Question:

Why isn't MER's share issuing devastating the stock?

by  |  earlier

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Have people been watching the news? There's 30 percent more shares than there should be! And if the shares enough aren't worth selling the company, the frantic raising of capital should be reason enough to get out. What's keeping it afloat with the other financials?

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  1. 3 Reasons

    1) The move from $37 to $20 (7/23-7/29) likely took into account the impending capital raising. Don't think for a second that it wasn't already known among institutional investors on that drop.

    2) What's different about this dilution of stock is that MER didn't have to go market with their equity raising. Instead they had pledged buyers at $22.50 which held the stock up. Otherwise, the stock would have held below $20 if they hit market like many other companies choose to do (which is why they issue stock after the stock has risen in price a great deal and buy stock when it has fallen a great deal).

    3) What's all that different about MER from other financials? C, LEH, WFC, WM, WB, XL, MF, RF, FRE, FNM etc etc have had capital problems.

    Bottom Line is that the majority of problems MER has/is facing is already priced into the stock. The investing "public" is the last to find out. And the saying "buy the rumor, sell the news"--or in this case "sell the rumor, buy the news" applies here. The stock bottomed (thus far) ever since we heard the 'dreadful' news. Fact is there is insider trading and institutions already liquidated what they wanted to get rid of during the drop from 37 to 20 before the news hit. Yes, it is illegal but there is nearly no way they will be found guilty. See Bear Stearns option trading days before the collapse.

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