David Fry's Market Outlook for Wednesday

Bravely going against the bull shows this fellow isn't the least intimidated. But this week is just getting started -- with perhaps more negative action -- or even a bull charge ahead. We also have options expiry to add volatility coupled with tension before a Bernanke speech on Friday.

Interest rates continue to rise, and that's throwing cold water on the rally we've enjoyed since August 2006. The rise in rates came on the heels of comments from the now babbling Greenspan who must be having fun yakking away. Do you think he's making some money at it? Silly thought! He's even becoming sensitive to the criticism he's been getting.

Lehman Brothers Holdings Inc. (LEH) posted great earnings. How did they do that? Well, aside from fees from all the deal-making, most of their revenues came from "trading." What were they "trading"? Programs, that's what.

An article from Bloomberg noted: "Equity-trading revenue almost doubled [emphasis added] and underwriting fees increased 76 percent, as Chief Executive Officer Richard Fuld reduced the firm's dependence on fixed-income markets by expanding abroad and making bigger bets for its own account. Lehman and its four largest rivals have more opportunities to profit because the U.S. Securities and Exchange Commission is loosening restrictions that tied up capital they use to trade [emphasis added]."

If the following from the NYSE is hard to read, let me state it clearly for you: nearly 1 of every 3 trades on the NYSE is program trade. Last week it reached over 37%!

And, who's doing the most of it? Well, LEH and the rest of "Da Boyz," who also happen to be Primary Dealers to the Fed, trading your money and tax dollars around for fun and profit.

Does all this bother me? Hell no! I'm jealous!!!

Okay, what about overseas markets and how they fared? Well, before even listing some, remember that markets with higher betas [volatility] such as emerging markets are going to do better on the upside and the opposite when conditions reverse.

That was Tuesday, with a few brave souls challenging the bull. Will the bull fight back? Hard to know -- but the psychology seems to be shifting.

The so-called "Lazy Portfolios" so touted of late are taking a hit as both stocks and bonds fall. That's always been the Achilles Heel of that strategy since promoters never tell you that both stocks and bonds can decline at the same time.

Greenspan keeps chirping away evidently making some good money off his speeches and [ahem] his calls. Perhaps life on Park Avenue is even getting expensive for him now that spouse reporter Andrea Mitchell is not raking it in as before.

Even Robert [I've got mine, you can't have yours] Rubin was out calling for new taxes on hedge funds.

So the "talkers" are out in force, with more to come throughout the week.

Disclaimer: Among other issues, the ETF Digest maintains positions in: iShares Dow Jones US Real Estate ETF (IYR), S&P 500 Index (SPY), MidCap SPDRs ETF (MDY), NASDAQ 100 Trust Shares ETF (QQQQ), streetTRACKS Gold Trust ETF (GLD), PowerShares DB US Dollar Index Bearish (UDN), PowerShares DB Energy Fund (DBE), PowerShares DB Commodity Index Tracking Fund (DBC), iShares MSCI Emerging Markets ETF (EEM), iShares S&P Latin America 40 Index Fund (ILF), iShares S&P Europe 350 (IEV), iShares MSCI Canada Index ETF (EWC), iShares MSCI Australia Index Fund (EWA), iPath MSCI India ETN (INP), iShares Trust FTSE-Xinhua China 25 Index Fund (FXI).

Comments

[Roger Knouse]

Last year the NYSE doubled the denominator. That makes the numerator half of what it used to be.
Program trading is really 2 out 3. At that level it was getting too much press.

[David Fry]

Well, no actually. They were double-counting trades in error. They didn't notice the problem until the figure exceeded 90% then they went back to the drawing board.

It's bad enough that for a long period they were reporting data incorrectly and that was misleading.