Oh I love the manic-depressive market sentiment!
Today we are going to be happy because the government says every little thing’s gonna be alright so don’t you just feel good about the markets today? I shouldn’t complain, we played for this last week but it makes me nervous to see the market go straight from "despairing, negative, fatigued and negative" straight to "elevated, hyperactive, suddenly escalated and deluded."
Here’s my problem – I’m a fundamentalist, so I believe a company has value and an economy will do X and not Y and I don’t believe that changes from day to day to any great degree. Our basic investing strategy is that, when we see a stock deviating from our percieved "value" of a company and we feel the risk/reward is justified over the time frame – we buy some options looking for a return to the norms.
So it disturbs me when, for example, a massive financial institution like FRE or FNM can, through the wisdom of Wall Street and the "efficient market," lose 1/2 it’s value at 9:30 and then get it all back at the end of the day. When the Dow goes up and down 200 points 6 times in one week and makes 20 100-point reversals in 5 days, then we know fundamentals have simply been thrown out the window and we are now playing stock market roulette.
The market wants to tell me that CROX, with $1Bn in sales and $168M in profits is worth just $648M and that BAC, who pay a $2.56 dividend on a $21.67 stock (11.8%) have somehow lost $150Bn in market cap since October despite the fact that they have not posted a negative quarter and earnings simply slumped from a 2006 high of $21Bn back to the normal range of $15Bn. I can’t buy that TASRs move from a $4M loss on $67M in sales in ’06 to a $15M profit on $100M in sales in ’07 merits their value cut in half (and down 75% from last year’s highs) and I guess we’ll find out what crime GOOG committed on Thursday as they have given up $60Bn in market cap this year (and it was much more in March) despite the fact that they have never missed estimates and have been growing well over 20% and no one seems to dipute that that…