Ironic or Moronic?
Last night the US markets rallied. There was no good news. In fact the reason for the rally was that the US economy was floundering. A floundering economy means more stimulus and stimulus is good because it should eventually lead to a better economy.
In other words an unhealthy patient is about to receive another sugar hit which might make them better. Buy!
Clearly the irony was not lost on traders of Fortescue shares this morning. FMG’s share price rallied several percent on the open in response to FMG’s announcement that it will significantly cut back on capex and production targets. Apparently, investors in a pure play iron ore company are pleased that the company will be less exposed to iron ore. Evidently the company is worth more if it does less. Taken to its extreme, it worth the most if it does nothing.
We believe that over the long term, equity markets work effectively as a weighing machine. In the short term, however, they can sometimes seem a little odd – and thats putting it mildly!
Stay tuned we are cooking something mind boggling about FMG and its peers…
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
Ben Begg
:
It looks like all this stimulus is prolonging the inevitable….I can see the writing on the wall for the mining stocks….I think they are on the precipice….when BHP goes back to the low 20’s which is quite likely then the media will say that the market is in trouble…Maybe then the Government might admit that the golden geese are not going to return the golden eggs next year (i.e. FMG BHP and RIO) . Denial is easier than trying to deal with the situation. I also look forward to the Skaffold views on FMG too!
Andrew Legget
:
Look forward to the mind boggling meal the folks at skaffold kitchen are cooking up. The Iron ore space is definitley a news worthy space at the moment and FMG sounds like they have finally taken their heads out of the red rocks.
I have always thought that a good book idea would be called something along the liens of “So you think the market is efficient??” and then over the next lot of pages you can have a whole lot of ammusing and sometimes illogical reactions of the market to certain news (or no news at all).
I still like your one in Value.Able where you talk about the market falling due to uncertainty about the war in Iraq and when it was confirmed that the war was/has begun the market went up as the uncertainty went away.
If the markets were efficient i would never have been able to offload my Tabcorp shares a while ago at prices above $18.00 just because their was a rumour that they were going to be taken over (ignoring the logistics that would have to be met in order to pull this off, ignoring the fact that it would require input from politicians and they don’t tend to stay quiet about things and mostly who the hell wanted to take over the old tabcorp at prices near $18.00).