Sorting out mystery of missing traders
Curious investor DAVID ROEDER firstname.lastname@example.org April 13, 2012 9:00PM
Traders work on the floor of the New York Stock Exchange, Tuesday, April 10, 2012 in New York. The U.S. stock market extended its longest and deepest slump of the year Tuesday, caught between a recurring nightmare of European debt and the beginning of uncertain corporate earnings reports at home. (AP Photo/Mary Altaffer)
David Roeder reports on real estate at 6:22 PM. Every Thursday on News- radio 780 and 105.9 FM WBBM. The reports are repeated at 10:22 p.m. Thursday and 7:22 a.m. Sunday
Updated: April 20, 2012 4:17PM
An old Steve Goodman folk song about the fast, bewildering pace of modern life had the line, “Everybody’s waiting for something to happen. Tell me if it happens to you.”
Similar angst is detectible on Wall Street, where the bull market has reached its fourth year and yet something seems wrong. Investors ought to be in a party mood, yet few are showing up to imbibe.
Trading volume has reached a four-year low. A report by Credit Suisse analyst Ana Avramovic called attention to the situation, reporting that daily equity volume in March averaged 6.59 billion shares a day, the lowest level since December 2007. In the volatile and frightening markets of 2008, volumes were twice that level.
Avramovic said the popularity of futures and options tied to stocks may have something to do with it. Those products are being traded at record levels and could be siphoning business from risk-taking customers.
Credit Suisse data also point to the importance of high frequency trading, the computer programs that can deluge the market with bids and offers. The practice is getting regulatory scrutiny, but Avramovic said the sector has shown a “steady decline” in trading since August.
High frequency trading is expected to account for more than half of all activity.
Some people believe there’s something more sinister going on. They believe the market is under the spell of algorithms that are written to benefit the insiders, not the average trader, and that people are avoiding it as a result.
A decade that produces a tech bust, a Great Recession and a “flash crash” in stock prices can do that to an industry’s credibility. “The financial industry has placed itself above the investing public,” Alan Newman, author of the Crosscurrents financial newsletter, told CNBC. “The public’s confidence has been shattered, possibly beyond repair.”
Avramovic looked at high frequency trading in a report published in March, asking tough questions about whether it has destabilized markets and made “crashes” more likely. Her conclusion was that there was no evidence it is causing trouble. High frequency trading even helps “buy and hold” investment firms who have programs that can help them get the best price, Avramovic said.
It’s possible that the volume decline has a simpler cause, a rise in complacency over a bull market. History shows that when investors start to doze, “something happens” to startle them awake.
SPICE IT UP: Investing in Wal-Mart Stores (WMT) not exciting enough for you? As an alternative, you could add a dash of south-of-the-border flavor by investing in a Mexican offshoot of Wal-Mart. It’s called Wal-Mart de Mexico (WMMVY) and the stock is followed by Chicago’s William Blair & Co., which rates it as “outperform.”
WMMVY is 69 percent owned by Wal-Mart. It has 1,400 retail stores in Mexico and in 2010 bought from its corporate parent another 500 stores in Central America.
William Blair analysts called the stock one of their top long-term picks in the consumer and retail sectors, saying it should average 20 percent annual earnings growth over the next three years. They said the company is adding square footage at a more than double-digit percentage rate.
TAX THIS: Bill Barnhart, writing at YCharts.com, reported that H&R Block (HRB) has become a favorite stock of respected fund manager Donald Yacktman, proprietor of the Yacktman Fund (YACKX) and the Yacktman Focus Fund (YAFFX). The stock has been pummeled by critical headlines over tax refund lending and a venture into mortgages, not to mention low-cost online competition from tax preparation services. But Yacktman is fond of beaten-up stocks. Barnhart said Yacktman is buying it because of its strong franchise, dividend yield of about 4.8 percent and cash flow.
VIEW FROM NAPERVILLE: Fund manager Calamos Investments, in a global outlook just released, said equities are the most attractive asset class over the next five years, but warns that the U.S. will see continued low rates of economic growth. Naperville-based Calamos said that since most growth will occur in emerging markets, the best investments are in diversified global companies. John Calamos Sr. and Nick Calamos are the firm’s co-chief investment officers.
CLOSING QUOTE: “The rebound in tax receipts means that, for the first time in three years, state and local governments might soon be in a position to boost their spending. Over the next couple of years, this may offset at least part of the expected federal fiscal squeeze.” — Paul Ashworth, chief U.S. economist, Capital Economics