New York Stock Exchange
Q. What are traders talking about at the present time here at the New York Stock Exchange?
Cashin: We are concerned about two questions. First, how will the Fed do in keeping money reasonably easy without causing inflation? Second, where do we stand with the current geopolitical challenges? For now, these challenges seem to be short term concerns. But should we begin to see a financial contagion and pressure building on banks in Europe, perhaps out of the Ukraine situation, things could theoretically turn into what I call a «Lehman moment». That is when markets come under pressure but seem to be under control, and then things change suddenly.
With the Alibaba roadshow kicking off this week, ConvergEx's Nick Colas reviews the second-order implications of this historic transaction. Over the next two weeks investors will have to consider important issues, such as which stocks money managers will sell to fund their BABA purchase and what securities (stocks and ETFs) hedge funds may short to pair against an Alibaba long position. And consider: "Do big IPOs signal a market top?" Also, with an estimated $7 billion in fresh cash and a valuable public stock post-IPO, BABA will also be able to play the M&A game aggressively. Just consider its corporate North Star: "Our mission is to make it easy to do business anywhere" (the first line of the S-1 summary). In short, Colas concludes Alibaba really is a big deal (at 27.3x trailing EV/EBITDA).
While in July margin debt did dip modestly from near all time highs hit back in June when total margin debt was virtually tied with the previous record, at $464 billion, it was that other metric tracked by the NYSE, namely Investor Net Worth, calculated by subtracting margin debt from the notional represented in free credit cash accounts and credit balances in margin accounts, that was the notable highlight in the July report: at a negative $182.1 billion, a decline of $6.3 billion from the prior month, investor Net Worth has never been lower.
The stories make you want to take all of your money out of the stock market and put it in your mattress!
- New War Risk on Russia Fringes Amid Armenia-Azeri Clashes (BBG)
- Palestinians accuse Israel of breaking seven-hour Gaza truce (Reuters)
- Argentine Default Sours Outlook for Peso as Talks Ordered (BBG)
- Espírito Santo Saga Entangles Swiss Company (WSJ)
- Booming African Lion Economies Gear Up to Emulate Asians (BBG)
- CME Profit Falls as Trading Volume Declines (WSJ)
- Why Recalled Cars Stay on the Road (WSJ)
- London Renters Win in Billionaire Backyard as Prices Soar (BBG)
- Junk-Debt Liquidity Concerns Bring Sales (WSJ)
- Rescuers race to find survivors after 400 die in China quake (AFP)
Although the NYSE was closed between July 30 and December 12 of 1914, stocks were quoted by brokers and traded off the exchange. Global Financial Data has gone back and collected stock prices during the closure of the NYSE to recreate the Dow Jones Industrial Average while the NYSE was closed. We collected the data for the 20 stocks in the new DJIA 20 Industrials and calculated the average of the bid and ask prices from August 24, 1914 to December 12, 1914. This enabled us to discover that the 1914 bottom for stocks actually occurred on November 2, 1914 when the DJIA hit 49.07, over a month before the NYSE reopened. Few people realize that stocks in the US had already bottomed out and were heading into a new bull market when the NYSE reopened on December 12, 1914. The DJIA did not revisit this level until the Great Depression in 1932.
- Facebook Researchers Manipulated News Feeds in 2012 Study (BBG)
- Argentina at Brink of Default as $539 Million Payment Due (BBG)
- Hedge fund correlation risk alarms investors (FT)
- As China Flexes Muscle, Obama Frets Over Rival’s Weakness (BBG)
- As caliphate declared, Iraqi troops battle for Tikrit (Reuters)
- Dubai Caps Worst Month Since 2008 as Real Estate Stocks Tumble (BBG)
- Russian Advisers Ready Iraq to Use New Combat Aircraft (BBG)
- Blackstone Readies Big-Bet Hedge Fund (WSJ) - so what was GSO?
- Pope says communists are closet Christians (Reuters)
- Thomson Reuters revising FX trading standards (Reuters)
- Yellen Spending Recipe Lacking Key Ingredient: Bigger Wage Gains (BBG)
- Ukraine signs trade agreement with EU, draws Russian threat (Reuters)
- GM Documents Show Senior Executive Had Role in Switch (WSJ)
- Australian Report Postulates Malaysia Airlines Flight 370 Lost Oxygen (WSJ)
- World’s Biggest Debt Load Lures Distressed Funds to China (BBG)
- GPIF Rushing Into Riskier Assets Before Ready, Okina Says (BBG)
- Japan Prices Rise Most Since ’82 on Tax, Utility Fees (BBG)
- Italian Debt Swells to Rival Germany as Bond Yields Slide (BBG)
- China’s Manhattan Project Marred by Ghost Buildings (BBG)
- BOE's Carney Says Rates Won't Rise to Levels Previously Considered Normal (WSJ)
In what appears to be the first real action post-Flash Boys, NY AG Eric Schneiderman will announce at 4pm ET that Barclays will be sued over fraud allegations related to its Dark Pool's preferential treatment of high-frequency traders. As Bloomberg notes, Barclays runs one of the market's largest dark pools. This comes 2 months after the NY AG sent requests for information to various major HFT shops. It seems, just as we noted here, that a potential scapegoat is being primed 'just in case' this 'market' can't withstand the Fed's pullback.
For the last two decades Coach (COH) could do no wrong. Its aspirational handbags flew off the shelves at hefty prices, causing its sales to soar from $1.3 billion to $5.1 billion during the 10-years ending in fiscal 2013. Better still, its EPS soared by 6X, representing a 20% earnings growth rate over the same period. Greatest of all, its share price peaked at nearly $80 in 2012 after having opened the 21st century at $3 per share. Needless to say, the believers and speculators who got on board for the 27X gain in twelve years were fabulously rewarded, as was its founder and largest stockholder, Lew Frankfort, who became a billionaire along the way. So the capitalist dream is still working in America, right? Not exactly.
From Ancient Egypt to Modern America …
If clichés reflect overly common (if therefore unappreciated) wisdom, then we finally have a good explanation for why risk assets continue to rally. No, there are actually not “More buyers than sellers” – money flows are negative over the last month for both U.S. equity mutual funds and ETFs. And forget about investors “Downgrading on valuation” as stocks climb higher and higher; truth be told, that’s not even really a thing (unless you work on the sell side). Nope, this is a “Flight to quality”, “don’t fight the Fed”, “never short a dull market” environment with “easy comps” from a long rough winter. Want to call a top somewhere around here? Remember that “Markets discount events 6 months in the future.” A “Santa Claus rally” in June? That would fit the one cliché we know is actually the market’s True North: it will do exactly what hurts the most “Smart” investors. And that would be to rally further as the doomsayers double down and the timid cling to their bonds and cash.
It seems that no market tops until the bag has been fully passed to retail muppets, and we appear to be in the process of that happening right now. The retail investor is getting back into the stock market and is seemingly focused on the riskiest types of shares; unlisted penny stocks. They aren’t just dipping their toes in either, the pace exceeds that of the tech boom of the late 1990?s and has just hit the highest amount on record.
The New York Fed's historical appreciation society has looked back at what was likely the US' first crash and foud that Alexander Hamilton's actions in 1792 which they claim "appears to have effectively managed the crisis with little or no long-term spillover to the economy," has now become the blueprint for manipulative intervention until this day by the central planners who know far better than 'us' collectively... but there are some lessons that Bagehot has that are worth remembering...
It happened in 2000 and 2007. Spectacular consequences! Now it happened again. And beneath the blue-chip highs, parts of the market are already crashing.