The stock market sometimes causes many people to lose sleep. An old Wall Street proverb is to “sell down to the sleeping point”—that is, only assume the risk that can make you sleep comfortably at night, without excessive worry.
The Wall Street proverb is cited in print by at least March 1891, when Dickson G. Watts, head of the New York Cotton Exchange from 1878 to 1880, wrote an article (later reprinted as a book) on “Speculation as a Fine Art” for The Cosmopolitan magazine. The saying is sometimes (probably incorrectly) attributed to J. P. Morgan, although no early, direct print citations can be credited to him.
Stock Market Adages
Buy to the sleeping point. [If you are troubled about making an investment but still feel the need to make it, make the smallest possible investment that leaves you feeling like you’ve ‘dealt’ with the need and can calmly sleep at night. To feel obligated to make an “all or nothing” investment.]
(...)
Sell to the sleeping point. —if you are troubled by an investment but still desire to hang onto it, sell just enough so that you can feel that you’ve ‘dealt’ with the anxiety and can calmly sleep at night, but you’ve kept enough to feel comfortable with what you have left.
Friday, September 18, 2009
What goes up, must come down...
What goes up eventually comes down, even in stock markets. Still, it can take a long time, much to the chagrin of those looking for a buying opportunity.
Many have warned of a reckoning, where the stock market gives up the gains of more than 50 percent posted by major U.S. averages since March. Yet the market has gone from strength to strength as the economy emerges from the worst recession since the 1930s.
Those waiting for a much talked-of pullback of 10 percent or more may be cooling their heels for a long time, if previous market experiences are any guide. The rallies that commenced after the two most recent U.S. recessions ran longer than pessimists expected.
"You might not get that decline if that's what you're waiting for," said Cleveland Rueckert, market strategist at Birinyi Associates in Stamford, Connecticut. "A lot of people have been and probably will be surprised how far the market can go."
Six months before the United States pulled out of recession in March 1991 the stock market began to rally. Seven years later the S&P 500 had more than tripled in value without ever pulling back by 10 percent.
This was not the only time markets have run ahead without a significant correction. Coming out of a bear market after the dot-com bubble, the S&P 500 surged 95 percent from 2003 to 2007, again, without a 10 percent correction.
Many have warned of a reckoning, where the stock market gives up the gains of more than 50 percent posted by major U.S. averages since March. Yet the market has gone from strength to strength as the economy emerges from the worst recession since the 1930s.
Those waiting for a much talked-of pullback of 10 percent or more may be cooling their heels for a long time, if previous market experiences are any guide. The rallies that commenced after the two most recent U.S. recessions ran longer than pessimists expected.
"You might not get that decline if that's what you're waiting for," said Cleveland Rueckert, market strategist at Birinyi Associates in Stamford, Connecticut. "A lot of people have been and probably will be surprised how far the market can go."
Six months before the United States pulled out of recession in March 1991 the stock market began to rally. Seven years later the S&P 500 had more than tripled in value without ever pulling back by 10 percent.
This was not the only time markets have run ahead without a significant correction. Coming out of a bear market after the dot-com bubble, the S&P 500 surged 95 percent from 2003 to 2007, again, without a 10 percent correction.
US Regulators Propose Ban on 'Flash' Trading
U.S. securities regulators proposed a ban on flash orders that stock exchanges send to a select group of traders, fractions of a second before revealing them publicly.
The Securities and Exchange Commission is seeking to end the practice criticized for giving an unfair advantage to some market participants who have lightning-fast computer trading software.
Nasdaq OMX's [NDAQ 22.57 0.32 (+1.44%) ] Nasdaq Stock Market and privately held BATS Exchange recently canceled their flash services that disclosed buy and sell orders to specific trading firms before sending them to the wider market.
NYSE Euronext's [NYX 29.84 0.28 (+0.95%) ] New York Stock Exchange did not adopt the flashes under scrutiny but major alternative venue Direct Edge still offers flashes.
The SEC will put its proposal out for public comment for 60 days, and will later schedule a meeting to decide whether to adopt the proposal.
The agency said it will seek feedback on on the cost and benefits of the proposed ban, and whether the use of flash orders in options markets should be evaluated differently from those in equity markets.
The agency also tightened rules on credit rating agencies by imposing more disclosure requirements and encouraging unsolicited ratings. Those moves, and others proposed by the SEC, took aim at an industry widely criticized as having fueled the financial crisis through over-generous ratings assigned to toxic mortgage-backed securities.
The Securities and Exchange Commission is seeking to end the practice criticized for giving an unfair advantage to some market participants who have lightning-fast computer trading software.
Nasdaq OMX's [NDAQ 22.57 0.32 (+1.44%) ] Nasdaq Stock Market and privately held BATS Exchange recently canceled their flash services that disclosed buy and sell orders to specific trading firms before sending them to the wider market.
NYSE Euronext's [NYX 29.84 0.28 (+0.95%) ] New York Stock Exchange did not adopt the flashes under scrutiny but major alternative venue Direct Edge still offers flashes.
The SEC will put its proposal out for public comment for 60 days, and will later schedule a meeting to decide whether to adopt the proposal.
The agency said it will seek feedback on on the cost and benefits of the proposed ban, and whether the use of flash orders in options markets should be evaluated differently from those in equity markets.
The agency also tightened rules on credit rating agencies by imposing more disclosure requirements and encouraging unsolicited ratings. Those moves, and others proposed by the SEC, took aim at an industry widely criticized as having fueled the financial crisis through over-generous ratings assigned to toxic mortgage-backed securities.
Is Citadel Becoming The Next Goldman Sachs?
Among asset management circles on Wall Street, there’s a persistent rumor that just won’t go away: the world’s most aggressive hedge fund is gearing up to become a full-scale banking institution.
Citadel Investment Group, a Chicago-based hedge fund, is on many asset managers’ radars right now to one day become a full-service boutique investment bank. Recently, the fund seems to be doing little to hide that ambition.
Citadel’s interest in online broker E*Trade Financial is a good starting point. With nearly $2 billion invested in its long-time holding E*Trade this year, Citadel has become far more than a speculator in the stock: it’s pretty much an operating manager. Signs of that status were confirmed by its recent refusal to enter into a 120 million share sale in late August in the interests of the company, despite financial benefits for the fund.
More recently, E*Trade’s chief executive Donald Layton said he will step down from the job at the end of the year. That announcement followed Citadel manager Ken Griffin’s ascension to the broker’s board earlier in the year. It’s a well-known fact that Layton and Griffin frequently argued over the E*Trade’s strategic direction.
In other news, Citadel’s administrative division, Citadel Solutions, recently gained a contract to provide accounting, IT and back-office services to a $50 billion piece of what remains of the former Lehman Brothers carcass. Citadel re-branded its Solutions subsidiary Omnium on the eve of the deal. Citadel is also one of the first hedge funds to resume hiring after last year’s market train-wreck.
The two deals are a pretty clear sign that Griffin has more in mind for his financial warchest than pure asset management. In fact, via both the E*Trade and the Omnium subsidiaries, it’s evident that the financial warlord (most of his companies have names borrowed from military contexts) is building a sizeable back-office, capable of handling a range of financial services functions.
Griffin is the kind of Type A, leap-feet-first-into-the-next-big-thing-when-the-going-gets-tough, hyper-aggressive money manager that you more often see on the big screen than casually strolling around Chicago. According to hedge fund lore, he paid his way through college with his trading profits.
In that light, it wouldn’t be surprising to see Citadel become a sort of Goldman Sachs-style bank: with a strong trading arm, a razor-sharp team, and an increasing tightening in hedge fund regulation, the move definitely makes sense from a growth perspective.
Citadel Investment Group, a Chicago-based hedge fund, is on many asset managers’ radars right now to one day become a full-service boutique investment bank. Recently, the fund seems to be doing little to hide that ambition.
Citadel’s interest in online broker E*Trade Financial is a good starting point. With nearly $2 billion invested in its long-time holding E*Trade this year, Citadel has become far more than a speculator in the stock: it’s pretty much an operating manager. Signs of that status were confirmed by its recent refusal to enter into a 120 million share sale in late August in the interests of the company, despite financial benefits for the fund.
More recently, E*Trade’s chief executive Donald Layton said he will step down from the job at the end of the year. That announcement followed Citadel manager Ken Griffin’s ascension to the broker’s board earlier in the year. It’s a well-known fact that Layton and Griffin frequently argued over the E*Trade’s strategic direction.
In other news, Citadel’s administrative division, Citadel Solutions, recently gained a contract to provide accounting, IT and back-office services to a $50 billion piece of what remains of the former Lehman Brothers carcass. Citadel re-branded its Solutions subsidiary Omnium on the eve of the deal. Citadel is also one of the first hedge funds to resume hiring after last year’s market train-wreck.
The two deals are a pretty clear sign that Griffin has more in mind for his financial warchest than pure asset management. In fact, via both the E*Trade and the Omnium subsidiaries, it’s evident that the financial warlord (most of his companies have names borrowed from military contexts) is building a sizeable back-office, capable of handling a range of financial services functions.
Griffin is the kind of Type A, leap-feet-first-into-the-next-big-thing-when-the-going-gets-tough, hyper-aggressive money manager that you more often see on the big screen than casually strolling around Chicago. According to hedge fund lore, he paid his way through college with his trading profits.
In that light, it wouldn’t be surprising to see Citadel become a sort of Goldman Sachs-style bank: with a strong trading arm, a razor-sharp team, and an increasing tightening in hedge fund regulation, the move definitely makes sense from a growth perspective.
Friday, September 4, 2009
Double-Dip Recession Possible
Pimco Chief Investment Officer Bill Gross sees a good chance of a double-digit recession as the government pulls back from its massive fiscal stimulus.
As a result, he recommends that investors buy medium- and long-term Treasuries.
"To the extent that we have had $1 trillion worth of stimulus, from the standpoint of deficits, and more, the government basically has to continue to do that and to add to that in order to keep the economy chugging along," he told CNBC.
"To the extent that that's limited, to the extent that they pull back on some of those stimulus programs — Cash for Clunkers and those types of things — then the double-dip moves into the realm of possibility."
And what does that mean for Treasuries?
"As long as the Fed and other central banks keep policy rates low and as long as inflation doesn't rear its head, intermediate and longer bonds do well," Gross said.
“In this new normal world of slow growth and low inflation, there are attractive aspects of, yes, long-term U.S. Treasury bonds. To the extent we might have … a double dip in the economy in 2010, then the long bond at 4.13, 4.14, 4.15 (percent) begins to have some attractiveness.”
Gross isn’t the only one to warn of a possible double-dip recession.
Economic guru Nouriel Roubini wrote in the Financial Times last month that “there is a rising risk of a double-dip W-shaped recession.”
As a result, he recommends that investors buy medium- and long-term Treasuries.
"To the extent that we have had $1 trillion worth of stimulus, from the standpoint of deficits, and more, the government basically has to continue to do that and to add to that in order to keep the economy chugging along," he told CNBC.
"To the extent that that's limited, to the extent that they pull back on some of those stimulus programs — Cash for Clunkers and those types of things — then the double-dip moves into the realm of possibility."
And what does that mean for Treasuries?
"As long as the Fed and other central banks keep policy rates low and as long as inflation doesn't rear its head, intermediate and longer bonds do well," Gross said.
“In this new normal world of slow growth and low inflation, there are attractive aspects of, yes, long-term U.S. Treasury bonds. To the extent we might have … a double dip in the economy in 2010, then the long bond at 4.13, 4.14, 4.15 (percent) begins to have some attractiveness.”
Gross isn’t the only one to warn of a possible double-dip recession.
Economic guru Nouriel Roubini wrote in the Financial Times last month that “there is a rising risk of a double-dip W-shaped recession.”
Thursday, September 3, 2009
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