Rumors Of A Chinese Military Coup !!!

Traders are become increasingly concerned about political instability in China.


Yesterday's market action was largely driven by concerns that China might be slowing by more than expected.  First we heard from BHP BIlliton that iron ore demand was flattening.  Then we heard that the Chinese government was raising gasoline and diesel prices.

However, there was a rumor that slipped passed the headlines that seemed to freak out some NYSE floor traders. A rumor that was quickly denied.

From this morning's Cashin's Comments:

Then there was the coup rumor.

Shortly after the New York opening, word began to spread on trading desks that some unusual troop movements were noted in Beijing.    Here’s the way that account began:

Over the night of March 19 and early morning of March 20, Beijing local time, a message about a large number of military police showing up in Beijing spread widely across microblogs in mainland China.

The key figures in the action are said to be: Hu Jintao, the head of the CCP; Wen Jiabao, the premier; Zhou Yongkang, who has control of the People’s Republic of China’s police forces; and Bo Xilai, who was dismissed from his post as head of the Chongqing City Communist Party on March 15 by Wen Jiabao, after a scandal involving Bo’s former police chief.

Li Delin, who is on the editorial board of Securities Market Weekly and lives in Dongcheng District of Beijing, wrote on his microblog a report that confirmed unusual troop movements: “There are numerous army vehicles, Changan Street is continuously being controlled. There are many plainclothes police in every intersection, and some intersections even had iron fences set up.”

According to the message that went viral on China’s Internet, a military force with unknown designation quickly occupied many important places in Zhongnanhai, the Chinese leadership compound in Beijing, and Beijing in the early morning of March 20, with the cooperation of Beijing armed police.

Great!  A juicy story to make the day.  But, wait!  Gold is down $15.  Oil is down $2, U.S. Treasury bonds are weak.  None of these would be the assumed reaction if the world’s number two economy was caught up in a power struggle.

Further searching provided the answer.

Official Chinese media claimed that the extra military protection was to guard a meeting of a high North Korean official with some highly placed Chinese diplomats.

In perfect Lewis Carroll fashion, the denial of a rumor that never took hold or hurt the markets, helped to allow the markets to begin to heal.  It was a kind of - “one less thing to worry about” - reaction.  The denial coincided with the morning low, circa 9:50.

Art Cashin has been ahead of the curve covering this stuff.  Last Wednesday, Cashin pointed out that some political turmoil was brewing in China regarding Bo Xilai.  The next day, Bo Xilai was out.