start. The talking heads and stock touts are running out of positive
things to say. I’ll try to chime in with something positive.
There are plenty of stocks that are still up for the year. Some big name
like NFLX (+55%) and ERTS (+56%) are examples. I went searching for the
best performing stocks YTD. You’re not going to believe who’s on top of
the list. The Preferred shares of both Fannie Mae and Freddie Mac have gone on a tear. They are up as much as 500%!
I’ve been following the busted Pref of the Agencies for years now. I can’t offer up a good reason why they have quintupled this year.
There is no news that I know of that would account for this. At some
point, the legal status and the rights (if any) of the Pref holders will
be addressed. I don’t see that happening anytime soon.
The answer is always the same. “More buyers than sellers.” The “why” of it, I can only guess at.
-Computers are running the float on the shares.
The price level is (sort of) irrelevant.
-Distressed paper traders are running the float.
They gun prices to make profits.
-There is some short covering.
A distinct possibility.
-A hedge fund or two is making a Hail Mary bet.
Possible.
-The market for this paper is out of whack and no one really gives a damn.
Possible.
We better not find out that it is the last guess on my list. I would not rule this out as a possibility however.
NOTE:
I am absolutely not recommending that folks dip their toe in this water.
It could well be a trap. If you don’t own this already (at a few bucks
lower), go on to something else.
My first article on this was July 14, 2009. This is what I had to say back then.
The common stock will be worthless. The Preferred stock is going to be tendered for. My guess on that price is in the $5-10 range.
At this point that’s looking like a decent call.
I just knew it was going to be Fannie/Freddie.
No shame, they have no shame - or fear.
Our baboons in wool suits exemplify tailored dehumanism.
Many have made the same observation over the past few years Bruce and after having my old hedging strategy fail so miserably (the shittiest stocks rally the most while the best stocks go nowhere) I've come to a theory about the mechanism causing it. I just lack the sophistication to be able to actually test it (Nanex could).
I believe the effect is due solely to HFT. We have a situation now where your order route, on the way to execution *matters*. Properly programmed bots can analyze orders throughout the day, monitor the various venues and reverse-engineer order flow. Rival bot programmers will deliberately mix things up to make it difficult to be gamed, but they're not in it to take each other out, they're in it to prey upon the dinosaurs. All the unsophisticated monkeys running pension funds, or trading from their own account.
So when a dinosaur order makes an appearance, say a buy market->limit order, the bots simply shortcut it's routing and soak up offers to the limit. I'm convinced this happens because I'm one of the stupid dinosaurs who doesn't have tight control over routing and I'm certain that such orders execute right on limit far more often than they used to. We're only talking about a few cents here per trade, but it adds up when done millions of times a day.
Then there's the more passive effect of quote parasitism, for which I have conclusive proof. Place an order in any lightly traded issue (the easiest here is to pick something for which there are ZERO bids or asks, an empty book). Place an order and, hey presto, BING, there's an order in front of you, typically by only a few cents. If I do this through a hopeless internet brokerage account, I have examples where the parasitic order appears BEFORE mine. Pretty interesting seeing as there were no orders for the entire day. If I cancel my order, the parasite vanishes too, if I change my order, the parasite also changes, staying just in front of my own.
There's nothing new about this. I'm guilty of parasitism myself, the aim is to take hits on the bid ahead of a big buyer, then flip to the inside the ask and hope that the buyer gets impatient and hits you (or other parasites hit you). The only difference is that it's now completely automated. It can be annoying, particularly when you've employed a great deal of research to reach a price, the parasite is essentially hijacking your intellectual property, but with patient trading, parasites don't *have* to have much effect, remembering that they all aim to end the day holding no net position.
Finally, there are the more sophisticated algorithms that are analogous to card-counting blackjack players. Although they can't build a complete picture of who all the players are and what cards they hold (when and how much they entered into a position), statistically, they can improve the odds and calculate when is the most fruitful time to push a price in a particular direction (in an attempt to trigger capitulation). This is impossible to prove without a whistleblower, but if it doesn't occur, I'm Mike Tyson.
Anyway, so latency-based front-running, quote parasitism and opportunistic price manipulation are likely to all be meat-and-potatoes in the HFT world. Combined, the effect of these is not to push the market in any particular direction, but to exacerbate moves in a particular direction. This is ironic, because the stated justification for these bots is that they supposedly increase liquidity. Bullshit, they do the opposite. People just mistake volume for liquidity. If you could somehow differentiate bot activity from organic activity, I'll wager that the net liquidity of organic activity has reduced over recent years. It is that organic activity that sets a trend, bots just exacerbate the trend.
For example, a pension fund manager is obligated to buy, adding pressure to an uptrend. In the modern market, with parasitic and predatory bots everywhere, final execution prices will be higher than they would have been in the past, leading to a more pronounced upwards move (and the same on the way down).
To explain what's going on with the shittiest stocks climbing the most in the rally since 2009, it's important to consider the different reactions of organic participants on the long and short side. Organic shorts who get nervous are highly likely to dump out with market orders (more likely to set stops, which can be hunted I might add). When they do, the HFTs get active, attracting the attention of more HFTs and the price ends up moving far more than it should. Organic traders often get into the position of having to exit because, as anyone who has been in this shitty market knows, these days every damn stock moves the same throughout the day. Inside bids and asks constantly shift to track the overall market and if there are few organic trades in the books, a shitty stock can easily track up with the market (when it really shouldn't) until it encounters a stop, triggering a buy, triggering a run up further.
On the flip side, all it takes is for a moderate number of organic participants to get spooked and start issuing market sells and LOOK OUT BELOW.
This market is utterly, utterly broken. It could be so easily fixed with timestamping, punctuated exchange transactions or a small transaction fee, but while the exchanges remain private, for-profit corporations, there is no incentive to do this. Call me a commie if you want, but I believe that exchanges should be 100% government run, not for profit, and designed to actively prevent paratisim and predatory trading. When markets actively prevent correct price discovery (as they do now), we see the kind of bullshit that we see now, with the worst stocks rallying the most.
Great post Mediocritas !
All the more reason(s) to stop trading in the stock market(s) and buy physical Ag/Au/Pt/Pd/Rh -- I refuse to fight with the robots!
Say the dow drops 600 points in 10mins again...you wanna be on that ride down. HFT's go all nuts again
There are way to many commodity bulls in this crowded pool because talking bears on youtube. Watch em run like girls when someone drops a snicker bar in the pool.
More evidence of busted capital markets
Fannie and Freddie are a huge bulltrap, considering if there is another liquidity/credit crunch coming.
A marked up distribution trade, meaning dumb money offers = precarious. The hedge funds should lead into another major flash crash just trying to time it, could be soon, since the market is still double it's 2009 lows.
Fannie and Freddie are a huge bulltrap, considering if there is another liquidity/credit crunch coming.
A marked up distribution trade, meaning dumb money offers = precarious. The hedge funds should lead into another major flash crash just trying to time it, could be soon, since the market is still double it's 2009 lows.
I see that FMCCM yields 44.57%, ex div about three years ago. Apparently the div is dead, so that is no support for the price rise.
Sounds like they are playing for the ultimate backstop. Wannabe JPMs and BACs can't get in on the gubmint hand-outs directly, so they are buying these shares to one day be able to say that they got their bail-out, too, and made a killing.
Technically speaking, the AUDUSD looks ready to take a dive.
Technically speaking...
which means not a whole lot these days.
/:
Timmay figured out he fucked his best bankster friends when he caused them all to take losses on the preferreds. Why? He let them mark shit-toxic back up to par? ARBITRAGE< assholes.
This is QE3 friends, a way to pump up banksterz balance sheets, are you stupid or blind?
As I recall, the biggest holders of FNM/FRE preferreds are small banks that have no hope of getting a TBTF deal. They are getting killed by the free money from the FED that goes to their TBTF competition.
The preferreds of the GSEs were primarily owned by the banks who were seeking yield while meeting capital ratio requirements in a Greenspan ZIRP world. I don't know about developments over the last year but I would assume that the banks are still the largest holders and the trading volumes are relatively tiny, although the increased nominal prices help the bank balance sheets. The problem is that the market for shares is still artificial because of the huge unrealized losses and ongoing required capital ratios of the banks. Look at the long term charts - the game being played by non-banks is one of scalping an already deceased pig, which is fine, unless you get caught under the carcass.
I'm stupid, do they pay any dividend?
No. They have paid nothing for going on three years now. The unpaid dividends accrue. So a $50 pref now has $12 of dividends owed. You can buy the accured dividends PLUS the $50 principal for $5. That would be great if they paid the $12. I don't think they will.
Put in the ticker symbol (like a short acronym for the stock) at bloomberg website. Then scroll down, should tell you.
makes me want to puke, they shouldn't even exist and some insider is making a killing based on inside info. i'm sure
If you want to puke. Think of this. Martha Stewart went to jail for lying to the gov; not the deed.
Who said, I will not monetize. Things that make me go Hmmmm. Yup.
And people think PM's are in a bubble... LOL.
They are "progressive" banks in a progressive administration.
They are "progressive" banks in a progressive administration.
Bruce check out LVLT.
Two words - dark fiber.
Timmy spent a lot of time opinioning his TBTF auto book the other day. So that must be the monkey jumping on his desk for election time. The care and feeding of all things related to the insolvent F& F twins must be delegated to Sack. You are right to be suspicious.
Would rather set up an account at FullTiltPoker than punt government sponsored dog mess.
maybe because a whole army of DC staffers have a trading app on their iphone?
FnF Preferreds have had a real cult following for the last 2-3 years among seasoned investors. There are a whole slew of possible speculative scenarios for them, and they were a good buy at 30 cents. I recently sold the whole lot at $2.80 average, so I netted almost 1000%.
you say seasoned investors, i say beltway insiders.
you say speculation, i say collusion.
investors, insiders, speculation, collusion,
let's call the whole thing fucked...
Oh yes, the collusion and insider trading in FnF is well-acknowledged. That is what made it so profitable.