After Fannie Mae announced a $2.2 billion quarterly loss and plans for a $6 billion capital boost on May 6th, the stock opened lower...but finished sharply higher.

At the time, it seemed odd that investors were buying Fannie's stock on the news, especially given that the company is "clearly going to be insolvent by the end of the year," according to Christopher Whalen, a founder of Institutional Risk Analytics, an independent research firm.

However, based on the Fannie's 10 percent price-slide since then, it now seems apparent why the stock rallied on that day. Quite simply, a lot of equity investors with large amounts of money at their disposal don't have the slightest clue about what they are doing.

Well, it looks like we've just gotten more proof of that. This afternoon, Standard & Poor's Rating Services (which I'm not a big fan of, by the way, though that fact is irrelevant in this context) announced that it was lowering the financial strength rating on MBIA Insurance to 'AA' from 'AAA' and was placing the company's ratings on CreditWatch with negative implications (S&P also downgraded the credit rating of insurer Ambac Financial) .

So what happened? MBIA's stock sold off initially, but then it squeezed higher,
finishing the day up more than seven percent. That is despite the fact that the news confirms the bond insurer's business model is completely broken and that we can now look forward with confidence to a sickeningly steady death march towards zero.

If there's any logical explanation for today's rally, I suppose it is the fact that some "investors" -- is that really the correct term to use here? -- have blindly assumed it is time to buy because the bad news is "in the price." Or they are thinking (hoping?) that some greater fool will come along and acquire the company (I guess they forgot about the fact that the days of buyout insanity are more-or-less over). Then again, maybe they believe the "authorities" are going to rescue the company (you mean like Bear Stearns?).

However, there really is a simpler explanation for this afternoon's insanity: there simply isn't a lot of intelligent life in the stock market nowadays.