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Brian Dightman
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Brian Dightman founded Dightman Capital, an independent Registered Investment Advisor firm in 2007, just in time to deploy defensive strategies prior to the 2008 credit crisis. He has more than 10 years of industry experience and currently manages Global Growth Strategies which have been GIPSĀ®... More
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  • 1.5% Drop In QAI Caused By Sloppy Trading
    • "Market On Close" Orders Can Be Dangerous.
    • Auction Markets Require Other Side For Fill.
    • Market Makers & Specialist Hedge Risk.

    When entering the market to buy or sell a security investors look for as much pricing security as possible. As an auction market prices move around so the assurance of a specific price is difficult to secure. Fortunately, investor have some tools in the form of limits, stops, and in some cases more advanced trading tools that might provide some level of price assurance.

    Last Friday someone placed a trade to sell a position in the IQ Hedged Multi-Strategy ETF (NYSEARCA:QAI) as a Market On Close order. This type of order attempts to have the order filled at the last price of the day. The problem with this order is it requires a buyer to be presentat that very moment in time. If nobody is ready to purchase the shares of a sell order as a Market On Close, then a Market Maker or Specialists can come in and fill the order. The opposite would be true if the order was to buy. However, since the Market Maker or Specialists has to take the shares into inventory to fill the trade (because there was nobody for the other side of the trade at that moment) they will do so at a price they feel hedges their exposure. The more exposure (volatility of underlying, market conditions, order size, time held in inventory, etc.) the more of a hedge they are going to look for as the seller of QAI on Friday, January 30th, found out. After trading for the day between a high of $29.59 and a low of $29.42, the last trade for QAI suddenly plunged by 1.5% to $29, a very uncharacteristic move for this ETF. QAI traded 239k shares on the day and has an NAV north of $1 Billion, so it is not an illiquid ETF. The Market On Close order was for around 14k shares.

    This order could have been easily absorbed by the market if more time was provided. Or the seller could have settled for a partial fill by putting a limit on it and selling the rest on Monday when the price of QAI opened up around 1.5% to $29.42. This is a good reminder that a little planning can provide tremendous value when entering the market with a larger trade.

    Feb 03 3:26 PM | Link | Comment!
  • Oil & The U.S. Economy

    With the price of gasoline at the pump falling some investors are confused about how that could be bad for the U.S. economy. The topic of lower prices or more broadly, deflation, is complex. As much as monetary policy makers consider deflation to the equivalent of kryptonite to Superman, the fact of the matter is many prices have continuously fallen and industry still thrives (think televisions). Intuitively it is reasonable to believe less money spent on energy costs by consumers would lead to spending in other areas. However, you have to take into account the impact lower oil prices might have on the energy industry as a whole.

    The energy sector in the U.S. represents approximately 8% of the U.S. economy and the shale and fracking exploration booms have increased employment and capital expenditures in the industry. Some economists attribute the boom in the energy industry as a major contributor to the U.S. economic recovery since the 2008 recession; it may be playing a more important economic role than many realize.

    The price of oil must maintain a minimum level to justify the costs of drilling. Back in 2008 it was estimated that the equilibrium for oil exploration in the U.S. was around $70 a barrel. It is believe to be higher today due to the more challenging drilling techniques being deployed (horizontal fracking).

    If oil falls below the equilibrium cost to drill explorers shut down production and cancel capital expenditures, both of which are happening as the price of oil falls.

    While lower prices at the pump are welcome by consumers, the weak consumer spending in December suggests any savings at the pump are not necessarily being spent.

    The more perplexing challenge is trying to determine if the decline in oil is based on increases in supply or decreases in demand. Generally speaking you don't want to see a decrease in demand. That would suggest a slowing economy. In the U.S demand is somewhat flat as a function of better MPG, migration to cities, and telecommuting. Normally energy use would be increasing during an economic growth cycle but technology and structural changes are at play. Globally we would expect countries like China and India to see a big increase demand based on their large population and modernizing economies. However, other explorers are now using the same techniques pioneered in the U.S. to increase oil extraction globally so supply issues are certainly at play. Over the longer-term low-cost energy should be a plus for the global economy.

    In terms of economic growth for the balance of this decade it will be important for the price of oil to find equilibrium and ideally that equilibrium will allow the energy industry in the U.S. to continue expanding exploration and the capital expenditures and jobs that come with it.

    Tags: SPY, XOP, Energy
    Jan 18 10:29 AM | Link | Comment!
  • Top World Innovator List

    Thomson Reuters complies a list of top innovators from around the world using metrics like patent activity, success rate, globalization and influence.

    The U.S. took the top spot the first three years the list was published but not this year, the fourth. Japan took the top honor. 39 companies from Japan versus 35 from the U.S. were listed in the top 100.

    "The companies featured on this year's list have shown that the significant investment of time and resources in innovation are reaping rewards with shareholder value, growing revenues and increased market share," the Thomson Reuters report said.

    From the U.S. Apple (NASDAQ:AAPL), Lockheed Martin ((NYSE:LMT), Boeing (NYSE:BA), Google (NASDAQ:GOOGL), Microsoft (NASDAQ:MSFT), Intel (NASDAQ:INTL), and IBM (NYSE:IBM) were featured.

    Asian companies featured Samsung, Fujitsu, Hitachi and Canon.

    China had a company featured in the top 100 for the first time, Huawei.

    Innovation is a hallmark of the U.S. economy and an element we must work hard to expand.

    Tags: Innovation
    Nov 09 8:47 AM | Link | Comment!
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