Thursday, October 27, 2011

Egg on my face

I'd like to claim that I've perfectly timed every market move over the past 10 years but if that were true I'd be living on a boat off the coast of Argentina instead of ordering more pellets for another winter in the North Country.

Today's European debt deal was roughly inline with all of the expectations and I think will eventually prove to be another disappointing failure.  However, that was not the reaction of the market today.  It opened up and never looked back (well, there was a little rebalancing dip at 3:50 but for the most part it was up, up and away).  So, I missed this last 5% of the move up and that's a mistake, but the risk of a downside surprise outweighed the potential upside in my opinion.

The markets continue to operate in ways that defy logic.  There was a 15% rally on the HOPE of a deal and then when we get a deal the markets keep chugging another 5%.  We'll see how it plays out over the long run.


Quote of the day:

"Ignoring the fact that the EU Summit conclusions leave more questions than answers, it may allow us to focus once again on the fundamentals and those fundamentals are not a rosy as many would have us believe."

I read an interesting review of India's new Aakash tablet computer that has created a bit of a stir in the tablet world given its price of $35.  To be clear, that's a subsidized price - the retail price will be more like $60.  Also, $35 in the US is a far cry from $35 in India which would probably equate to about a week's gross wages (so a comparable price in the US might be $600).  Finally, the reviews of the tablet are that it's kind of clunky but serviceable.  Here's the issue, India is going to put millions of these tablets in the hands of kids who might have never had indoor plumbing or a landline.  These kids might use the tablet to watch Big Brother, a Bollywood music video or learn how to code at
Just to have some fun playing with numbers, I wondered what it would cost us to do the same thing here in the US.  First we'd have to build a tablet for around $100.  That would be a challenge but since many low budget brands already sell 7" tablets for $80-$100 retail running android I think that is reasonable.  There are 42 million school age kids in the US --- 42 million*$100= $4.2 billion.  It's sad that $4.2 billion seems like a laughably small number in today's budget environment.  We spend about $300 million a day in Afghanistan.  Do you think we'd get a better return on our investment by spending the next 2 weeks in Afghanistan or giving 42 million kids a leg up on their global competition?

Monster melt-up

Well, October 2011 is going to be one for the record books.  Stocks have gone vertical on the hopes of a debt deal in Europe since the 10/4 bottom and now that we have a deal we aren't getting the normal sell the news reaction, it's a full 5% jump across most European indexes. 

It seems strange that the solution to Europe's crushing debt load is.... $1.4 trillion of new debt, but hey who am I to question their plan?

While I think there are many questions to be settled - particularly regarding the Greek bond haircut which everyone said had "it has to be 70% or more", yet it settled at 50%.

As I said earlier this week this had the potential to be an explosive week and that's exactly how it has played out. 

BTW: the best tweet of the day - Hmmm, protesters massing in the streets are fired upon with rubber bullets and flash grenades but it's not on the cover of @NYTIMES?  Oh, that's right it's happening here and not in the Middle East.

The Occupy Oakland story was way under reported yesterday - so I'll do my part to spread the word.

Occupy Oakland - Iraq War Vet critically injured by police projectile.


Tuesday, October 25, 2011

Netflix, First Solar and Amazon, oh my...

I jumped off the Netflix bandwagon in July when the stock was around $290 and I felt that I'd seen just about every show worth watching.  I mentioned in passing that I was canceling my service and should probably go short the stock.  Well, I never expected the absolute demolition of the stock to take place this fast. The stock fell over $40 today to just about $77/share.  Eventually, there will be plenty of rumors circulating around the company if it stays at this level because Google or Apple could now buy Netflix with the loose change in their lobby couches.

The solar industry can't catch a break as the industry leader - First Solar - was pummeled today on news that their CEO was stepping down and tonight Amazon shocked everyone by issuing a weak outlook for the Christmas quarter which included the possibility they may lose money in the fourth quarter even though sales are expected to be in the $16.5-$18.5 billion range..

On to more pleasant thoughts - I read this article yesterday that includes quotes from the author "Brainwashed" on the way companies market to us.  The specific comments on Whole Foods cracked me up....

"If you pay attention as you walk into the produce department, Lindstrom says you will notice the boxes holding the apples and bananas seem to have been delivered by something called "Patty's Farm."

"The story is probably very different," Lindstrom says. " In the backside of the store, they're offloading all those bananas from huge plastic containers, most likely flown in the day before, into those individual-looking cardboard boxes, which by the way is not 'Patty's Farm.'

"It's actually been designed by a graphic design company in New York City to make us feel this is nostalgia at its peak."

This reminded me of scene I saw unfold at the farmer's market in Ottawa this summer before most customers arrived.  A "farmer" was opening up large 2lb containers of blueberries that were clearly marked "Costco" and dumping the berries into those small green pressed cardboard containers that gave the berries a "fresh picked" look.  Those Costco berries went from about $3/pound to about $8/pound in the blink of an eye.  Ah, behold the power of marketing :)

I really couldn't believe that this story wasn't from The Onion - Wisconsin town considers bike ban.  Well, on the surface that isn't that surprising -- there are lots of car vs. bike disputes around the US.  However, this line defies all logic....

"The Stevens Point Journal reports that the proposed law would require biking, running or walking groups to register their travel plans with the town or bans them from using roads outright."
What the what?
So, I want to put in a quick 25 miles after work with my buddies and I have to register my "travel plans" before heading or face an outright ban?  Wow.  Hopefully, cooler heads will prevail.


Monday, October 24, 2011

The Epic Ride Continues

It's been some wild ride since October 4th.  Since that date the Dow is up about 14%, while both the S&P 500 and the Nasdaq have jumped is up 16%.  That is a remarkable run but this is the market we live in now, where things jump 20% and fall 20% in the span of weeks.

We have seen similar rallies around quarter ends (the June 2011 rally rings a bell) and there is some chatter that this sort of rally becomes self-fulfilling because it helps to prevent hedge fund redemptions.  However, the greatest factor remains - the Euro's strength (for some unknown reason) and the corresponding dollar weakness.

I find all of the uproar about the Canadian entry fee to be a little disingenuous.  First of all, the $5.50 fee wouldn't be charged to visitors entering via car, so frankly the economic impact would be minimal.  Second, the same people that are clamoring to secure our borders with more and more and more border security seem to be the first to complain about this fee.  Yesterday, as I drove home I saw 5, count them, 5 brand news Border Patrol SUVs pass me on Rt 12.

So, if you want all of this enhanced security - which I argue is overkill and provides little incremental value for every dollar spent - you have to pay for it.  Well, you could levy a tax on jurisdictions that are benefiting from all of the increased Canadian visitors - say a 1/4% regional security sales tax - or you can charge non-residents a small fee to help cover the soaring costs of protecting your border.  I don't like the idea of having this fee but if you strive to remove all risk from your world there is a price to pay and in this case that price is $5.50.


Sunday, October 23, 2011

Expect major fireworks this week

Sometimes I wonder if people ever actually read the news or, if in the ipad era, we've just become a world headline scanners.  The news out of the latest European has been decidedly negative yet the global reaction to this news has been a collective shrug of the shoulders.  Asian markets are actually soaring, while the US futures are a little off as the Euro has weakened a bit relative to the US dollar.  As has been the case for the past month - watch the US dollar/Euro because it will tell the story.

At some point people are going to realize that Europe does not have the political will to take the necessary steps to stabilize Greece and Italy.

While we're on the subject of political will, there are some interesting rumors dancing around the internet about the US housing market.  There is a rumor that the Federal government is readying some type of plan to create a pool of all Fannie/Freddie foreclosures that could be sold off in large blocks to investors.  This would help to eliminate some uncertainty in the housing market and probably strengthen the status of Fannie and Freddie.  However, if this is something that would require Congressional approval I think the originators of the rumor need to have their head examined.  In my opinion, anything that might help the President in the polls (regardless of its actual value to the country) has less than a 0% chance of passing in the midst of an election year.


Thursday, October 20, 2011

Just a quick suggestion

Maybe we should start having our leaders carry a pair of handcuffs when meeting with dictators that have terrorized their people for 40 years?

* In case you don't recognize everyone - it's former UK PM Tony Blair, Italian PM Berlusconi, French President Sarkozy and former Secretary of State Rice.

Wednesday, October 19, 2011

Have we gone soft?

Hat tip to my cousin Jeff, who is doing his best to prepare the next generation of math geniuses just outside of Boston, for passing along this great post from Fareed Zakaria from Time.

The entire post is worth reading but the data focused paragraphs really grabbed my attention. Anyone running for public office needs to think long and hard about these numbers.

"Perhaps the most crucial measure of our ability to compete in a global economy is our educational attainment, especially in science, math and engineering. A generation ago, America had the highest percentage of college graduates in the world. Today we’re ninth and falling. The WEF report ranks the U.S. a stunning 51st in science and math education. If a willingness to study science, math and engineering is an indication of being willing to work at hard stuff, there is no question that we are going soft. In 2004 only 6% of U.S. degrees were awarded in engineering, half the average for rich countries. In Japan it’s 20%, and in Germany it’s 16%. In 2008–09 there were more psychology majors than engineering majors in America and more fitness-studies majors than physical-sciences majors.

The great scholar Daniel Bell once summed up the essence of the Protestant ethic that had spawned industrial civilization: delayed gratification. The ability to save and invest today for a better tomorrow has been at the heart of every society’s leap from poverty to plenty. The U.S. was a country marked by this ethic. In the 1950s, household debt was just 34% of disposable income; today it is 115%. Then, the government made massive investments in research, development, infrastructure and education. Today, spending in all those areas is declining. Infrastructure and R&D spending are each down by a full percentage point of GDP. Federal funding for the physical sciences fell 54% over the 25 years since 1970 and has continued to fall. Tom Friedman and Michael Mandelbaum point out in their new book that 30 years ago, 10% of California’s general revenue went to higher education—and the result was the crown jewel of American public education, the University of California system. Just 3% went to prisons. Today, 11% goes to prisons and 8% to higher education, a number that is dropping fast. There are now about as many Americans who work in the prison business as in auto manufacturing.

Federal, state and local governments now spend less of their money investing for the future. Health care and pensions are devouring budgets everywhere, and whatever their virtues, it is difficult to mark them as producing a more competitive society. The federal government spends $4 on every adult over 65, compared with $1 on every child under 18."

Let some of those facts sink in. More prison employees than auto workers? More psychology majors than engineering majors? $4 for every senior for ever $1 on children? These are the canaries in the coal mine.  It's clearly easier for politicians to promise the world - it's tax cuts, free healthcare 'til your 120, and rainbow unicorns for everyone!! - but someone needs to grow up and start making the hard decisions that the public can't make for themselves.

Too big to miss

That's my take on the market's reaction to Apple's results.  Yes, it's likely a timing issue and yes, the iphone 4s will sell 14 quadrillion units, but the reality is that android is cutting into their market share pretty substantially and the lack of a stunning upgrade with an iphone 5 or something equally compelling has further slowed their growth.

However, remember when the banks were too big to fail?  Well, Apple is too big to miss.  Practically, EVERY hedge fund, mutual fund and pension has Apple as one of their top 10 holdings and for many it is their largest holding.  It's simply inconceivable to the herd that Apple can do anything but go up in value, so despite the huge sell-off last night after earnings the stock has rebounded some this morning. 

To be clear, I kind of like Apple products but I just think their quality is more Walmart/Aldi than Gucci/Hermes.  I've owned 3 Apple products - 2 broke in the first year (I ran in the rain with them - they failed to mention in the owners manual that 8 drops of water fries the electronics) and my current ipod doesn't hold a charge for more than a few hours (it's 15 mths old).  I contacted Apple and they're response was basically, "yeah, they do that."  

To review here's the reality of what's happened in the last 24 hrs:

* The Greeks are back on strike and rioting (there are live webcams if you are so inclined).

* The Euro bailout was refuted by many sources yesterday.

* Spain was downgraded.

* Apple missed estimates for the first time in practically forever.

And the markets are set to continue marching upward...huh?

Well, despite the fact that everyone is trying to talk down expectations for the European bailout, the random rumor mill keeps pumping out stories.  These rumors are leading to Euro strength and dollar weakness (notice how gas prices have stopped dropping - also tied to $ weakness) which means higher stock prices until it changes course.

Tuesday, October 18, 2011

Oops, the world's broken again...

Last week when the market was racing upward every day on little news and less volume it seemed like we'd turned a corner.  Well, a new week has brought new concerns and the list of reasons for a dip, at least at the open, is long.

* Well, Goldman has reported just their second quarterly loss since going public in 1999.  The results were pretty weak across the board, but banking and trading had a pretty negative impact on results.  However, before you cry too hard for the Goldmanites consider that the bank has $10 billion set aside for compensation and benefits to be paid out this year.  With just over 30,000 employees the average employee will still get a comp package north of $300k this year.

* Both Citibank and Bank of America posted HUGE profits but the bulk of the profits were due to accounting shifts and I don't believe they reflect a core improvement in their businesses. 

* From the FT an article on the early bank results: "Wells "Fargo) said delinquencies of more than 90 days in its main portfolio of consumer loans – including mortgages and credit cards – rose 4 per cent to $1.5bn, the first increase since 2009. The bank increased its provision for consumer-banking losses for the first time in two years…

Citi said the percentage of mortgages that were 90 days delinquent rose for the first time in almost two years – from 3.87 per cent in the second quarter to 3.88 per cent in the third.

John Gerspach, chief financial officer, said the bank was seeing “re-defaults” on mortgages that had been modified to make them more affordable.

“The residential mortgage problems are unprecedented,” said Gerard Cassidy, analyst at RBC Capital…He said the problems were no longer in “subprime” but “prime” mortgages.

Capital One, among the top six US card issuers, reported rising 30-day delinquencies in June and July.

Coupled with efforts by some European leaders to talk down expectations of a new grand bailout plan, the markets may have a difficult week (however, Apple's earnings could easily change the mood because millions of people are lining up to buy basically the same phone they already have ;).

I shared this stat yesterday with a friend and I have to be honest that this is the scariest stat I've ever seen when it comes to the future of our great nation.

86% of American workers are overweight, obese and/or have a chronic health issue (high blood pressure, cholesterol, diabetes, etc).  This was the result of a study using self-reported data which means that the results might even be worse in reality because people tend to overestimate their height and underestimate their weight.  Admittedly, this focuses on the flawed BMI chart but it's still a staggering piece of data.  How can we expect to compete as a nation in a global economy when we have this incredible health issue hanging around our neck?


Sunday, October 16, 2011

Weekend Potpourri

Regardless of your political leanings, I hope that you can appreciate this chart for its pure simplicity. 

Without making this a political discussion consider that:

* 93% of our $14.3 trillion of debt has been accumulated in the past 30 years.

* 59.5% of our total debt has been accumulated in the past DECADE!!!

What do we have to show for this roughly $8 trillion of debt?  A new national electric grid?  A national air transportation system that is the envy of the world?  The best education system in the world?  Nope.  In many ways, it feels like Congress and our presidents have bought into the world's worst Columbia House CD club.

I hate to keep harping on this issue, but the Fukushima story just isn't getting enough coverage here.  This weekend there was a story in the NYTimes that 20 radioactive hot spots are located around Tokyo.

"Takeo Hayashida signed on with a citizens’ group to test for radiation near his son’s baseball field in Tokyo after government officials told him they had no plans to check for fallout from the devastated Fukushima Daiichi nuclear plant. Like Japan’s central government, local officials said there was nothing to fear in the capital, 160 miles from the disaster zone.

Then came the test result: the level of radioactive cesium in a patch of dirt just yards from where his 11-year-old son, Koshiro, played baseball was equal to those in some contaminated areas around Chernobyl.

The patch of ground was one of more than 20 spots in and around the nation’s capital that the citizens’ group, and the respected nuclear research center they worked with, found were contaminated with potentially harmful levels of radioactive cesium."

This story should get your attention if you're the parent of a US student with plans to attend college in the next 15 years.  The US Ivy league schools are becoming safety schools for the best and brightest from India. 

"Moulshri Mohan was an excellent student at one of the top private high schools in New Delhi. When she applied to colleges, she received scholarship offers of $20,000 from Dartmouth and $15,000 from Smith. Her pile of acceptance letters would have made any ambitious teenager smile: Cornell, Bryn Mawr, Duke, Wesleyan, Barnard and the University of Virginia.

But because of her 93.5 percent cumulative score on her final high school examinations, which are the sole criteria for admission to most colleges here, Ms. Mohan was rejected by the top colleges at Delhi University, better known as D.U., her family’s first choice and one of India’s top schools."

Just for giggles, I might apply for entrance to Delhi University's class of 2016 :)

This is just a single data point but it's worth watching because it won't be long before we'll start hearing the "but, but, Christmas sales will save the stock market" stories.

"The five busiest container ports in the United States said that imports in August 2011 were lower than or even with 2010 volumes. In Long Beach, the second-busiest container port by volume, August imports fell by 14.2 percent from August 2010."

If that trend were to continue into September it would be a problem.


Thursday, October 13, 2011

What we can learn from Walmart

Walmart's reach into the US economy is so deep that at times I think they have better economic data than the random stats compiled in Washington.  Case in point comes from today's investor presentation which included the following chart....

We only see percentage shifts so it's unclear if the swaps are dollar for dollar but the trend is apparent.  People are swapping out of branded goods for Walmart's store brand - Great Value - and they are buying smaller unit sizes because the prices are lower (even though unit prices are likely higher).

As a data junkie with no fantasy football to occupy me this fall, I could spend hours pouring over Walmart's sales data to get my fix :)

Google absolutely crushed their earnings this quarter again.  I remain continuously perplexed by the google phenomena.  I love Google and use their products throughout the day but I've never clicked a paid ad so they've never made a dime off me.  However, we can get a little clarity on how they are growing so fast by looking at some specifics from their press release:

Google's tax rate sits at just 19% now as they generate 55% of their revenues overseas.  They have implemented a fairly complex tax strategy that funnels revenues through Ireland and Netherlands to Bermuda which has cut their taxes by over $3 billion in recent years (and contributes to their continued expansion of their earnings).

The stock is up $35 or so right now so we'll see if it pulls the rest of the market along for the ride.  Everyone seems to have forgotten JP Morgan and Alcoa already :)


Tuesday, October 11, 2011

Crazy days...

Yesterday when I posted the video of a mountain biker getting whacked by a flying animal it had been viewed 374 times - today, it's been viewed over 3,000,000 times.  Wow.

This is clearly the craziest chart you'll see on the markets courtesy of alphatrends.

Over the last 3 months we've dipped 18%, jumped 10%, fallen 7%, jumped 10%, fallen 7%, etc, etc.  It's pretty clear that the chart readers are running the show right now.

NY State's comptroller Tom DiNapoli garnered some headlines today regarding Wall Street's outlook.  There were a number of interesting tidbits in his statement including:

* Wall Street produces roughly 14% of the state's revenues (down from 20% a few years ago).

* The securities industry in NY has shed 4,100 jobs in the last 6 mths.

* The Governor is choosing to err on the side of hopium right now, but the Comptroller seems to be offering a more realistic view of the budget for next year.

Two things that I think are overlooked when talking about Wall Street's future are domestic competition and International competition.

1) NJ and Connecticut continue to pull jobs from Wall St.  The amount of construction along the NJ Gold Coast is truly staggering.  Like many things in my past, I was early to identify that trend.  My wife and I were residents #1 and #2 in the first new apartment complex constructed in Jersey City nearly a decade when we moved in 1996.  That area is now awash in new buildings for Goldman, JP Morgan, etc, etc. and I'm hearing talk of even more commercial space being planned (not good news for people looking to fill that growing building at 1 World Trade).

2) The bigger issue though may be the fact that NYC is simply losing its title as the world's marketplace.  Twenty years ago a hotshot analyst, trader or banker wouldn't dream of being anywhere but NYC.  Today, the bulk of the good jobs that I see are in Singapore and London.  Even if those cities eventually grow to share NY's title of financial capital of the world it probably means a permanent loss of jobs for NY state.

Finally, from the land of snowflakes and lollipops comes my story of the night...

From - Family gets lost in corn maze and calls 911

"One family got more mystery than they bargained for when they took an outing to a corn maze -- they got lost among the stalks as it got dark and needed the police to get them out, the owner said.

Around 6:35 p.m., Danvers police received a call from a family who couldn’t find their way out of the seven-acre corn maze at Connor’s Farm in Danvers, and were getting nervous because it was dark. A police officer and K-9 unit quickly located the family."


Monday, October 10, 2011

Market continues to soar

Another massive melt up today on very light volume.  Despite all of the theories you'll hear it really just boils down to the dollar.  The Germans and French have decided to plan to have a plan.  That announcement sparked a rally in the Euro and a sell-off of the dollar.  When the dollar goes down, stocks go up.  I wish it was more complicated but that explains the bulk of today's move.

More importantly, this is the craziest video I've seen in some time.  I'll never complain about a doe standing on my single track path again.

Friday, October 07, 2011

Jobs report better than expected....

As a reminder we should really be generating 250-300k jobs per month if we want to say the economy is recovering.  Keep that in mind as we discuss these numbers...

Jobs: +103k but 45k of those are due to striking Verizon workers returning to work.

So net jobs were +58k.  Expectations were 59k so this is about as "exactly in line" as it gets.

Unemployment was steady at 9.1% while participation rate improved a bit 64.2% (still way below historical averages of 66-67%).  We've now added about 70k jobs per month since April while 150k people enter the workforce each month.  The only reason the unemployment rate has not spiked higher is that discouraged workers continue to drop out of the workforce.

The stock market has now soared about 6-8% in the last three days.  I'll take that and go home happy for the year.  The reason for the rally was principally technicals but it was sparked by concerns that the global economies were collapsing and more stimulus would save us all.  If you want to cheer this jobs report you have to realize it should mean less stimulus and in theory lower stock prices in the near term.

From the files of "only in America"

"For an hour this morning, Portland police worried that a makeshift diorama containing a packet of tomato seeds, a flannel shirt and a computer mouse spotted along Southwest 14th Avenue at Taylor Street might be a bomb.

At 8:40 a.m., police were called to investigate a suspicious box near along 14th Avenue and above southbound I-405. Police quickly blocked traffic while officers in protective gear responded to examine the cardboard box perched atop a green utility box."

 So, now I know your dying to see this menacing "bomb-like" package that caused such a commotion, right?

Well, here you go....

Is it good art?  Well, it's not for me, but how can you look at that and say "yup, we better shutdown traffic here"?  Jack Bauer detective work strikes again.

The good news is that Portland will be able to parlay this "response" into a budget request for a dozen drones, 15 hazmat vehicles, and 1,200 new border patrol cars.

Wednesday, October 05, 2011

I know what I'll be doing this weekend

As a Dad with a daughter that considers popsicle sticks just about the coolest thing on earth, I think we'll be building one of these this weekend.

A cobra weave stick bomb! Cheers!

Explosive rally because...

To be honest your guess as to what triggered yesterday's 3:15 rally is as good as any that you'll hear today on TV. 

Let's go through the "reasons" you'll hear today:

1) The EU bailout rumor du jour - There was a 3:10 article posted at the Financial Times which hinted at a brand new expansion of the European bailout to save their bad banks.  That rumor seems to have been refuted today but it may have been a catalyst that at least contributed to the start of a turnaround.

2) Apple iPhone 4S - I've made it clear before that I'm no Apple fanboy, but I REALLY don't get the passion for this phone.  As far as I can tell, this isn't the phone everyone wanted, the biggest improvement is voice search that no one likes or uses and they improved the internal chipset a bit.  If Microsoft had an announcement like this they would have been ridiculed mercilessly in the media but Apple somehow gets a pass. I'm waiting for the day when they announce "We're not changing the iPhone but we are introducing a BRAND NEW BOX THAT CONVERTS INTO A PAPER AIRPLANE!!! That will be $599 with a 2 yr service contract, please pay the cashier at the front".  People would still be lined up around the block for it.
Apple is so widely held (for example it represents almost 2.5% of the equity assets of the ENTIRE NYS Teachers Retirement fund) that it can do no wrong until one day it does (see Netflix for past practice).

3) The market finally broke through various support barriers which seemed to open up the possibility of a true flush back to 2008 or 2009 lows.  This was very scary from a technical perspective and there was certainly a hope that we'd claw back above those levels before the end of the day.  I think when you combine the FT rumor, the Apple bounce and the market's need to get back above 1120 on the S&P 500, you have a recipe for 400 pt rally in the last half hour of a day which is what we got yesterday.

This is lifted straight from the Big Picture and it's pretty "Inside Baseball" re: Wall St. trading but it speaks to how the game is rigged against the small investor.

"What does it say about the state of our exchanges that trader on proprietary and execution desks now can buy a software program to alert them to the activities of Co-Located Algo Servers?

“HFT Alert, the first real time software designed to detect high frequency and algorithmic trading systems. HFT Alert identifies when these trading systems are running and what stocks are being affected. HFT Alert can detect several types of algorithms as well as stocks experiencing elevated quote rates associated with algorithmic trading.”

We are now apparently in a silicon based arms race to learn when quotes are real and when they are spoofed faux quotes driven by HFT algos designed to increase volatility.

The exchanges once operated fro the greater good of the investing public, akin to nonprofit utilities. They are now hellbent on chasing away private investors who will eventually learn that this is a zero sum game, and co-located HFTs are a tax on saving and investments."


Monday, October 03, 2011

Now it gets interesting

* As I mentioned yesterday, the markets were right on the edge of a technical cliff and if things remained dicey in Europe it could spell trouble.  Well, Europe appears to be a complete mess and that led stocks sharply lower again in the US.  We've now closed below key technical levels for the first time.  In each of the previous sell-offs we've bounced off these levels intraday and closed around 1120 on the S&P 500.  Today was different because we never got that bounce and stocks have continued to sell-off after the close.

I'm a big believer in reviewing an investment's fundamentals and making decisions based on those fundamentals.  However, in Wall Street terms that makes me the guy doing math with an abacus and writing letters in script to be sent via pony express.  Today's market is all about the program traders and the programs are not going to react well to this new data. 

* Also, out tonight Goldman upped their prediction of US recession to 40% but that could have been skewed by the rumor that Goldman employees are going bonus-less this year.  They also predict MORE Fed easing (because clearly that has fixed everything so far) and recessions in both France and Germany.  Good times.

* One of my most visited posts back at the height of the meltdown dealt with the NYS Teachers' Retirement fund holdings that had taken a bath on certain positions.  I predicted at that time that the poor performance of the retirement fund would lead to increased contribution rates for local employers (schools) which would ultimately contribute to local budget crunches.

Well, here we go again.  I took a look at the TRS holdings as of 6/30/11 which included roughly 1,930 stocks in their equity portfolio valued at $41.4 billion.  While the fund has a wide range of holdings (close to 2,000 stocks) the top 25 holdings represent roughly 30% of the total equity holdings or $12.2 billion as of 6/30/11.  A couple of interesting facts assuming nothing has changed since June:

1) Apple is on the verge of becoming the fund's largest holding with a current value of $995 million UP $103 million over the past 3 months while the market has fallen 16%.  ExxonMobil is currently the largest holding in the fund at $1.01 billion but another down day in the market, coupled with the prospect of an Iphone5 launch tomorrow means it's likely Apple will be the top holding by the end of the week.

2) The fund's top 25 holdings have seen their values fall by $1.4 billion since June 30th.  The biggest losers include household names like ExxonMobil (down $145 million), General Electric (down $127 million), JP Morgan ($141 million), Citigroup ($152 million), and Bank of America ($158 million).

Again this is just a snapshot in time and it most likely doesn't represent the actual results (I expect the fund sold some of these shares during the sell-off) but if this trend doesn't reverse districts are likely to be facing rising pension contribution rates again this year which will make the budget process for school districts very challenging next year.


Sunday, October 02, 2011

Where have I heard this story before?

Asian markets are down about 2% across the board on fears that the latest Greek bailout efforts are starting to unwind.  There lots of unsettling rumors about European banks but until the sun rises in Europe they will likely remain just rumors. 

This story just keeps repeating as we grind along in the markets.  Unfortunately, we stand at a really tenuous spot for the chart readers.  Remember, we had a MONSTER stock market rally off the absolute bottom in March 2009.  Stocks soared from their March lows up about 72% by the end of 2009.  It was a rally of historic proportions but not without precedent.  At the time I pointed out that huge rallies also occurred in the midst of the Great Depression.

Well, from Jan 2010 to Oct 2011 we've gone effectively nowhere in the stock market (down roughly 1%) over that 22 month period.  If we break below 1120 for the S&P 500 the computers will go haywire trying to figure out the next move.  The charts might signal a new low, but we've bounced off those levels almost every time this year.

It should be a very fun week.  Oh, and #occupyWallStreet is probably not going anywhere as the weather improves in NY this week. 

Keep circulating my contact info if you know someone with a good idea who'd like to discuss their business plan.  My info -