The Week That Was: June 28 – July 5, 2009

GualbertoGeneral Comments6 Comments

Short week as Americans prepared to celebrate the Fourth of July.  I caught some nice sun and relaxed; hope you were all able to do the same.  We had some light volume until the non-farm payrolls number on Thursday, trading lower over the course of the rest of the day and closing near the lows.  Overall, not exactly how the bulls would prefer to go into the start of earnings season this week.

Zerohedge has been getting a lot of notice from the other kids in the sand box lately. Just this week alone, Zerohedge had responses from Goldman, NYSE, and Dennis Kneale. Tyler Durden writes some good stuff. Here’s an interesting post on the current Goldman saga with regards to stolen automated trading algorithms.

The SEC may re-instate the uptick rule.  I completely disagree with this.  All those conspiracy theorists (Cramer included) that say hedge funds were just waiting for the rule to be repealed are wrong.  Along the same lines, you might as well put in a downtick rule, because you don’t want people manipulating prices to the upside either.  Regardless, uptick rule or not, fundamentals are fundamentals.  Stocks will find their true value regardless.

A second stimulus?  Biden didn’t say no.  I think what’s important to realize here is that not only may we be in need of a second stimulus plan, but that it’s the states that are in trouble as well.  The government has been firm in not providing help to states that have run into fiscal problems.  But the fact of the matter is that these states are operating on deficits and trying to balance the budget during a recession, effectively negating everything the federal government is doing.  I personally think that at some point Obama will have to break on this and provide money to the troubled states.

Swedish interest rates have gone negative.  This is completely unprecedented, and you can bet that every central banker around the world is looking at how the marketplace and economy will react to this.  I must agree with the article in that the problem is savings and the worldwide lack of it.  Either way, as central bankers get more and more desperate, we may start seeing more of this in the near future.

6 Comments on “The Week That Was: June 28 – July 5, 2009”

  1. Your thoughts on the uptick rule are a bit naive.

    You are right that stocks will find their true value eventually. However there is an argument to be made that anything that can be done to smooth the path to that true value should be considered. After all, the goal is efficient markets for the purpose of raising capital (not volatility for the purpose of daytrading).

    Use Wells Fargo as an example, did it really need to travel all the way down to $9 this March in order to find its true value in the $20s? Very, very inefficient.

    IF that volatility was aided by the lack of an uptick rule ( a big IF I am not trying to argue here), than it stands to reason that putting it back would benefit the market.

  2. Your thoughts on the uptick rule are a bit naive.

    You are right that stocks will find their true value eventually. However there is an argument to be made that anything that can be done to smooth the path to that true value should be considered. After all, the goal is efficient markets for the purpose of raising capital (not volatility for the purpose of daytrading).

    Use Wells Fargo as an example, did it really need to travel all the way down to $9 this March in order to find its true value in the $20s? Very, very inefficient.

    IF that volatility was aided by the lack of an uptick rule ( a big IF I am not trying to argue here), than it stands to reason that putting it back would benefit the market.

  3. I have to disagree with you on a few different fronts here.

    1. You’re assuming that WFC was worth $20 a share when it was trading at 9, but the fact of the matter is that, when all the banks were trading at their lows, it wasn’t because people were shorting too much, it was because fundamentally, the situation was different. It wasn’t until the US Government came in and showed the market that they were going to give these banks capital and not nationalize them that they began to rally. If it wasn’t for the government stepping in, we would have probably traded lower. So using WFC as an example doesn’t really support the case you’re trying to make.

    2. Market makers would be exempt from the up tick rule. All the big banks are market makers. As traders not working at a big bank, we’re instantly being put at a disadvantage against the people we trade with. They will be able to place trades that you nor I will be able to make. So it’s creating an unfair advantage that will benefit the banks.

    3. When the short ban was put into place on the financials, liquidity was hurt significantly. You had thick stocks like JPM dropping a level and instantly ticking down 30 cents when in the past it would have ticked down only 7 or 8 cents. It created a much less efficient market. Why? Because there were no people throwing bids in to cover shorts. The demand that we would see from open short positions was no where to be found, which thus created less liquidity, which ultimately hurts the retail investor, which is who the government says it’s trying to protect.

    If Wall Street is pushing for something, you can’t just listen to why they say it’s good. There’s a hidden agenda there, and I’m positive it’s meant to help them and not you or me.

  4. I have to disagree with you on a few different fronts here.

    1. You’re assuming that WFC was worth $20 a share when it was trading at 9, but the fact of the matter is that, when all the banks were trading at their lows, it wasn’t because people were shorting too much, it was because fundamentally, the situation was different. It wasn’t until the US Government came in and showed the market that they were going to give these banks capital and not nationalize them that they began to rally. If it wasn’t for the government stepping in, we would have probably traded lower. So using WFC as an example doesn’t really support the case you’re trying to make.

    2. Market makers would be exempt from the up tick rule. All the big banks are market makers. As traders not working at a big bank, we’re instantly being put at a disadvantage against the people we trade with. They will be able to place trades that you nor I will be able to make. So it’s creating an unfair advantage that will benefit the banks.

    3. When the short ban was put into place on the financials, liquidity was hurt significantly. You had thick stocks like JPM dropping a level and instantly ticking down 30 cents when in the past it would have ticked down only 7 or 8 cents. It created a much less efficient market. Why? Because there were no people throwing bids in to cover shorts. The demand that we would see from open short positions was no where to be found, which thus created less liquidity, which ultimately hurts the retail investor, which is who the government says it’s trying to protect.

    If Wall Street is pushing for something, you can’t just listen to why they say it’s good. There’s a hidden agenda there, and I’m positive it’s meant to help them and not you or me.

  5. I agree with you on all 3 pts you made.

    Note that I wasn’t arguing that we should reinstate the uptick rule.

    Rather, I was arguing that your reasoning that “fundamentals are fundamentals. Stocks will find their true value regardless” was oversimplifying the issue.

    Your well phrased and thorough response is a much better answer for why the uptick rule is a waste of time.

    Thanks for this blog, enjoy it greatly

  6. I agree with you on all 3 pts you made.

    Note that I wasn’t arguing that we should reinstate the uptick rule.

    Rather, I was arguing that your reasoning that “fundamentals are fundamentals. Stocks will find their true value regardless” was oversimplifying the issue.

    Your well phrased and thorough response is a much better answer for why the uptick rule is a waste of time.

    Thanks for this blog, enjoy it greatly

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