Case in point. Kinder Morgan reported yesterday. You all remember Kinder Morgan, the pipeline company that was going to grow its dividend forever with no real organic growth. It was hammered for over a month last year and ultimately announced a HUGE dividend cut. Basically, you get the same dividend for the year as what they were promising every quarter previously.
The market had already anticipated this and sold off KMI almost 50% in the course of a few weeks. Smart market, well done. The announcement caused a brief reversal as shorts likely covered on expected news. Ultimately, KMI traded back down and was at an all-time low, or close to it, when it reported yesterday.
Despite the news being known”and covered endlessly, headlines read “Kinder Morgan cuts dividend” and the stock traded down immediately despite the fact the release only confirmed the guidance the company had given last month. How stupid.
KMI rebounded minutes later as actual humans read the release and realized there was no real news. It’s up quite nicely today which makes one wonder how the accounts that sold yesterday feel. The market, who had sold KMI yesterday, apparently loves it today. This happens all too frequently to consider this an outlier.
In after hours trading stocks will move 10% on revenue and EPS beats, yet trade down ultimately on guidance or the discovery of a key metric (i.e. tax rate) that assisted in an EPS beat. This can also happen in reverse. A restaurant stock can trade down on EPS but if revenues are ok and SSS are up nicely, the stock will reverse.
This morning futures reversed nicely from negative to positive on talk of more central bank stimulus from the ECB, or more accurately, the promise of more stimulus. This spike did not last long and pundits dug in. “The market has already figured out that this is not good”. Pleeeeeease. A couple computers probably pulled the word “dovish” from some article and bought futures.
As people started to wonder what might happen to the dollar if the ECB does in fact pull out all the stops come March, oil traded lower and the futures turned. Mr. Market is fairly drunk on oil right now after all.
Sure enough within an hour this morning, indexes turned green…..as oil reversed. Yet, we are suppose to believe that something else matters right now. It’s much like accepting the notion that oil and the overall indexes always trade in lock step despite one being down over 70% from it’s high and the other not even 20%. It’s all very, very stupid and you can make yourself crazy following the daily fluctuations and trying to explain every 1% move up or down. The market is right over time, but never forget that it’s made up of participants, and those participants can act incredibly dumb at any given time. Do not rationalize long term investment decisions on what the market is “telling you” or more importantly, what someone thinks the market is saying at any given time.
As a general rule it’s never wise to worship false idols. I read that somewhere once.