High Frequency Friday – The WSJ Finally Catches On!

Has the World gone sane?

I was amazed this morning to see both the usual contrarian indicator of a bullish cover on Newsweek (mission accomplished market pumpers) and a good piece of reporting in the Journal on a topic ZeroHedge and I have been pounding the table on for a year.  Our readers will find nothing new in the article "This Market Has Its Freq On" but to see it finally summarized in the MSM (giving us no credit at all, of course) is at least a little bit satisfying. 

The Journal highlights the following facts (and they are now MSM FACTS, not "conspiracy theories" Tyler and I were making up): 

• The recent gains have come with only marginal support from traditional long investors. Wall Street trading desks and the relatively new breed of high-frequency traders have been fueling the rest.
• Investors pumped only $396 million into domestic stock funds in March. Since the start of the year, they’ve only added only $1.8 billion, according to the Investment Company Institute.  Compare those inflows with some other recent rallies. Between April and July 2009, investors poured $28.76 billion into U.S. stock funds and in the first three months of 2007 they moved $19.1 billion into such funds.
• Insiders are dumping stock at an alarming pace, $15 billion so far this year, more than six times the $2.5 billion they’ve bought, according to Trim Tabs. Moreover, they’ve been dumping their stock more in recent weeks. Insiders sold $6.9 billion in March and bought just $831 million.
• Six stocks represented 27.51% of the overall stock market volume: American International Group Inc., Ambac Financial Group Inc., Bank of America Corp., Popular Inc., Fannie Mae and Citigroup Inc. Since the start of the year they’ve represented 16.55% of the composite volume on the New York Stock Exchange, and more than 22% on each of this week’s first three trading days, reaching as high as 30.62% Tuesday..
• The rise in these stocks has mirrored, or perhaps driven, the recent broader gains. Through Wednesday, Bank of America was up 28.8%, Citigroup was up 48.9%, Ambac shares have doubled, Popular shares are up 74.3% since the start of the year.  AIG shares are up 32.5% for the year through Wednesday.
• Program trading represented 27.9% of NYSE volume for the week ended April 2. Morgan Stanley, Goldman Sachs Group Inc. and Deutsche Bank AG were the three biggest program traders, according to the Big Board.

Wow, if we can just get Uncle Rupert to start calling the trade-bot "Mr. Stick" it’s going to be hard to tell whether you’ve picked up the WSJ or PSW!  Not that any of this will matter to the markets for now – the article is buried but the fact that the Journal is reporting on it means they don’t want to be caught with their pants down when it all hits the fan so now they can point to this article and say: "See, we warned you about this way back on April 15th, before the market crashed – if only you had read the Journal!"

Barry Rhiholtz had a great article on Tax Day about the "Top 400 Taxpayers," who earned $137.9Bn in 2007 (the last year for the data), which was 3 TIMES MORE than the top 400 made in the 1990s – that’s the old trickle up theory in action.  Thank goodness the Tea Party is rallying for these poor little guys, who’s minimum annual income is $138.8M.  Not surprisingly (to me, anyway) it turns out they don’t actually pay 35% taxes, in fact, they only paid $22.9Bn in Federal Income taxes or 16.6% of their income or, as Warren Buffett has pointed out – less than his secretary pays. 

That unpaid $25Bn works out to an extra $10,000 in tax burden that is shifted down to the next 2.5M taxpayers but, of course, the next 4,000 don’t pay no 35% either as they can also afford fantastic accountants, so the next 5M people, the bottom 99% of the top 2% have $50Bn dropped on their laps.  The minimum income of the top 2% is $1.3M a year and guess what – they can afford good accountants too!  That shifts a whopping $200Bn of uncollected taxes down to the next 20M taxpayers at $10,000 each to the bottom 18% of the top 20%, our "upper middle class," who then go to Tea Party rallies and ask, not that the top 2% pay their fair share of taxes so we can pay off our debts, but that the government LOWER taxes further or eliminate them all together.  Well, what the hell – it’s not like we pay our bills anyway…

Of course we don’t want to end a pumped-up week without more FREE MONEY from our government and, of course, our elected representatives hate to disappoint 14M unemployed voters so the Senate voted 59-38 to extend jobless benefits through June 2nd at a cost of $18Bn as we sweep the problem of not creating any jobs under the rug for another 2 months.  The Fed redistributed the wealth to the wealthy as they pumped their balance sheet to a record $2.32Tn, up $32,000,000,000 since their March 31st cut-off date for buying up MBS’s.  Said Bernanke "Just $32Bn more and then I swear I’ll stop – really…"     

In the most amazing coincidence of the morning, notorious Gang of 12 Member BAC thought this morning would be a good time to raise their S&P forecast for the year to 1,350.  Well, imagine their surprise when it turned out today also happened to be the day they reported earnings, which means their analysts accidentally put a huge spin on the market just when they were announcing numbers that they hoped would push their stock over the $20 mark.  I’m sure some wrists are going to get slapped over that one – if by slapped we mean huge bonuses for the conflicted analyst, of course!

Google had good earnings, GE had good earnings, BAC had good earnings, ISRG had good earnings, AMD had good earnings, Mattel had good earnings…  So friggin’ what?  Did you read the top of this post?  The fundamentals don’t mean anything and (if they did) they do not indicate, at this point, anything that can sustain these pumped up fake rally valuations.  I’m particularly pissed this morning because the futures were a massive joke.  Check out the movement in this chart:

How can you say valuations aren’t a joke when they can shift that violently from hour to hour?  Note how low the volume is yet 50 Dow points represent $150Bn of market value up and down – your virtual portfolios fate decided by just a handful of small transactions performed by shadow traders while the market is closed.  And they wonder why investors are shunning the markets?  You can run a shell game for a while and rake in some suckers but every good con man knows when it’s time to move on and head to another town once they’ve played all the suckers and word gets out about their scam.  The problem Wall Street has is they scammed the entire planet – which is why there is probably renewed interest in a mission to Mars – Goldman needs some fresh suckers!

I said to Members yesterday we have to consider the possibility that this ridiculous, pointless, baseless rally was nothing more than a desperate attempt by the Gang of 12 to bang out the technicals and finally draw some fresh money off the sidelines so they could get out of their positions now that the Fed is turning off the spigots and the carrying costs (rates) are starting to creeep up.  As we can see from the WSJ FACTS above, so far, it hasn’t been working and if that sideline money doesn’t start coming in soon – what will our next catalyst be?

OK, enough complaining – time to be happy, happy bulls and celebrate (as Newsweek notes) "The Remarkable Tale of Our Economic Turnaround."  Hurry, hurry ladies and gentlemen – it’s the greatest show on Earth!

Have a great weekend,

– Phil