Wednesday, January 23, 2008

Herd dogs and panicking sheep...

The last few days the world stock exchange indices took a serious roller-coaster ride caused by herds of panicking investors jumping off the train in all possible ways. Reasons given to the broad public (the flocks and herds of unsophisticated investors) were the subprime problem in the US, the massive write-downs that large banks did to account for subprime 'losses', the recession that may be already there (in the US), the ever-decreasing economic growth in the US, the incompetence of the current US Administration to solve any of that, the lower retail figures noted during the last (holidays) quarter in the US, a weak dollar and the high Federal Bank interest rates that screamed to get cut since long ago (Bernanke is a turtle compared to Great Alan G., the jazz player)... take your pick. You can always find good excuses to rationalize a market move one way or another.

Yesterday's drop of the Dow was nothing compared to what we witnessed earlier in Europe and Asia, on both, Monday (bank holiday in the US) and Tuesday. The Dow started initially in a rather serious loss territory (more than 300 points in the red) but recovered slowly during the day to lose a fraction of what other bourses lost the previous two days. Of course, the lowering of rates with 75 basis points by the Fed helped the moods a lot. Result: Look at the Asian bourses this morning. Percentual increases up to 10% from previous day's close were not uncommon, especially in Hong Kong and Shanghai. Only Taiwan and Malaysia seemed to like it there in the red, and dropped further.

The reasons for negative or positive volatile reaction on the markets seem to always be variations of the same themes. Often the same theme appears to be impacting investor behavior in diametrically opposite ways. For instance, a weak dollar maybe a reason one day for a sell-off and a reason for serious buy on another day. There are always reporters who can rationalize and explain everything they want to explain. Strange.

My own experience in times of highs and lows is the following:

1. The largest part of all investors who play actively in the market (98% of them, at least) are in the dark and tend to run like dump sheep in a herd driven by barking dogs.
2. There will always be a story that explains a move of the stock value up or down. The feeling is that a story like this is thrown to the market by either a dominant (herd-dog's servant) reporter, or a sly investor (the real herd-dog) who feeds his slave the reporter. The rest of them lamp-shade (I mean useless) reporters just copy the story and say more of the same starting their articles by "...investors are disappointed because of... bla bla bla...". I am asking you: how the hell do they know? Almost always, the bulk of those 'investors' whom they refer to and who are supposed to 'be disappointed' don't even know whether anything even happened to get worried.
3. There are some serious herd- dogs out there (Soros is one well known example) who take the lead in each individual case that moves a stock with well- known volatility (AAPL and GOOG are two stocks that fall in this category) and either drive them up or down with large volumes of short-selling or long-buying activity. Soros has a theory how to do that but it sure takes a lot of financial power and shitloads of guts.
4. My conclusion for the workflow is the following. For each volatile stock, there is a variety of generic reasons that can be used to explain a move in one or another direction. Then, based on a general sentiment that is present in the air, the big dogs launch a well orchestrated attack, almost a raid, leading the stock price either up or down. Down is their preferred direction as it can move very fast and it's there they could make megabucks. At the same time, those same big dog(s) feed a 'story' to the leading news agencies (Reuters, Forbes, CNBC, etc) and analyst reporters, who may come up with stories of upgrades and downgrades, and all these have the same effect as the barking of herd-dogs at panicking sheep (that's the rest of us foolish and ignorant investors).
5. One example of such a stock today is Apple (AAPL). In December 2007 it hit 200 dollars a share and overtook in market cap almost all the great names we know except for Microsoft and Google. Some people even predicted 600 dollars per share in three years. In the last two weeks though, especially after the famous Tuesday, Jan the 15th, of the Jobs MWSF keynote, where he omitted to say 'one more thing' because there wasn't any, the stock lost more than 20% of its value. Why? You tell me... no reason whatsoever. Apple remained the same great company beating investors estimates all the way. Yesterday evening Apple announced their Dec 07 ending quarter results. The actual figures were stellar! Largest revenue ever. Mac sales growing at five times the market average in number of units shipped. Millions of iPhones sold. Profits per share far above analyst estimates. But, as always with Apple, predictions for the following quarter, conservative as they always do, 'fell short' of investor expectations (these so-called 'investors' are opinions of analysts who are not even allowed to own any AAPL stock... all they do is guess, speculate and steal data from their target companies and look at one another to come up with some 'consensus' about what the 'market' wants Apple to do in the next quarter). Next, the herd dogs jumped in after hours to create a fresh downward trend, linked to the 'investor disappointment'. Apple lost more than 12 percent (again) of its closing value within minutes after the quarterly results announcement. Don't tell me that there are no big dogs in the story. We are talking just minutes after 5pm EST, hardly the time for Oppenheimer (CFO) and Cook (COO) to sit down and open their mouth. The dogs already knew, them and their slave analysts the way to go and the whole thing was so well (routinely) done that these guys again made some nasty mega millions to themselves (more than a million shares exchanged hands in just a few hours of after-hours trading). Is there a really 'real' reason for the AAPL to drop like this after-hours? Are you kidding me? This company should overtake Microsoft in market cap one day. It's the only company out there with the capability to fundamentally change our lives globally, from east to west. The current volatility is all a game of them big dogs to get rich at the expense of panicking flocks. Read the Business week article to see that I am right. A buying opportunity today... or at least a puts-selling opportunity.

So, which side are you? AAPL is going to drop about 15 bucks at the opening today. R U gonna buy or sell, then?


No comments: