New York Stock Exchange
Last week, Bank of America warned that "it's getting frothy, man" based on the sheer surge of fund flows into equities. Here is the same firm with some other observations on what can simply be described as a "frothy", "overbought", "overmargined" market with "not enough bears."
No wonder investors don't take economists seriously. Or if they do, they shouldn't. Since Richard Nixon interrupted Hoss and Little Joe on a Sunday night in August 1971, it's been one boom and bust after another. But don't tell that to the latest Nobel Prize co-winner, Eugene Fama, the founder of the efficient-market hypothesis. No matter the facts, Fama has his story and he's sticking to it. "I think most bubbles are 20/20 hindsight," Fama told Cassidy. The rest of us, who lived through the tech and real estate booms while Fama was locked in his ivory tower, know that in a boom people go crazy. There's a reason the other term for bubble is mania.
The NYSE Composite is indicating some uncomfortable symmetry currently. As NewEdge's Brad Wishak notes, the index (which represents 61% of the market capitalization of globally listed companies) has risen about the same amount over the same period as in the run-up of the last debt-fueled bubble (only this time the valuations are notably richer). Will Janet Yellen make sure this time is different...? Or is the right question, 2007 USA or 2006 Zimbabwe?
Shitty data, worse earnings, worst volume, new highs. Among the lowest volume days in NYSE single-stocks, S&P futures trading, and VIX options saw stocks levitate back to overnight highs during the day only to slide lower to around unch by the close. Trannies have managed 11 up days in the last 13 and gained 10.3% - sure why not? S&P 500 hit new all-time highs but ended the day well off its highs. Gold hit 5-week highs but faded back to modest gains. The USD rallied early and faded to unch by the close. Treasuries rallied early on but faded into close +/1bp on the day... The pattern was the same across most assets but a very last minute 4.5 point rampapalooza closed the S&P at all-time highs.
Supermarkets, healthcare and education are next in line for technological upheaval. We look at the best ways to profit from upcoming changes.
The risk of a more meaningful reversion is rising. It is unknown, unexpected and unanticipated events that strike the crucial blow that begins the market rout. Unfortunately, due to the increased impact of high frequency and program trading, reversions are likely to occur faster than most can adequately respond to. This is the danger that exists today. Are we in the third phase of a bull market? Most who read this article will immediately say "no." However, those were the utterances made at the peak of every previous bull market cycle. The reality is that, as investors, we should consider the possibility, evaluate the risk and manage accordingly. With the current bull market now stretching into its fifth year; it seems appropriate to review the three very distinct phases of historical bull market cycles. While the current bull market cycle may not be set to end tomorrow; it seems sensible to take a pause to question mainstream beliefs.
This is probably the most painful bug report I’ve ever read, describing in glorious technicolor the steps leading to Knight Capital’s $460m trading loss due to a software bug that struck late last year, effectively bankrupting the company. The tale has all the hallmarks of technical debt in a huge, unmaintained, bit-rotten codebase (the bug itself due to code that hadn’t been used for almost 9 years), and a really poor, undisciplined dev-ops story.
- Despite budget win, Obama has weak hand with Congress (Reuters)
- Carney Brings In McKinsey for Bank of England Strategy Rethink (BBG)
- Bill Gates Buys Stake in Spanish Construction Company FCC (WSJ)
- Jerusalem Mayor Barkat Seeks New Term in Race Arabs Sitting Out (BBG)
- J.P. Morgan Aimed to Limit Damage (WSJ)
- EU Lawmakers Reject Draghi Call for Bank Bondholder Clemency (BBG)
- Wall Street Profits May Halve in Second Half (WSJ)
- Petrobras-led group wins Brazil oil auction with minimum bid (Reuters)
- Apple to Refresh IPads Amid Challenges for Tablet Share (BBG)
- Italy plans to offer guarantees on govt bond derivatives (Reuters)
- Berkshire Beats Apple as Favorite Stock of Tiger 21 Group (BBG)
First it was David Viniar, rumored for so long to be Lloyd's next logical replacement, who rode into the Goldman sunset. Now it is the turn of Goldman's Vice Chairman, Michael Evans, one of the firm's most senior execs and the person who many had expected would ultimately replace Lloyd Blankfein when it was time for succession at the firm that executes God's will (net of 3-5% in commissions) to depart quietly into the night.
- Congress Vote Ends Impasse to Be Revisited in January (BBG); Congress Passes Debt, Budget Deal (WSJ)
- House GOP extracts no concessions (Politico)
- Washington becomes the biggest risk to the U.S. economy (Reuters)
- Debt Deal Seen Boosting U.S. Consumers as Holidays Approach (BBG) - only thing missing: disposable income
- Federal Employees Head Back to Work (WSJ)
- Regulator Suggested Shift for Dimon at J.P. Morgan Unit (WSJ)
- Twitter hires Google ad exec ahead of IPO (CNET)
- Teens can now post publicly, but posts are friends-only by default (WaPo)
- Germany Moves to Finalize Coalition Deal (WSJ)
- Draghi Turns Judge on EU Banks as ECB Studies Accounts (BBG)
- UK nuclear deal with China a ‘new dawn’ (FT)
In a world devoid for the past two weeks and certainly for foreseeable future of most US economic data (this week we get no CPI, Industrial Production and New Home Sales among others), markets are now reliant on China for an indication of how the economy is doing, which is why this weekend's weaker than expected Chinese exports (ignoring the fact that China trade data is largely made up) and higher than expected consumer price inflation (driven by higher vegetable prices), even as new yuan loans soared to CNY787 billion, well above the CNY675 billion estimate despite broader M2 slowing from 14.7% in August to 14.2% in September, means the Chinese economy is once again in a vice and following the summer's liquidity driven boost, is set to roll over. Which in turn means that once again the PBOC is flying blind: unable to inject more liquidity without risking broader inflation, while most indicators are already rolling over. In short, ugly and certainly rolling over Chinese economic indicators for the market to mull over on Columbus day, even though all this will be promptly forgotten once the Washington debt ceiling song and dance resumes and the now traditional 10:30 am surge grips the algotrons as the latest set of "imminent deal" rumors is unleashed.
Recent speeches from the SEC indicate they plan to use Midas to look at the details behind quote stuffing, excessive order cancellations, the cause of mini flash crashes, and other nefarious activities. While these are all good uses for a market analysis tool (Midas), they pale in comparison to a data-feed delay analysis, because the former are governed by blanket, hard-to-prove manipulation laws, while the latter can be tied directly to a core rule that lies at the heart of Regulation NMS. An improper data-feed delay was the reason for the $5 million fine against an exchange in September 2012. Furthermore, millions of people are directly affected and disadvantaged by illegal data-feed delays. Therefore, it would be a great waste of public resources to not immediately pursue a data-feed delay analysis, because there exists ample evidence that an illegal speed advantage exists in direct feeds over the public quote.
The massive outperformance of the smallest and most trashy companies over the past year, month, week, day etc... stalled this afternoon. No news; no macro data; no change in the situation in DC. So what was it? We suspect the answer lies in the all-time record levels of margin that we recently discussed holding up the US equity market. Interactive Brokers, it would appear, have seen the light and over the next week or so will be increasing maintenance margin to 100% - effectively squeezing the leveraged momentum chasing muppets out of the market (or at the very least halving their risk-taking abilities).
We identify the six investment themes that look likely to generate alpha over the coming decade.