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…