Stock Market -- Disconnected from reality or just plain dumb

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FireMax

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Let me start by saying that I invest modest amounts in the stock market, so I am not opposed to stock investing. However, I sometimes think that the forces that drive the prices on the stock market are not based in reality at all. Take into account the image below which shows two emails I got within 3 hours of each other. The first email head-lined how citigroup had lost billions and revenue was down nearly 50%. Sounds pretty dire, I would say.

Fast forward 3 hours later..... I get another stock alert and it showed citigroup stock up 7% at the open. WTF???:eek:

Is there a disconnect between WallStreet and reality or is this a sign that money managers et. al are not very bright?
stupiddow.jpg
 
The thing you have to remember about the correlation of news and the market is that it is generally assumed that offical earnings news is generally only a confirmation of something the market has already assumed. In the case of Citigroup, the market had already assumed that their loss was going to be at least 5.5B and their stock price had already reflected that loss. When the official loss came in at 5.5B, the market saw that it was not any worse than already expected and that the "crisis" had passed. Therefore the stock price was free to float back up to pre-crisis levels.
 
Doyle... I understand what you are saying. It is the same mantra repeated on FoxNews with Neal Cavuto and others. But, again, I have to step back and take issue with the conventional wisdom. I don't find these comments about a company that lost 5 billion and 48% revenue very conventional and certainly not very wise.

I guess it requires a willing suspension of belief in fundamental accounting practices.
 
Market prices are highly subject to manias. That's why we've been seeing such rapid boom and bust cycles in stocks, housing, and commodities. Markets are not perfect. Theoretically, they can be, if all participants have perfect information and act rationally, but there is a lot of manipulation and just plain ineptitude in play in practice.
 
Doyle is exactly right. You are trying to compare two different things. The news you heard today was incorporated into the stock price 6 or more months ago.

Citigroup was trading in the mid 50's in july 07 and the high 40's in Sept--right before it started down. It is trading in the mid 20's now. Seems pretty reasonable to me.

The stock price reflected the potential writedown and loss long before you heard the news on Fox.
 
By the time you read that, the big boys had all come in, made their money, and left. When the little guy reads about the loss, he panics and sells at the now lower price, which the other guy is more than willing to buy back from him.
 
By the time you read that, the big boys had all come in, made their money, and left. When the little guy reads about the loss, he panics and sells at the now lower price, which the other guy is more than willing to buy back from him.
Click to expand...

You got it, somewhat like a huge pyramid scheme those on top make money allowing the small investor to make some so he thinks he is rich but when times go bad guess who will lose.
 
The stock market has its own logic. I don't understand it, but fortunately I have a financial adviser who does. Over the years it's worked out well.:D
 
1. Anything that can movely freely can move stupidly.

2. I'm in it for the long haul and will not panic.

3. Pouring money in my SEP keeps my AGI down.
 
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