Dear 1%: could you be any more inhuman ? News stories not for the faint of heart

I’m not much of an investor, but my father does “play” the stock market, and so I try to occasionally keep an eye open for what happens over in the strange world of finance. It truly feels to me like a distant, alien planet, I must say, where the ordinary rules of every day life have no hold.

Schrödinger's cat

Bounty hunters never were very enthusiastic about Dr. Schrödinger’s missions

To me, finance is like the quantum physics of economics – where all the cartesian laws that you’ve always been told govern the world hold no sway, and Schrödinger’s cat is both dead and alive all at the same time.

Here is what I found out during one of my recent forays into this strange land.

On October 17th, Schaeffer’s Investment Research publishes an article in which it notices traders suddenly showing keen interest in Alcatel-Lucent (ALU) stock. Granted, it’s not so much about stocks as it is about options, but the gist of it is that “traders showed a healthy appetite for bullish bets on ALU”. That means that traders expect the stock to go up by a significant margin by the end of the year – specifically, they are counting on the stock to gain at least 20%.

So there you have a pretty good story for anyone interested in investing in a solid company with a bright future ahead. Unless…

On the morning of October 18th, in news from the regular world, with its regular old economy, I find a news story unexceptional in every way. In fact, many such stories make the news these days : “Alcatel-Lucent to cut 5,490 jobs worldwide“, Reuters informs us. Yikes, that can’t be good. Obviously this company is in trouble. I feel sorry not only for the workers who are about to lose their jobs, but also for the investors who bought stock in this company; surely this stock is going down in a hurry.

Oh wait, what’s this in the same Reuters article ? “Alcatel-Lucent shares were up 7 percent“.

Wow, looks like certain people had some celebrating to do.

ALU stock chart

Well done, Alcatel-Lucent. I think I’ll congratulate you by investing in your company.

I know, I know, I’m not a pundit in this field, but I do know this equation :

  • company releases good news = stock goes up
  • company releases bad news = stock goes down

So obviously, cutting over 5,000 jobs must be some sort of good news – at least in the alien world of finance.

Perhaps I’m being paranoid about the October 17th story, perhaps it is only coincidence. After all, I haven’t heard of anyone entangled in insider trading scandals. Still, the coincidence is rather unnerving, I’d say. But the fact is that on one particular day, one particular stock option was trading at 19 times its average volume, and the very next day this company announced massive layoffs, causing its stock to jump up significantly.

I don’t know which of the two sides of this story leaves me most baffled. I do know it leaves me with a bitter taste in the mouth.

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6 thoughts on “Dear 1%: could you be any more inhuman ? News stories not for the faint of heart

  1. That’s quite the compliment, thanks ! :D
    I’ve just quickly checked out your blog, I’ll be back for more… (I like your blog layout, by the way, nice newspaper feel to it)

  2. That’s why I would never dare to venture into the stock market. Too much fluctuation and greedy people who would possibly sell their soul for quick money and don’t really care about the little people trying to make their money stretch a bit further.

    • Indeed, that’s why I have trouble putting real money into the stock market.

      I think what frustrates me most about the stock market is that it is so anti-social: the more money you have, the smaller your fees, the easier it is to diversify and hedge your bets so as to come out a winner whatever the ups and downs of the market.

      If you have just a little money to invest, you need to bet on just a couple of companies, making the experience much closer to gambling. Not to mention the fact that if you haven’t been raised in the right circles, you will likely never have been educated about the stock market.

      As I once read somewhere, the lower and middle classes are taught to work hard for their money. The higher classes are taught to make their money work for them.

      And that’s how we get a widening gap between the haves and have-nots.

  3. …and perhaps you’re just one of those keen observers, seeing the patterns the rest of us miss. nicely done. you may be my new favorite thing, sometime toulouse. following you now…

    • Umm, I think I just left myself a comment rather than replying to your own comment… perhaps even for the second time – how did I ever manage that ?!?

      Well, basically, thanks ! :)

If you don't tell me what you're thinking, our world will end. We'll blame the Mayans, though.

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