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.
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.
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.