When the market pummeled State Street Bank’s shares last fall, the experts said the market was off its rocker. That was before the bank admitted to $9 billion in losses on worthless paper, as posted here yesterday.
State Street (STT) remains down about 50% today after warning on earnings and raising concerns about serious damage to its balance sheet. But today aside, let’s go back to last November when, seemingly out of nowhere, the stock fell below $30, beforre quickly rebounding to the mid-$40s. At the time, everyone thought the market was crazy. That there was no way there could be anything wrong with State Street — a boring old investment services company.
Well, turns out, only the talking heads were wrong. The stock market nailed it, only it didn’t punish the companyt hard enough, since now State Street is at about $19.
This is important to remember everytime you hear anyone complaining about how market prices are temporarily irrational and that they know better. This isn’t to say that sometimes the herd can push too far in a given direction. That happens all the time. But on balance, you should be inclined to trust the market more than an individual who swears the market is wrong.
What Weisenthal doesn’t ask, but I will, is who knew about State’s bad assets back in November, and how did they know?
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The Chosen One knew, afterall, he is omnipotent, All Wise, All Seeing.
Isn’t the market the thing that just crashed? had overvalued all of those houses? same market that went on a spending binge in the late 90′s? It seems hard to attribute a sort of collective omnipotence to something so volitile and contradictory. Doesn’t it?
Trusting the market is pretty vague. It is also after the fact. Understanding the market factors gives one a better chance to avoid the fiascos. The damage done by CDO’s and CMO’s still hasn’t been fully quantified as the meltdown of State Street indicates. I wrote about it on November 23 and the explanation still stands. http://WWW.FUNDSWITCHERS.WORDPRESS.COM