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If You Were Going To Unload Assets, Would You Want The Market To Know It Before You Sold Them?

27 May 2010 One Comment

China “reassured” the global economy that they had no intention of unloading European debt.  While the market on Thursday responded to this by jumping a few hundred points on the Dow, I believe people are overreacting somewhat to this “good news”.

If you hold a significant chunk of an asset, say some European debt, would you announce that you plan to sell it before actually selling it?  Obviously by announcing your intentions, you would result in many other parties attempting to sell before your do.  The obvious result would be a drop in price of that asset.  So, pre-announcing the sale sets you up for a decreased return.

Now, I’m not saying that China is in fact lying and is going to sell their debt holdings.  They may or may not be.  I don’t know any better than you do.  What I am saying is that China assuring us that they’re not selling doesn’t tell us anything; therefore, we shouldn’t be overreacting to this with a new and enthusiastic view of Europe’s future.

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