On Friday, the markets were rather subdued until a series of events knocked the market off its pedestal. It began with former National Security Director, Ret. Lt. Gen. Michael Flynn, pleading guilty to making false statements to the FBI. That was no big deal for the markets. Then, ABC Chief Investigative Correspondent, Brian Ross, during a Special Live Report, reported that Flynn would testify that Pres. Donald Trump had ordered Flynn to contact Russian government officials, while still a candidate.
Panic ensured. Computer algorithms launched sell programs. That sent markets into free fall.
The problem was that the report was unsubstantiated and fabricated. As it turns out, President-elect Trump asked Flynn to approach several foreign government officials during the transition. This is a common process during Presidential transitions and not an indication of foreign interference or collusion with the US election.
Of course, later in the afternoon, ABC issued a statement stating that, the report, “had not been fully vetted through our editorial standards process.” Markets rebounded but the damage was done. In the evening Ross was suspended by ABC without pay for four weeks. I think he should have been shown the door for good.
I used the panic to buy a little index exchange traded funds. If you sold into the false report, not only did you make a mistake, you contributed to the panic. Never, ever, ever, make a trading or investment decision until you have all the facts. This is true for earnings reports, economic releases and media stories.
The real problem that I have with the whole sordid Ross affair is that his actions, which were clearly done knowingly that they were false, hurt many people’s investments. This is a form of market manipulation that cannot go unpunished. According to my interpretation of SEC Regulations Ross can and should be prosecuted for his actions. What he did was the financial equivalent of yelling fire in a movie theater. Ross’ actions are not a Republican or Democratic issue; though he was clearly biased in his reporting. Rather it is a matter of what is right or wrong in the eyes of the investing public and regulators. Perhaps he did not intend to impact the market but should have thought twice and known better before making false statements that could negatively impact markets. Sorry to be the bearer of bad news, Joy Behar, another ABC employee, you might be in legal jeopardy as well for perpetuating the lies and panic.
I have no doubt that class action attorneys will be hard at work today to file lawsuits against ABC’s parent, the Walt Disney Company (DIS). DIS which already has issues with its ESPN unit, is in real trouble. Even the December 15 launch of the latest Star Wars movie cannot save DIS from its cable and broadcast problems. DIS should split into two different companies: one with feature films, resorts, and theme parks; and the other with cable and broadcast media. In other words, the thirty-two-yearlong marriage of Walt Disney with ABC/Cap Cities must be dissolved. Until then, DIS cannot and should not be owned. The stock is up just 0.99% this year during a strong bull-market run for 2017.
However, as we know, markets can be irrational in the short run and rational in the long term. During Friday’s market session, short term irrationality gripped the markets.
Then on Friday night, the US Senate passed its version of tax legislation. It must be reconciled with the House of Representatives bill before landing on President Trump’s desk. It is not a matter of if, but when. Expect that to occur before the holidays. From a personal perspective, it will cost me real money. As an economist and financial expert, in my opinion, it was the right piece of legislation that the economy needed, because what we have on the books now is convoluted and dysfunctional. Expect 2018 earnings estimates to be hiked as a result of the tax legislation.
The tax legislation news led to rationality settling in on Sunday as Asian markets rallied, while European and US markets futures all traded higher.
Put your money on fact not fiction.
Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView AssetManagement, LLC held no positions in stocks mentioned; although positions can change at any time.
Scott Rothbort is the President & Founder of LakeView Asset Management, LLC, a registered investment advisor specializing in high net worth private wealth management. For more information on investing with LakeView Asset Management, LLC call us at 888-9LAKEVIEW or request more information by clicking on the contact button on the top right hand corner of the website. LakeView Management, LLC is a Nevada LLC, with its principal office located in Henderson, NV and branch office located in Millburn, NJ
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