In a post last week, "Now I Get it," I noted an inconsistency between the price action of Lehman Brother's shares and the overall equity market which seemed to lend (further) credence to the notion that many equity traders are totally clueless.
Today, there was a roughly similar development that appeared to reinforce this view. More specfically, a story hit the newswires (see "Fed Said to Reverse Stance, Consider AIG Loan Package") that indicated the U.S. government was rethinking its stance on helping the beleaguered insurer (which is problematic in its own right, but we'll leave that aside for now).
Again I ask the question: If the news -- which propelled the overall market towards the day's highs by the close of trading -- was so good for American International Group, why did the company's shares finish down 21.2 percent?
Hmmm. Sounds like déjà vu all over again.
Anyway, I took the liberty of preparing a graph (courtesy of Bloomberg) which shows just what happened during the session.
(P.S.: Not long after I first uploaded this post, AIG's shares fell another $1.86 to $1.89 after Bloomberg reported that the U.S. Treasury was "considering taking over [AIG] under a conservatorship as one option to address the insurer's crisis." Just like with Fannie Mae and Freddie Mac. Uh-oh. Double-oops.)
Crisis are recurrent and increase in violence, as time goes .Here is a list:
1816/25/ 37/ 46/ 57/66//73/85/90/97- 1900 /o7 /21/29/ 2008.
Crisis are first seen most vividly in the sphere of money-credit & stock
speculation and for that reason it is in the sphere of circulation that the
cause is sought.
When Capital can no longer increase profits by labor exploitation it
will increase profits by speculation on money and creates vast amounts
of credit , i.e: it sales make believe value as oppose to real value products of labor
And for this reason crisis=depressions are unavoidable,and I do believe this one
will change the world
Posted by: roger | September 16, 2008 at 05:56 PM
It seems like the system is being gamed to me. I would have bet on at least 150 point drop today. You look at the news and it's all negative. The kicker for me is the fact that many of the foreign markets went down today. If the news is that bad for them then it should be at least as bad for us.
Is it the PPT at work again?
Posted by: walden3 | September 16, 2008 at 06:47 PM
Because they assume that the govt, if it rescues AIG, will also wipe out its shareholders a la Frannie.
Posted by: Shoshona | September 16, 2008 at 07:06 PM
$138 Billion Post-Bankruptcy JP Morgan Advance to Lehman; At Least $87 B Repaid by Fed
http://www.nakedcapitalism.com/2008/09/138-billion-post-bankruptcy-jp-morgan.html
Posted by: Fu | September 16, 2008 at 07:30 PM