Apple (AAPL) cut the price of the iPhone by $200 yesterday, from $599 to $399. Predictably, people who ran out and bought the iPhone over the past few months were outraged. So, Apple is now offering a $100 Apple in store coupon. Pretty clever.

The stock market is not happy. Eric Savitz at Barron's says "Apple shares are down again today, extending the slide into a third day. The stock is down another $3.83 this morning, or 2.8%, to $131.18. That brings the three-day slide to about 9%, trimming the company’s market cap by $11 billion."

Is the stock market crazy? But wait, the whole rebate, even if everyone uses their coupon, would only amount to about $50M...$100M worst case. There have been somewhere between 500,000 and 1 million iPhones sold. Multiply that by $100 and you get $50M to $100M. How could the stock market penalize Apple $11 Billion dollars?

Hidden signals - Henry Blodget says that the quick price reduction means that Apple is not selling as many iPhones as they originally predicted...and that future projections should be discounted. This could explain some of the stock market reaction.

Stock market P/Es work in both directions. - If the stock market is paying 50 times earnings for good news, they will penalize 50 times, or more, for bad news. In this case the stock market reacted with a 110 times penalty for the $100M mistake.

Two lessons learned - First, public relations is really important. Mess it up and it will cost you millions...even billions. Second, this is one more object lesson that the stock market is driven by fear and greed...and lots of emotion.

Something to remember when you take your startup to an IPO.