Efficient Markets

I couldn’t help but notice on Friday that Freddie Mac’s stock ticker looked like this:

Take a look at the chart for a sec.  It closed the previous day at $8.  It opened at about half that, $4 – or a 50% plunge.  Then it rose steadily throughout the day to down a mere $0.25 (still a whopping 3.12%, but not much considering where it was).

What the hell is going on here?  Somehow, everybody woke up on Friday morning and decided that Freddie Mac was worth half of what is was the day before (that’s $2.5 billion less).  Then around 10:30 am investors had renewed faith in management and their ability to create value and that’s the reason for the stunning rise later in the day.

Why do I find this so fascinating?  Probably because typically when a stock gyrates by >10% in a day it is due to an announcement.  Take, for instance, Hercules Inc., which on Friday announced that it was going private.  Easy to understand: the company announced before the market opened and there’s a big pop in the stock:

Similarly, Lehman Brothers was pounded on Friday just like Freddie Mac. Only I guess the market doesn’t trust their management quite as much to create value (or maybe it’s the fact that they lack an implicit – and after this afternoon explicit – government backing), because they didn’t bounce back during the day.  Note again the pattern: open low and stay low:

We definitely live in interesting times.  Would love to know what was going on inside traders’ heads on Friday…

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