Contradictions as outlined for librarians? Have we gone off our rocker? Reading news headlines from MarketWatch may cause confusion. Take today for example:
“Fed's Yellen sees housing ghost towns.”
“Home-building stocks finding a floor?”
After reading both articles, I found the above featured diagram/flow chart to make as much sense.
In the first story the Fed governor said that areas of Phoenix and Las Vegas had inventories of 80% implying that the market may not recover for several years. This was linked with the next article here where analyst Todd Vencil from BB&T (not the railroad silly!) speculated that while we’re not at the bottom of the cycle yet, the end may be near enough to recommend hopping on that train before it leaves the station by purchasing some of the homebuilder stocks. Yellen? Vencil?
Then there were these one two headlines from Investment News Daily:
“Grassley: ‘Unfettered’ hedge funds pose risk.”
“SEC loosens up margin trading.” (Supposedly in response to hedge fund demands.)
Okay, let’s try to find logic elsewhere. Most equity markets were well bid but volume was Monday-light. Earnings reports will be key.
Schwab (NYSE:SCHW) posted earnings that reflected something we’ve been discussing for some time -- lower than expected revenues from retail trading. It just reinforces the view that markets are captive to trading desks and hedge funds. Inside the numbers from AMG Data.com you’ll note mutual funds showed net withdrawals while ETFs reported inflows. Remember, ETFs are utilized by institutional investors to get invested quickly, only to be sold later as individual stocks are purchased.
Looking overseas we’d like to feature India Fund Inc. (NYSE:IFN) since we’ve been discussing good upside potential for it over the past few weeks. The India Stock market index has reached new highs, but IFN has struggled. Why? Because the premium for IFN exceeded 35% in the spring and in anticipation of several ETFs that, when issued, would capture more investor interest. But the premium on IFN fell from high levels to single-digit last month, and is now at a more manageable 12%. The fall in the premium also reflects low volume and indicates that “hot money” that previously dominated IFN activity is gone. Furthermore, the one ETF PowerShares has filed with the SEC to issue has a large weighting in just one issue. Morgan Stanley has issued an India ETF trading in Singapore. It’s been well-received there, which isn’t surprising given the large Indian population. Will it be imported to U.S. markets? Who knows, but it wouldn’t surprise me.
In the meantime IFN is breaking-out.
The logic that emanates from Wall Street can test your sanity sometimes. But who are we to argue? It’s just fun sometimes to point out how silly things seem sometimes.
Disclaimer: The ETF Digest maintains positions in: S&P 500 Index (NYSEARCA:SPY), iShares Lehman 7-10 Yr Treasury Bond ETF (NYSEARCA:IEF), streetTRACKS Gold Trust ETF (NYSEARCA:GLD), India Fund Inc. (IFN) and BSE Index.