Analyzing Strange Volume on the NYSE 39 comments
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"Oh yes, we have a tremendously positive stock market here. The tenor and tone is good, the volume support is ok, all looks excellent for continued rallying on an improving outlook for the global economy."
You mean like this?
That's a clever little search in which I asked for the highest-volume stocks with prices over ten cents (to exclude the little penny pumper stocks on the OTC market.)
Well gee, let's add this up!
That would be about 2.126 billion shares in total for these four stocks, two of which (Fannie and Freddie) are so far underwater in their equity value (to the government no less!) that there is no chance they're worth anything, yet they remain listed, and the other two are zombie banks with Citibank existing only because of $300 billion in asset guarantees by The Fed and Treasury (which, incidentally, is under investigation, and that assumes that the $300 billion is all there is. There is persistent chatter that the real amount of "back door support" that Citibank (C) has is closer to a cool trillion dollars, although I've never been able to get anyone to speak on the record in that regard.)
But I digress.
Here is the NYSE Volume for Tuesday - for all shares, right off NYSE Euronext's page:
So let me see if I get this right. 2.126 billion shares traded in four stocks, two of which that accounted for some 900 million of those shares are in companies that by any measure of accounting have absolutely zero common equity value whatsoever (and never will under any rational view of the future), yet NYSE Euronext continues to list them.
These four stocks represented thirty seven percent of all shares traded Tuesday.
Tuesday 3,162 different stocks traded on the NYSE. These four represent 0.13% of the total, yet they comprised 37% of the volume. That's an over-representation of nearly 300 times the average.
Now folks, let's be straight here. Do you believe for one second that this is "great liquidity" added by the "high-frequency trading" computers that are almost certainly behind the vast majority of this volume?
This isn't the first day with this sort of abnormal trading and volume pattern either. In fact it has been going on for the last week, with AIG making a frequent appearance on the list as well.
If there was ever an argument to be made for the NYSE having turned into a gigantic "hot potato" parlor game, this is it - in your face in an impossible-to-explain-away fashion.
NYSE Euronext, of course, derives a fee from each share traded, so they have to love this sort of thing. The ordinary investor who has a brain sees it as an amusing sideshow, but the unfortunate fool who gets sucked into the maelstrom is going to get destroyed when the computers move on to some other issue and the price collapses as there is no authentic bid out there for any of this crap.
Beware. This is the sort of cheap parlor game that our capital markets have turned into as a direct and proximate result of our so-called "regulators" turning a willful blind eye while supposed "improvements" in liquidity and "customer access" are put in place by those who have one singular purpose in mind - find a way to steal a fraction of a penny at a time by playing "hot potato" with a handful of issues (sometimes starting a nice juicy rumor to go with it, aka the one last week about BAC allegedly being taken out by Goldman just to prime the pump a bit!) hoping that you will be the bagholder upon whom they can unload.
The wise trader and investor who does not possess a colocated server sitting three feet from the backbone network that runs up and down the NYSE would be well-advised to stay away from this modern version of Three-Card Monte.
Finally, let me remind everyone that the tape does have both red and green arrows in the printing mechanism, and that which can be run up by these games can also be run down with equally-frightful speed. Speaking of which, doesn't anyone remember last fall and this spring during the crashes with all those nasty rumors about various firms that turned out to be not true?
Hmmm....
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This article has 39 comments:
Nice to see someone speak the truth abou these companies (actual equity value) out loud.
I am particularly amazed at FRE - when your CFO strings himself up, I would tend to think of that as a bad sign. Or am I just being old fashioned.
Is this some back door way of re-funding FNM, FRE, BAC, Citicorp...without having to publicly announce more bailout money going there? Is the money for these purchases coming through Goldman Sachs? Is there any way of determining this?
Great article.
On Aug 26 01:20 AM MarvinMBA wrote:
> Well we are pulling out of a recession ( I think ) and something
> has to start moving to get the show on the road. I think Uncle is
> anxious to get investors back into the game to help absorb some of
> the printed money. Avoid the market and your financial health will
> be in danger.....get back in and play the game or you will be left
> holding green stuff thats going to be worthless..MarvinMBA
It is so funny what has happened to the land of the free. I just cant believe the US president does not front run these markets himself or his church group there in Chicago. Manipulation or side line tactics in the stocks, bonds and T bill markets along with destruction of the bankruptcy laws and personal attacks on corporate leaders does not make a country healthy.
He is orchestrating it, does that count as fraud at the highest level?
Where oh where has the trillions gone?
Marvin MBA:
Well, unemployment worldwide is still very high (i.e. Spain, Ireland, Great Britain, U.S.) Governments have applied various stimuli programs; thus, 'creating' demand via works projects, or pulling forward demand (cash for clunkers). Accounting practices have been changed to allow assets to be valued at par at financial institutions (though they are likely worth much less). Rail transports have been very slow (thus, illustrating weak natural demand for metals and lumber). Housing numbers released today had a seasonal adjustment upward adjustment of 45k units (betcha didn't know that they started doing that did you?) We've had about 80 bank failures so far this year, and about another 100 in the queue (if not more). There is a bifurcation in the housing market between conforming and non-conforming loan spaces. Low end is moving (housing credits for first time buyers) while the jumbo loan market is still stagnant (again a pulled forward demand issue). The shadow banking system doesn't exist anymore to do those securitization transactions we became so fond of. Banks still carry assets on their opaque balance sheets that are difficult to value. Our current market has fairly priced in EPS for the entire 2010 year. Last earnings reports were beats on EPS but shy on revenues (thus, illustrating the importance of cost cutting).
I'm certain I could think of more reasons to be bullish, but I think we all know that high beta (i.e. crap) stocks are on the move. And like the 'new paradigm' in the tech bubble, fundamentals don't matter... Just close your eyes and buy.
user
thats great
glad someone has a memory longer than this latest sugar high
On Aug 26 01:51 AM User 477153 wrote:
> Denninger - well put.
>
> Marvin MBA:
>
> Well, unemployment worldwide is still very high (i.e. Spain, Ireland,
> Great Britain, U.S.) Governments have applied various stimuli programs;
> thus, 'creating' demand via works projects, or pulling forward demand
> (cash for clunkers). Accounting practices have been changed to allow
> assets to be valued at par at financial institutions (though they
> are likely worth much less). Rail transports have been very slow
> (thus, illustrating weak natural demand for metals and lumber). Housing
> numbers released today had a seasonal adjustment upward adjustment
> of 45k units (betcha didn't know that they started doing that did
> you?) We've had about 80 bank failures so far this year, and about
> another 100 in the queue (if not more). There is a bifurcation in
> the housing market between conforming and non-conforming loan spaces.
> Low end is moving (housing credits for first time buyers) while the
> jumbo loan market is still stagnant (again a pulled forward demand
> issue). The shadow banking system doesn't exist anymore to do those
> securitization transactions we became so fond of. Banks still carry
> assets on their opaque balance sheets that are difficult to value.
> Our current market has fairly priced in EPS for the entire 2010 year.
> Last earnings reports were beats on EPS but shy on revenues (thus,
> illustrating the importance of cost cutting).
>
> I'm certain I could think of more reasons to be bullish, but I think
> we all know that high beta (i.e. crap) stocks are on the move. And
> like the 'new paradigm' in the tech bubble, fundamentals don't matter...
> Just close your eyes and buy.
Way to go Karl! Stupendous research and writing as per usual.
Oh! And BTW - Instead of closing your eyes I would be holding my nose!
Don't expect any justice against Goldman or other program traders for getting you amped on false volume. Politically they are very savvy. To those that loose on this roulette wheel, no hard feelings, it's just business (or better yet, gambling).
Like a little news in swine flu jumps BCRX 25% or VG - up 200% recently (in one day). Or any biotech with positive phase II or III results.
The same mentality took place during the 'net bubble days. It's unsustainable, but can go on a long time until rates are raised and liquidity dries up. No sign of that happening yet.
But how it turned into this chaos is another issue.
When C did its convert on July 29 the craziness started. In that deal the Treasury converted TARP preff at Full Face Value into common at the then current level.
If that type of solution were applied to FRE it would mean that the Pref holders would get about 4 shares of FRE for each pref share.
If that were to happen the old $25 pref would be worth $8 and the old $50 pref would be worth $16.
That is not happening. The $25 pref trades between $1.5 and $2. Less than the common stock as of last night.
For me this is the proof that this is just a late summer short squeeze and nothing more. If the Pref starts to respond then I might take notice.
Blogs are all over this nonsense. But many are getting sucked in too late, or won’t sell until recovering last year’s losses. Someone actually told that. The unrelenting BS from WS and Cheerleading Central works. I saw a headline from Jim Crammer dismissing the low volume issue. Bull!
I thought the bankster telethon prompted by the (un)stress tests would suffice. Not even close. Months later they're still shoveling while insiders are dumping and retail investors are "afraid to miss the rally" as briefing.com noted yesterday. Greed motivates the BS artists. It also motivates those afraid to miss it.
Round and round this market goes, where it stops nobody knows.
With exception to the insiders and executives whom seem to feel that this is temporary, at least they did in the last report of them dumping their stocks in their own companies.
"Now folks, let's be straight here. Do you believe for one second that this is "great liquidity" added by the "high-frequency trading" computers that are almost certainly behind the vast majority of this volume?"
No.
But what's driving this trading?
It will collapse within weeks. Just watch. Once it starts to go the selling will be wild.
Neely has deep new lows by year end.
Mr Denninger has the moral integrity to keep this issue in the forefront. I applaude the effort and the high quality articles.
It trades.
Big difference.
Google "Yankee Trader."
Can someone comment on where they think the inflows will come from. Meaning that we've milked the pension fund contribution cow and the pool of average Americans able/willing to contribute to their retirement is shrinking.
So where? SWF? I think the world has learned that we're no city on a hill so why not throw their money at other world exchanges.
Large portions of US markets appear to be suspiciously manipulated by major traders most of whom have been bailed out by taxpayers through the front or the back door.
Flash Trading, Giving different information to different investors at the same time, high volume pump and dump are things that scratch the surface. Much more lies underneath.
As an example it was reported that a huge major trader that was bailed out made huge money virtually every day for a quarter in trading. That isnt smarts, that is access, schemes, inside information, tricks like flash trading etc.
Just my opinion!
It's been happening for over a year now. I'm sure the Fed, Treasury, Goldman and possibly PIMCO would have a hand in it. It would take a huge chunk of cash to pull it off. But then again, the Fed won't explain where $2 Trillion Dollars has gone either.
Neely has been pretty bad with that press release that call for the top being in at 956 and his months between trades. He also called for 500 or lower by the S&P by the end of 2008....now maybe 2009.
His tone has been negative and "any moment" for 200 S&P points from the updates I've seen.
On Aug 26 08:52 AM Schweizer wrote:
> Neely has deep new lows by year end.
Safety Is A Function Of Awareness.
Imagine the impact of "37% of trading volume is in just 4 stocks" as the financial headline instead of "The Economy is coming out of recession." This ought to give small traders the wileys.
Nice Job, keep up the great work.
Quantitative investors love these kinds of stocks,because there's an enormously deep pool of related instruments to trade. One need not assume that there's some dark or nefarious scheme going on-- hi speed quant strategies are employed in other markets too.
A true investor should look at all four of the entities listed as speculative -- how much they're worth is more a function of government policy choices than underlying business. But a quantitative trader has very different objectives and is trading not just the common, but many other instruments related to the issuer.
I await an example.
On Aug 27 05:12 PM James Davis wrote:
> You say its an arb? Then what instrument are they shorting as they
> bid up AIG?
>
> I await an example.
The AIG story has so many complex overhangs of potential offsets that you can't catalog them all. But lets start with the obvious: there's a massive US Government position. Then there's a very large Hank Greenburg/Starr International position.
"They" may not be shorting AIG; they may be long another security or contract which is affected by the price of AIG.
Remember, the common is a tiny stub here-- AIG common is a rounding error next to the value of outstanding swaps and other instruments issued by AIG. AIG wrote something like $600 Billion in credit default swaps, for example.
One could imagine all kinds of exotic trades where you'd bid up the common. You could buy a CDS on a lousy CDO written by AIG (would have sold for next to zero in March or June), for example, and then have a very strong incentive to bid up the common (the more likely AIG is to survive, the higher the price on a CDO written by them).
Not saying that that precise trade is taking place-- there's no way to know who's got what trades on. But this kind of thing is made for paired trades.
What you can say with certainty is that the common in all these entities is a tiny fraction of the total capital structure, so to say something meaningful about trading you have to look at the whole.
Anyone paying up for the shares would have to have an *offsetting* position in something else , not another LONG, for it to be an arb.
Someone holding a CDS would not be bidding up AIG hoping that he could then unload the CDS at a profit, cost way too much and way too much risk.
Yes there are all sorts of bonds, swaps, etc, but this action in AIG does not seem like an arb at all. Of course, I could be wrong, there are an infinite number of possibilities out there, and no one knows them all. Just seems like the least likely explanation for the run up.