It never seizes to amaze me when I hear a new and improved reason why the market was higher.
Today around the close of the market, one of the talking heads on tout tv was asked why the market was up today. After she cited some better than expected numbers from housing and retail, the final reason why the market rallied into the end of the day was because Bank of America reached a $17 Billion settlement with the justice department.
Let’s play this one out a little.
In order for the index to move higher, there has to be a significant amount of shares purchased either on the index itself, or enough of the top holdings in the index to move the needle.
That being said, now let’s get in the mind of a trader or investor.
I hear the news about the settlement and immediately turn to my computer screen and begin buying everything with both hands along with all my colleagues in the business.
Wait a minute, something doesn’t ad up.
Bank of America is going to wire transfer $17 Billion of shareholder money to the Justice Department. That will directly impact the value of their shares, and the value of the company. Naturally, you’ll hear things like, “they had that money in reserves anyway.”
Just because that money was on a line item on the balance sheet entitled “reserves” doesn’t mean it didn’t belong to the shareholders.
Furthermore, everything their paying for today is a direct result of things that happened over 6 years ago.
How does a monetary penalty today resolve the wrong doings from the past?
Wouldn’t a better way to change behavior be to punish the PEOPLE who did wrong rather than the people invested in the company who’s trying to right the ship?
You decide.
That’s it for the semi rant.
Anyway, we have another levitating market and you can find the common sense and technical analysis in the video below.