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Strategies & Market Trends : Ask Vendit Off-Topic Questions -- Ignore unavailable to you. Want to Upgrade?

To: Jill who wrote (4679)	2/6/2005 11:18:29 AM
From: Vendit™	Read Replies (1) \| Respond to of 8752

Now here is another stock from that era that will fool you by looking at the chart: 139.142.147.218 Now look at it again in the five year: 139.142.147.218 Just before 2003 it look like it miraculously took off and went back to $50 - $60. Anyone reading this post is probably asking themselves what I am talking about because the stock is indeed trading at $45. INSP use to own SiliconInvestor which was a drag on INSP’s cask flow according INSP’s own press releases. At the time there were no ads on the message boards and since the markets were in the toilet nobody was interested in buying a lifetime membership yet it still took a payroll plus servers and maintenance to keep SiliconInvestor operating. In October of 2003 (I’m going on memory here) INSP dipped below the 1.00 required minimum to stay listed on the NASDAQ exchange. Very quickly the BOD met and announced a 10 for 1 reverse stock split. After the reverse split the stock was trading at about $12.00. They almost immediately shucked off SiliconInvestor and that is when the stock began to rise. They went from no (0) PE to a 20 PE today but their stock in reality is only trading at 4.50 and not 45.00. It looks like Bob has taken SI’s business model and turned it into a profit model based on what I see.

To: Jill who wrote (4679)	2/6/2005 12:24:18 PM
From: Walkingshadow	Read Replies (1) \| Respond to of 8752

Hi Jill, << if the rand gets revalued, that will change everything. >> That depends. If the market fully expects a revaluation, it will get priced in. Remember, the market is a discounting machine, and operates about 9 to 12 months in the future. What is happening today has mostly been priced into the market a long time ago, except for things that the market did not anticipate. Often you see an event---e.g., the FOMC raising rates---that causes no reaction at all from the market because it is fully expected and already priced in. So similarly, the market has now assigned a probability to the revaluation of the Rand, and factored that into DROOPY's stock price. I don't know what that probability might be, but the closer it is to 1.0, the less impact a revaluation will have when it occurs. Probably somebody somewhere has quantified this, perhaps in the futures markets. This is common, as you may know. There are futures contracts on the central bank rates, for example. This, together with other factors, allows a fairly precise quantitative estimate of the probability that the market has assigned to, for example, the FOMC raising rates at its next meeting. Right now the April Fed Funds futures contracts imply that the market expects a 74% probability that the FOMC will tighten 25 basis points at the March 22 FOMC meeting. Typically (at least in recent months), as the meeting is approached, that probability will move to the extremes (100% or 0% as the case may be). The effect is that the announcement, if it is as the market has come to expect, has virtually no effect on stock prices. So as the March 22 FOMC meeting is approached, if the April Fed Funds futures contracts imply a probability of close to 100% that the FOMC will tighten 25 bp, when the Fed actually does that, the only thing you will see in the indexes and their futures is manipulative volatility beginning just before the announcement. Most often, this is biphasic---prices go suddenly up, then just as suddenly down, or vice versa, then revert to back to where they started (assuming the Fed does nothing particularly surprising). In fact, this move can be daytraded pretty nicely, just by waiting to see what the initial direction is, then lying in wait for the reversal and positioning yourself accordingly. After that bit of volatility, then the impact of what the FOMC actually says is factored into the market in the form of a more gradual rally or selloff, the intensity of which is determined by the extent to which the market sees news in the announcement that it was not expecting. Bottom line is that events per se are not the critical factor---rather, the DISCORDANCE between events and EXPECTATIONS is the all-important determinant of events-based changes in stock prices. T