter or the market’s behavior. However true the rumor may be, what is of note is how billions of dollars moved around on rumors coming from a source that was wrong the week before.

This is one more example of how trying to time the market is dangerous, even for professionals.