August 12th, 2011
12:12 AM GMT
Share this on:

(CNN) - For two days markets have been awash with rumors that French sovereign debt was about to be downgraded and that the French bank Societe Generale was in financial trouble. Was it true? At times it didn't matter.

The French market and SocGen's share price were pummeled by investors who decided there must be some truth in all of this. It was only when the ratings agencies reaffirmed France’s AAA rating and SocGen denied all rumors – without even saying what they were – that things got better.

Every day cold hard facts are the fuel that drives the markets: News about a company or country, favorable or not. But markets are living organisms, made up of Alpha type men and women desperate to take advantage of situations real or perceived. So in the absence of facts, they will listen to rumors and try and judge whether those rumors are likely to be true; then buy or sell on the back of them.

For instance, last Friday the big rumor was that the U.S. was about to lose its AAA rating. No one from the ratings agencies would confirm or deny it, so the rumor just got stronger. And the rumor was true: After the market closed S&P did downgrade American debt.

Frequently a company’s stock price will rise a day or two before an announcement of results or mergers as news leaks out. For example, in the airline industry this often happens when word of aircraft purchases trickles out before the official announcement. "Buy on the rumor, sell on the news" is a well-worn phrase, which explains why the share price often falls after the official announcement is made. The money has been made; it's time to get out.

The regulators try to prevent this by requiring share price sensitive information to be announced via the stock exchange so that everyone gets it at once. The exchanges investigate any irregular price movements and deals which suggest someone was tipped off.

Thursday's rumor de jour was that short selling of European bank stocks would be banned regulators. It helped give the market a hefty boost.

In the end, as is usually the case, the rumor proved partially true. Some regulators would ban some short selling. It is precisely because these rumors usually do have a scintilla of truth that they are followed.

Like it or not, scuttlebutt moves markets. Presidents and prime ministers dying. Companies going bankrupt. Contracts won. Contracts lost. Fires. Wars. Coups and crashes. I have heard such rumors many times over the years and always ask the same question: How much credence do we give it? And regardless if I can substantiate it, should I report the fact rumors are there?

I tend to the view that, yes: Report that the market has these strong rumors without saying whether we believe them to be true. I fundamentally believe if something has moved the market, then you have the right to know about it too.

So... come close. Let me whisper in your ear. Have you heard...???



soundoff (21 Responses)
  1. Gerard

    "alpha males and females" ? their behaviour seems more like that of a flock of hypersenstive sheep to me. Since the whole bubble burst it seems fairly obviious that all these whiz-kids didn't have a clue. And apparantly, they still don't

    August 12, 2011 at 9:34 am |
  2. norman trabulsy

    So, the state of our economy rests on financial wizards swayed by rumors. After the last few years, and the many to come, why are these people still employed? Why is a "great" nation led by speculators who produce absolutely nothing? Nothing of value, that is, to the world and its inhabitants.

    August 12, 2011 at 1:06 pm |
  3. Emmanuel

    Rumors sure move d market. In my country – Nigeria where a series of Banking Reforms are on going, the market seems to be subject to "Have U Heard" – Rumors.
    Currently, three Banks have their Licences revolked by the Central Bank of Nigeria. Truly, Rumors sales!

    August 12, 2011 at 1:48 pm |
  4. ana petrov

    Psst...I just have heard/read the such interesting article posted by CNN anchor and correspondent Sir Richard Quest...is it rumors or simply the truth..I must check that.. In the every rumors have a little bit of the truth...that say an old people...maybe some of them need to stay rumors forever, but the one things is certain we always have feeling like we have an beetle in the ear when we hear some of the new rumor. That is good, like a sign of warning...It doesn´t matter in that moment is it the true or not...The time will form of judgement of that...

    August 12, 2011 at 2:24 pm |
  5. Gene

    Why does Mr Quest shout? He is so excitable. I like him a lot and find his programme very interesting as CNN is all I have in English but I nearly got thrown out of my flat he is so loud!

    August 12, 2011 at 11:26 pm |
  6. Rikardo

    Yeah, but when rumors are launched and published in global media to destroy something, like in case of the French SocGen and British Daily Mail who started that untrue rumor, and when investors believe in rumors, even they are not true, so company go down just on rumors?

    I heard rumor that UK is bankrupt because UK debt is more than 400% of the UK GDP and UK debt per capita is about $180 000? Of course global media will not publish that, because it is not French, and it is UK.

    Many people and companies going down because of the untrue rumors, so global media must be accountable for publishing rumors and not facts. British Daily Mail apologize yesterday French bank SocGen for starting untrue rumors, but is it in this kind of the cases, enough to apologize just with words, and not with tens of the millions, because investors from SocGen lost millions, because of untrue rumors from British Daily Mail?

    Today French authorities open investigation about rumors from Daily Mail about SocGen, so perhaps if Daily Mail pay that rumors, perhaps next time British media will think twice before they bash France where ever they like, with untrue rumors of course. Perhaps even our governments will not spend billions on vaccines for flue less dangerous than normal flue, because some global media published rumors how it is dangerous? So I say, let them pay, so they will not publish anymore rumors, and thousands will not publish theirs rumors all over the world.

    August 13, 2011 at 8:54 am |
  7. Roger Hale

    A general comment on what I saw on TSR yesterday (8/11); a 'go to it' between Richard and Ali Velosi. My comment on TSR's page:
    I would suggest STR advise Richard Quest and Ali Velosi to not air their competitiveness, and maybe internal vying for position, on-air. Last night's (8/11) back-and-forth over the reasons for the turmoil on the exchanges was both off-putting and confusing. Ali really set the tone by beginning with, "AGAIN, Richard has got it wrong", and then shamelessly proceeded to pull the rug from under Richard's presentation. WE don't need it and TSR shouldn't stand for in-fighting on-air—maybe not at all. It degrades everyone.

    August 13, 2011 at 12:03 pm |
  8. kevin3g

    So our pensions are firmly in the hands of irrational rumor mongers, great, Not only is capitalism a failure, it never actually worked at all.

    August 13, 2011 at 3:53 pm |
  9. Casper

    psst...... .... Blue Star

    August 14, 2011 at 6:29 am |
  10. peter warren

    The bottom line is that the markets have become a giant casino in which "traders" play with other people's money for their own benefit – their own bonuses and that of their bosses. Everybody else, who just wants to invest, gets caught in their backwash and messes. Together with their ethics-less buddies SS&P and their ilk, they produced the 2008 meltdown. Traders have become simply and purely parasites, serving little useful purpose and should be banned. Computers could perfectly well handle GENUINE buying and selling today. If i were A political leader, I;d simply ban trading. Let them go and make their big messes on other people's lawns. Parasites is all they are.

    August 14, 2011 at 7:35 am |
  11. scndnv

    What's with the suspenders..? Let me guess, the cool version of a Gordon Gecko?

    August 14, 2011 at 8:43 am |
  12. Ian

    One wonders who lends the actual stock to cover short selling...or is their none ..? .think about it ...how amazing is that !
    If it's the pension funds, where's their fiducary responsibility to those who entrust their savings with them ?
    Whoever it is, is obviously not getting any financial compensation for the value that is being wiped from their investment.

    August 14, 2011 at 11:47 am |
  13. khumalo Onisimo

    And some innocent little baby dies in rural Africa while the nutties play their stupid little games God forbid

    August 14, 2011 at 8:15 pm |
  14. requiredreading

    There were a few (once again rambling and unqualified) questions that came to my mind, triggered by the rumour that David Cameron may consider adding a bit more quantitative easing to the British economy. .. (to which I always react with an intuitive...NO DON'T DO IT, because to my mind it is like watering down soup: everyone may get more soup,but will still be as hungry as otherwise; or like selling milk that has been watered down with water – or does that come under "corruption " rather than "rumour"?)
    One question (and I don't know if it fits into the "credit-worth" debate) is, where REAL worth comes from. I think there is a consensus that it comes from eg gold, though gold is also a commodity, and is worth its worth only if someone can buy it. However, there was a lot of worth produced by the gold rush. I wonder if the REAL worth of a nation is not its people, ie its work force. So for that reason Barack Obama says: create jobs. But who will pay the wages, and who will buy the product? So the question is whether work will create worth, even if it is not bought right away and thereby gives monetary value – because the real worth is the product, not the money? So, perhaps if here is a lack of real money, it is necessary to HAVE less for a while and still work, so that perhaps the VALUE will pay in the future? Since the basics are food, clothing and housing, it would perhaps mean that communities provide raw materials for houses, food and clothing production for those who can't afford to buy them. I suppose it comes down to a sort of kibbuz idea or Soviet coop community, so I don't know how that idea works in a capitalist market. But I think in that sense there is much to say for the culture of voluntary work (unpaid work) they have in eg. Britain.
    Another question is whether, if nations can no longer afford the basic infrastructure, there is sense in privatising more infrastructure, ie the communities become part of the companies. I suppose that would mean going back to the industrial revolution, and people are more at risk of being exposed to abuse by ruthless company owners who are free to make their own laws, because their employees are dependent on them.
    Also, according to Adam Smith, wealth is in the land and the owning of it...so what if companies buy national land? And how is the land cultivated or treated? As a complete aside, I still believe the rumour that places with forests do better, for some reason....not from the cutting down of trees so much, as from the HAVING of trees.
    I realize that this is on a different level from whether stocks are bought and sold, which is what seems to matter most in the Great International World of Wealth...apart from concerns about food, clothing and housing. So most likely one must wonder, finally, whether the RUMOURS of AAA vs AA, of QEs and zig-zags on a computer screen, really don't matter so much (ie are MUCH hot air?), because finally there is no one who worries about it terribly, because everyone is still too well off?

    August 18, 2011 at 8:07 am |
  15. Carl van Zijll de Jong

    Rumours are the way to kick-start a string of events in preparation of an upcoming climax!
    The climax we can look forward to is the collapse of the present monetary system, opening the way for The World Monetary Order.
    http://theworldmonetaryordertocome.blogspot.com/2010/11/introduction.html

    August 22, 2011 at 2:31 am |
  16. Su from Fort Lee, NJ

    Libya IS NOT IRAQ nor EGYPT!

    For all those naysayers and all those who may profit from a possible civil war post Kadaffi, I have a message for you: YOU UNDERESTIMATE THE POWER OF THE PEOPLE who at the core want freedom and a better life for themselves. This uprising and overthrow of an autocrat and a dictator is unprecedented in modern history. It was not accomplished with the assistance of a war declared by a power intent on grabbing the wealth of the region and exploiting that wealth. It was not accomplished by only overthrowing one dominant leader and leaving the rest intact. This time it was different...no matter the tribe, no matter the political affinity, they all had a single mission: GET RID OF A EVIL DICTATOR and his allies in a humane way as possible and within the laws of the war of engagement! The whole world will be watching them. They will set the precedent for giving hope and faith for future countries who will see their triumph as an example of the will of the people. DO NOT LET politicians nor corporate interests overtake this revolution. Otherwise, it will mean the beginning of the end...I have faith that the people of LIbya and all those who risked their lives know that...it's in their eyes...

    August 22, 2011 at 3:58 pm |
  17. Carl van Zijll de Jong

    There is a rumour that natural disasters are an act of our Creator to tell people what is wrong with us.
    The Washington Monument is cracked at the top... is it that the people at the top in Washington are cracked???
    The Washington Cathedral is damaged... is it that one should not look for a church going person to lead the country!!!

    August 25, 2011 at 11:13 pm |
  18. Wichard Qrest

    Maybe right, but after Quest suggested that US default during the debt ceiling debate (arguing against Ali) "might be a good thing"...." look at Argentina" we'll always have a little doubt now about anything he says.

    August 26, 2011 at 9:57 am |
  19. Sameer Malik

    No Comment ...

    August 30, 2011 at 2:29 pm |
  20. icons pack

    It is simply excvellent idea

    hpixel

    September 23, 2012 at 12:28 am |
  21. icon archive

    It is very a pity to me, that I can help nothing yo you. I hope, to you here will help. Do not despair.

    hpixel

    September 23, 2012 at 6:15 am |

Post a comment


 

CNN welcomes a lively and courteous discussion as long as you follow the Rules of Conduct set forth in our Terms of Service. Comments are not pre-screened before they post. You agree that anything you post may be used, along with your name and profile picture, in accordance with our Privacy Policy and the license you have granted pursuant to our Terms of Service.

About Quest Means Business

Quest Means Business airs Monday to Friday, 1600 New York and 2100 London, and is hosted by Richard Quest.

 

 

 
 
Powered by WordPress.com VIP