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Surging Retail (And ETF) Outflows Mean Worst Quarter For Wall Street Since 2008 On Deck
"After two months bankers would like
to forget, Wall Street may need a September to remember to avoid
closing the books on the worst quarter for investment banking
and trading revenue since the peak of the financial crisis." So begins a Bloomberg piece highlighting why the ongoing boycott by retail investors (who incidentally hold the bulk of the S&P's market cap) of terminally broken capital markets may finally achieve more than all futile campaigns to pull deposits out of the TBTF banks ever could. It is no secret that regular, non computerized, investors have now shut out Wall Street as they now have absolutely no faith left in capital markets, a phenomenon we have been tracking since its inception. The "joke" that are capital markets has led such asset manager as Jim Rickards to tell his clients to pull their money from the stock market. He won't be the last. Yet incidentally, this simplest form of denial to participate in the ponzi is precisely the stake that will go right through the heart of the various vampire entities controlling capital formation. The alternative is a toxic spiral whereby low revenues, mean more Wall Streeters get fired, leading to yet lower revenues, and so forth, once again demonstrating that just like any natural system, you can only push the balance out so far, before the system snaps right back. Ironically, this will happen without any regulation or intervention whatsoever, as the regulators have become as corrupt as the markets they are supposed to oversee, leading investors (and not speculators) to take matters into their own hands. The pain for Wall Street is just starting... It couldn't have happened to a nicer group of people...
From Bloomberg:
For the number of shares traded on U.S. exchanges to match last year’s third quarter, average daily volume for the rest of the month would have to top that of any trading day in the last three years. Debt trading also needs to pick up, as corporate bond trading in July and August was down 8 percent from the same period in 2009, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority...The result may be the
lowest revenue from investment banking and trading for the five
largest Wall Street banks since the fourth quarter of 2008, when
they had combined negative revenue of $3.35 billion.“Activity levels in the last three weeks of September should be a lot better than July and August, but it would have to almost be off-the-charts good to save the third quarter,” said Jeff Harte, a Chicago-based analyst at Sandler O’Neill & Partners LP. “I don’t think there’s going to be a lot more clarity about the macro environment, and that’s what people seem to be wrestling with before activity picks up.”
Ah yes, a sad side effect when Wall Street's entire business model is that of a glorified flow (and prop) trading operation. Alas, what Wall Street forgets is they need someone on the other side: transacting with each other can only push the market up only a few hundred points from fair value.
And trading volumes continue to plunge. The resultant surge in stock prices on no volume melt-ups having no credibility is only a tangential side effect of the general abdication of stock markets by the population:
While the dollar value of completed mergers and acquisitions is up slightly for the first two months of the quarter from the same period last year, debt and equity underwriting totals have fallen. And trading has come to dwarf investment banking on Wall Street: The five firms booked more than five times as much revenue from trading in the first half as from advisory and underwriting.
Trading volumes dropped in July and August as investors weighed data that hinted at a stalled economic recovery. Growth in gross domestic product in the second quarter was cut to 1.6 percent from the initial 2.4 percent. Sales of new homes in the U.S. dropped in July to the lowest level on record, and consumer confidence that month had the biggest decline since 2008. The Federal Reserve said on Aug. 10 that growth will likely be at a “more modest” rate than anticipated.
Equity investors have traded a daily average of 14.2 billion shares on U.S. exchanges so far in the third quarter, according to Bloomberg data. That’s the worst start of any quarter since the first three months of 2009, when the Standard & Poor’s 500 Index touched its lowest point in almost 13 years, and 25 percent less than the average for last year’s third quarter, the data show.
To match the volume of the third quarter of 2009, investors would have to trade an average of 30.6 billion shares a day for the rest of September. That’s more than twice the daily average so far this quarter and higher than any single day since 2006.
Trading of U.S. equity options has declined for each of the past three months after jumping to a record 405 million contracts in May. Average daily volume on U.S. exchanges in the third quarter has fallen to 13.3 million contracts a day, down 23 percent from the prior quarter, according to data compiled by Bloomberg and Options Clearing Corp., the Chicago-based firm responsible for settling all U.S. options trades.
The average daily dollar amount of U.S. Treasuries traded in July and August was down 1.7 percent from 2009’s third quarter and 13 percent from last quarter, according to data from ICAP Plc, the world’s largest inter-dealer broker.
Alas, the expected volume surge is not happening. We have pointed out that there are now 17 weekly sequential outflows from domestic mutual funds, in the longest dry spell for Wall Street on record, which is causing outright panic among the asset manager community. And contrary to misguided reports elsewhere in the media, ETF outflows have followed suit, with total outflows from the ETF/ETN sector hitting $11 billion in the month of August.
August 2010 net cash outflows from all ETFs/ETNs totaled approximately $1.9 billion, with year-to-date net cash inflows totaling $47.6 billion. Total Global/Int’l Equities led all product categories with over $4.5 billion in net cash inflows. Total U.S. Equities had net cash outflows of over $10.9 billion for the month of August 2010.
The biggest loser with $6.6 billion in outflows: the SPY. Whether this is an outright redemption driven move, or merely more usage of the ETF as a natural pair-trade hedge utilized by hedge funds, as we have pointed out previously is unknown, and very much irrelevant: what is certain is that outflows are outflows, and absent a pick up in actual underlying stock values, set the stage for ongoing toxic spirals as more unwinds breed yet more unwinds. (Incidentally, one of the biggest winners in August: GLD).
All that is left is for faith in the decoupling meme to dissipate and for outflows from international funds to commence: that could well be the last nail in what is left of the biggest profit center for Wall Street over the past two years. But have no fear - the imminent, and just around the corner, surge in M&A activity (cause you know everyone wanted to bid on 3Par deep inside to show just how little faith in organic growth corporate America really has) will promptly fix Wall Street's soon to be ailing top and bottom lines. We are waiting with bated breath.
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Absolutely brilliant, kick them where it hurts the most!
The policitians and regulators did nothing and won't do anything to change things, so take your money and don't participate in this scam they have allowed to continue
+1000 - Voting with $$$$ & Feet - the opposite of love is apathy - walk away from the scam!
Yes Sir.
Regulators Mount Up!
Quite the choice of phrase for one with your avatar.
It's the only thing the little guy can do. The regulators won't do their job. The politicians won't reform Wall Street. The big banks don't give a flying f*ck what the little guy thinks as long as he keeps sending his money there.
Well, at a certain point the little guy decides not to play the game anymore. That's when all the easy money leaves the market. Starve the beast!
It's the only thing the little guy can do. The regulators won't do their job. The politicians won't reform Wall Street. The big banks don't give a flying f*ck what the little guy thinks as long as he keeps sending his money there.
Well, at a certain point the little guy decides not to play the game anymore. That's when all the easy money leaves the market. Starve the beast!
I just do not believe the stock markets are much wrong.
a) Sideline money does not exist - for every dollar in there is a dollar out. So it does not matter (index-wise) whether investors are on strike.
b) Government debt is reaching Mt Everest heights of stupidity. It can never be paid down. The last turning point was July 2007. Bear Stearns then later TARP won out over fiscal sanity.
Conclusion: the markets are pricing in a good chance of hyperinflation occuring. The government will print - reducing the value of dollars everywhere - hence, shares in companies, hard assets on the ground, must rise to reflect dollar debasement.
"I just do not believe the stock markets are much wrong."
Your comment made me laugh.
I guess the complete absence of price discovery is not 100% of the definition of efficient.
Wintermute...debt deflation can greatly outweigh government pump jobs like over the last 18 months.
This is where default happens in greater magnitude than fiat money creation...make that global while you are at it.
Look no further than the last 18 months of credit contraction to give you a warning sign of things to come.
hyperinflation - the greatest fallacy of hyperinflation is to assume this creates a dramatic rise in all asset prices. In a true hyper inflationary environment, if a business has a dramatic decline in revenues (because people have to spend all their money buying bread and milk they can't buy anything else.) they can't service their debts, as they run out of cash flow and they the creditors take over, wiping out shareholders.
As for inflation, the idea it is great for equities is not supported by the evidence. Look what is happening in India - profit margins are squeezed by rising cost of materials, and wages. Historically, the boost to share prices comes after inflation has been tamed and rates start to come down.
Overall, I believe the theory that equities are a good inflation hedge to be a fallacy...
+1000 - go for low elasticity of demand assets!
Two things:
To get Weimar- or Zimbabwe-style hyperinflation, what most people think of when they hear the term, you need to get the $100B notes into people's pockets. "Loss of confidence" is not enough. If I lost confidence in the dollar, I wouldn't be able to spend $1B on an egg because I don't have $1B in cash.
Fair enough - points taken.
I do not believe in fully efficient markets - but everything is grey-scale. They are efficient at some level. That level is good enough to price in a percentage chance of hyperinflation, and yes, a percentage chance of ordinary inflation.
I have read Lira's excellent posts on the distinction.
They are pricing in future dollar debasement - which may not end in total collapse (like Zimbabwe). Maybe 100% inflation in the next decade, before it is under control. We do not know yet.
The private debt deleveraging is huge - but not enough to overcome continuous electronic money creation. There is also a point where these lines cross.
Shares (as long as legal title remains intact) represents a hard asset such as a portion of Exxon's oil reserves.
Another problem is that the legal system itself is breaking down over the prosecution of bankster white collar crime. This is systemically corrosive and may yet undermine the markets.
Amen and LOVE IT to both the article and the first comment!
may the recovery rest in peace .... sigh
No food stamps, housing, medical, etc. for unemployed Whore Street. Let them stand along side a road with a sign asking for help. That will make them easy targets.
Markets usually end with strong hands shorting stock to weak hands. Now that there are no weak hands to buy stock, this market will probably end differently.
I've been pushing this agenda for many months. Stop trading with the scumbags on Scam Street. Pull your money out of these brokerage houses, stop giving them commission earnings, and put their asses out of a job, and let them feel the pain of being on the unemployment line for a change. Maybe then, they will realize.
Why play when the game is rigged? As more and more people ask themselves this question, the vampire squid gets weaker and weaker.
Not stepping back into the market until someone publishes a slim volume with the title: "Where are the Brokers' Yachts?"
"The Rise and Fall Of Lloyd Blankfein"
I do hope this is all true (the #'s of investors wise to the con games) and not ZH hyperbole....
I want to see much more MSM say "rigged markets" instead of "Troubling economic data and uncertainty over European sovereign debt and the global recovery (blah blah blah) led investors to step back from the markets,"
Apres La, le shitshow!
BUT if we count all those quote stuffing orders we have volume Houston!
Why worry?
Tyler & Team - Great Post - Was watching CNBC Friday & listening to 'analyst' trying to win retail investors back to the market in order to unload their positions - It was extraordinarily irritating - HOWEVER reading articles like this gives me hope!
You should have listened to that Blackrock WHORE Bob Dole this morning on CNBS.
I only watch CNBC to see pornstar tits and fake orgasms :)
OH YES, YES, BUY BUY, OOOHH BABY!! BIGGER, HIGHER, OH YES!!...
http://static.businessinsider.com/~~/f?id=4a85ca0198417c5619601395
Wall Street, tone deaf as usual, can't understand why retail clients don't act like 8 year olds and lap up their get-rich-quick candy.
They can't and won't get it that it's crunch time in America: people of every stripe and every age group need to scrounge and scrimp to make it. That's not just for today, but for as far out as they can see. So they're leaving the poker table in droves, unlikely to return.
After the Great Depression, it took the public almost 40 years to trust Wall Street again and embrace stocks. And most of those years were years of prosperity and peak growth. THis time around, the notion of ever hitting double digit GDP growth again are laughable.
"it took the public almost 40 years to trust Wall Street again and embrace stocks"
..never seems to take that long for Wall Street types to start working their Bezzle, once they've won investors "confidence" back again.
Why is that? My conclusion, is that if you're a mosquito you head for the swamps. If you're a cracker you head for the racetrack. If you're an immoral scammer, an unprincipled lout and an unbridled self aggrandizing "winner", in Amerika, you head to Mammon's little workshop...Wall Street, the land of self selected douchebags.
Where would you go?
And don't tell me "I just like numbers!" or "my cousin works there!"....or, "The Prestige, the Prestige!!!"
uh uh....Douchebags ALL
JUMP, FUCKERS!!!
Jump, You Fuckers - the video
http://www.youtube.com/watch?v=yge311sFhC8
NOTHING TO FEAR
http://williambanzai7.blogspot.com/2010/09/nothing-to-fear.html
This should collapse the markets once folks realize Obama and the democrats are looking to steal their 401k's and IRA's.
From the International Forecaster (Bob Chapman) column on goldseek.com:
Just to show you how out of touch with reality the administration and Congress is the Democrats have introduced two new bills, The Debt Free America Act, HR 4646, which would put a 1% sales tax on credit card and securities transactions in the US and the Automatic IRA Act of 2010, which would decree a mandatory payroll tax on all workers of 3%, to be used to purchase government retirement bonds. That tax is expected to rise to 15% within three years.
This Automatic IRA Act is a foot in the door for financing government deficits. It will be followed by legislation that will force present IRA, 401k and all retirement plans to purchase retirement treasury bonds, which will be called, Guaranteed Government Annuities. This has been buried within the Automatic IRA legislation.
The labor department has an agenda coming up next week on September 14th and 15th, which would decide on whether this so-called lifetime annuity should be required for private retirement accounts of all kinds.
"the Automatic IRA Act of 2010, which would decree a mandatory payroll tax on all workers of 3%, to be used to purchase government retirement bonds....coming up next week on September 14th and 15th"
thanks for the heads up...I guess we could all quit and go on the dole at that point.
...need to tell more folks should this happen...and have perfected LetterTTEditor/Comment ready to cut n paste into all propaganda pieces
link to info on the Automatic IRA Act.
http://thomas.loc.gov/cgi-bin/bdquery/z?d111:S3760:
It looks like "investment" in USTs is voluntary - not mandatory.
‘‘(1) DESIGNATED AUTOMATIC IRA.—
7 ‘‘(A) IN GENERAL.—Except as provided in
8 subparagraph (B), the term ‘designated auto
9 matic IRA’ means, with respect to any auto
10 matic IRA arrangement of an employer, an
11 automatic IRA of a provider designated by, or
12 on behalf of, the employer under subsection (g).
13 ‘‘(B) IRA SPECIFIED BY EMPLOYEE.—An
14 employer may also elect to allow each of its
15 qualifying employees to designate an individual
16 retirement plan (whether or not an automatic
17 IRA) established by or on behalf of the em
18 ployee as the designated automatic IRA with
19 respect to that employee.
Banks know the equity markets are a charade and they desperately don't want to actually buy and hold the stuff. If the market sells off, retail panics and runs for the exit, so they do everything they can to keep the markets propped up. Problem is, this is becoming too blatant and the more the markets rally on the back of bad news, the more retail knows the markets are broken so run for the exit. Add into the mix the idiots running public sector pension funds, who are caught light rabbits in the headlights, thinking it could collapse at any time, but if they sell now and run to bonds, they crystallize the $1 trillion deficit...
I think the technical term is, it's fucked.
I think the bigger question here is if the outflows in the equity funds also match the inflows into bond funds.
In your run-of-the-mill 401k, there isn't any option other than equity or a PIMpCO bond fund. Either or.
the scam runs deep young Cyan....
Take out a loan, do something worthwhile with it, pay yourself back via payroll deduction.
Consider the employer match as simply heroin to suck you in. Minimize the 401(k) role in your life. It is a sick trap. You can do better landscaping your yard with the cash flow, at least you can enjoy that as asset values sink. Maybe a nice new shower. Takes the stench of systemic corruption off for a few minutes. You get the idea.
Borrow it and buy some shiny stuff--now you just win the game.
401(k)s are stink bombs. The bond funds are sitting ducks waiting to get annihilated and the equities already have and will again. Remember, bond funds are NOT bonds. Can you buy a paper bond to hold to maturity? Doubt it. Churn, low yield and principal risk make bond funds a real loser's bet.
Anything in your 'golden cage' account should be CASH ONLY. Better yet, get it out of the cage. There are targets all over it.
Foreign stock and gold funds, unless something fundamentally changes, I don't see a reason to invest in the US markets.
unless it's a repossession business :)
This should have been easily predictable - when you don't know if you'll have a job in a day, a week, a month, there is no such thing as risk capital. Or discretionary purchases, for that matter.
Cut off their oxygen. Pull your savings out of the TBTFs, take your money out of the rigged casino, don't borrow and don't spend.
"Tears on my pillow, pain in my heart caused by you...."
Yet we suckas do "gladly take you back to tempt the hand of fate"...
wtf? (why the face?) lol....
Its like the show Deadwood, all corrupt, sheriff the most corrupt one of em all!
Im all for making the FED the ultimate bagholder. As my theory has gone for 2 years and still appears to be true, Bernanke and Geithner thought they could pump with free trillions buying stocks and bonds, then pass off the pump to retail sucker america. Its not working at all, if that WAS really their plan all along! The only other possible plan was them saying 'screw it, we'll pump and dont care about if we can sell, by then it will no longer matter. Armageddon, anyone? Couple of Mossad nukes smuggled into some major east coast US population centers ought to null and void the whole mess nicely!
[The alternative is a toxic spiral whereby low revenues, mean more Wall Streeters get fired, leading to yet lower revenues, and so forth, once again demonstrating that just like any natural system, you can only push the balance out so far, before the system snaps right back.]
You mean more non-productive parasites leaving the host? Lets hope this is the least it inspires!
Folks:
I have decided to exit the stock market, in lieu of indexed annuities. The guarantee is 2-3%, and I am able to capture most of the gains of the S&P from year to year.
If the S&P drops from year to year, I lose nothing, and start from a lower base to track potential gains.
What do you think about this strategy?
Don Levit
Don, I have sold many indexed annuities to my chagrin. Don't do it. I am now trying to work out methods to get my clients out of index annuities. You will never make the money the agent indicates to you. Also, there is a new/money-old/money mechanism that will work against you. And, please be aware that some of the companies also have market value adjustments MVAs' to deal with. Moreover, these insurance companies are subject to the same economy/markets that effects us all. I am more than happy to not sell those investments anymore.
I think annuities suck ass, that's what I think.
nyse should move into amex's dumpy old building on rector st.
One of the hilarious parts of this dynamic is that it leaves firms more reliant on the very wealthy as clients--and recently there has been press with bankers bitterly complaining about how their very wealthy clients basically suck, always asking for discounts and freebies like getting their kids into exclusive gulag preschools and such.
"Couldn't happen to a nicer bunch" indeed.
As for us proles, the important thing is to show no mercy and continue the movement away from TBTFs and the DC/NY complex in general. Refinance your mortgage to a local bank or credit union that won't resell it. This is a very important step. Just a few of these take millions in leverage away from the zombie forces. Ironically, the low rates make it a win-win...but please, do it any way it makes sense for you. I did and every day it feels good to know that Wells Fargone lacks my revenue stream and the leverage it entailed.
As many have mentioned, the fed will glady loan free money to the big banks to trade money away from the amatures.
Gov't / SEC really doesn't care about the hft & fake bidding because it produces revenue and hence taxes. If retail does sell, maybe some of the very old timers have profits to tax if they have initial investments before the 90's.
Plausible Denial:
Could you provide a bit more detail - for example, a specific case?
I know this looks too good to be true, but I have been shown various scenarios, with the S&P going up and down each year on the anniversary dates.
It looks too good to be true, but sometimes, it can be!
Don Levit
Once more we are reminded that retail investors are saying fuck off ever before their broker reaches for the phone.
Good point on the widespread misreporting of ETF flows. A lot of bullshit reports are claiming the outflows from US equities mutual funds are balanced by inflows to ETFs, but they're including foreign equities ETFs in their numbers, and not mentioning that most of the supposedly balancing ETF inflows didn't just leave US stocks, they left the country. 1H US equities ETF inflows were small fry compared to 1H US equities mutual funds outflows. And now US equities ETFs are seeing outflows. $10.9 billion is a big monthly number. That's ominous.
I think something simpler is going on. Either A or B or mix of A and B.
A: People have stopped receiving unemployment benefits and now have to draw down their savings
B: people have not been paying their mortgages for more than a year, weren't kicked out, and now are threatened that if they don't start paying, they will be kicked out. Hence the drawing of savings to stay in the house.
DOW/S&P500/FTSE/EURO short signal continues :
http://stockmarket618.wordpress.com