Tag: equity markets

How not to go to jail for insider trading

I’m not going to jail for trading in Novell. In fact, I’m not going to trial, there will be no indictment…hell, I’m not even going to be investigated.

Several years ago I identified Novell as a buyout target. I will not go into my reasoning, but let’s just say I did so before it actually became a buyout target. I accumulated some shares, and sat tight. The stock languished.

Not even on my radar, I received a notification of the upcoming shareholders meeting. I reviewed my position in the wee morning hours, and concluded it was time to bail. I’m still not going into my reasoning.

Twelve hours later Elliott Associates LP, a fund that holds an 8.5% stake in the company, offered to buy the rest of it for roughly $5.75 a share. The stock hit $6.15 in after hours trading.

I think I got between $4.75 and $4.85 for my shares. During normal trading hours. I won’t be looking at those confirms again.

No steak dinner for me.

A broken stock market is a huge problem

I don’t even like the guy, but I can’t argue with what he’s saying.

Without ‘public confidence’ there are no markets

The public has been told all their lives to invest. Sock that money away – put it into the market. For the long term.

The No-Return Decade

Save dividends, which are now being whacked hard, long-term equity investors have little to show for their efforts over the last twelve years. Throw volatility into the mix, and you might think the last man at the table is footing the tab.

You should ponder this before telling the friend next to you “I’m not worried about my investments…the market always comes back.”

Because where it comes back to is all relative.

BRIC throwing should be an Olympic event

The market news piece of the day is that the S&P 500 has (YTD) outperformed the once explosive BRICs (Brazil, Russia, India and China). Folks everywhere are saying “See, it’s not so bad” and touting the fact that the U.S. is the “least loser” etc. etc. I don’t think that is the real story here.

As the Washington Post notes, the Olympics may be fantastically well choreographed, but it doesn’t really matter if nobody shows up:

Two weeks after announcing they had sold every one of the record 6.8 million tickets offered for the Games, Olympics officials expressed dismay at the large numbers of empty seats at nearly every event and the lack of pedestrian traffic throughout the park, the 2,800-acre centerpiece of the competition.

The Chinese organizing contingent is “baffled” by this? They’ve got to be kidding – look at their stock market…

brics-performance-vs-sp-500
Chart compliments of Bloomberg

Just a few months ago, the Chinese were trying to stem the bleeding by promoting more equity market speculation. From the looks of the chart, that didn’t get them very far.

Clue: When equity markets tumble, people lose money. When they lose money, they stay in. And (I guess) order Chinese food.

When the housing boom got started

The open question is why?

The consistent sound bite seems to be “the housing boom that began in 2001…as a result of subprime mortgages”. Even today, Paul Krugman gives cover to Fannie Mae and Freddie Mac while trying to pin the problem on sub-prime post-millenia. It’s hogwash. As the chart below shows, the boom really began in 1995:

homeownership_sp

I initially graphed homeownership against the S&P 500 for shits and giggles, but it does depict how liquidity rolls. What happened in 1995 to set off the explosion?

30-year-fixed-rate-mortgage

The 30-year fixed mortgage rate dropped significantly during the early ’90s, but was accompanied by little corresponding uptick in homeownship. Rates rose just over one percentage point in 1994, but soon corrected themselves.

Yet beginning in 1995 homeownership skyrocketed. Earnings followed, and so did stocks. The 2001 recession, triggered by the internet stock plunge and exacerbated by the the 9/11 terrorist attacks, took a swipe at the S&P. The Fed began hammering short-term rates to save people’s IRA accounts, and the byproduct was a continued run-up in housing on the back of more exotic mortgages combined with increasingly lackadaisical lending standards.

The juggernaut was long since in motion. But why?

UPDATE: I dug this up, which seems to claim affirmative action was partially to blame. While the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 did provide for certain low-income mandates and give additional oversight powers over the GSEs to HUD, it seems the actual amount of loans purchased by the GSEs nary broke 1% of their total in any given year since. So while the GSEs touch almost half the overall mortgage market, it’s difficult to see how affirmative action could have gotten such a big ball rolling.

20% Of Valley Startups Can’t Get To Their Cash

I only shrug and nod compliantly when tech folks say the housing debacle, the credit crunch, the equity market gyrations, and other macroeconomic factors those very same tech folks proudly proclaim their ignorance of, does not effect them.

It does. And it will continue to do so.

Analysts now picking bottoms

The PR hacks say another 4% decline in the S&P fully prices in a recession.

Time to watch out below?

Rate cuts, history, and panic

Sticking to hard data, this morning’s Fed Funds rate cut of 75 basis points was the deepest on record. Who’s record? The Feds own record, dating back to 1971.

Note that there are several occasions where the Fed raised rates (either the discount or fed funds) by 3/4 of one percent: the summer of ’73, September of 1980, and November of ’94. But they never lowered it so significantly in one kick.

The Dow recovered roughly 2/3rds of its opening losses, ending the day down 128.11. I can’t remember such a harsh reaction on the part of equities to a rate CUT. It was hardly graceful.

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