The market internals have been stronger of late, only pulling back a few percentage points then having another furious rally to the upside. The markets at this moment look like they want to go higher. Why get in front of it? The market is purely trading off of technicals and lack of negative news flow. Its not a fundamentally driven rally. If it were, this market would be hugging 10k instead of 8500.
A slew of banks (BOFA, State Street, Wells Fargo) have raised cash via secondary offerings. This is smart move, to dump overvalued stock to unsuspecting greedy investors at triple/quadruple values. This is no different from Dubai Investment or Singapore PE pumping billions into the banks last year. Ultimately, all of that money was lost, these secondary offerings will have similar fates.
But what truly infuriates me are the ones who manage money (what ever is left of it anyway), for others. Pension fund managers, hedge fund managers, and portfolio managers are back to what they do best. Go for returns (Alpha) over risk (Beta).
Let me explain.
The market has become phenomenally bipolar, because of how aggressively asset managers are chasing after risky assets in order to make up for 2008 losses. Again, nobody has learned any lessons from the credit bubble where fast, slow, dumb and smart money was all chasing the riskiest assets, all of which ended in ruins for far too many people. The result so far for 2009 is exactly the same pattern.
The highest activity in both in number of transactions and in total cost, is in the riskiest asset class which is equities. People are chasing the stocks in sectors with the worst fundamentals. Equity issuance in the form of secondary offerings in the Real Estate sector and banks have dominated syndicate desks. Real Estate secondary offerings already have dwarfed 2008 deal levels.
Eventually the bad news will filter back in, and downgrades will occur. All of that new money in these banks and real estate sectors will feel the pain. The liquidation that will subsequently happen will be stomach turning.
The market is always focused on the ultimate shell game of greater fool theory.
Market makers continue to denigrate the legacy of Greenspan, and while these efforts may be futile, since no one person created all of the elements of our present situation, deregulation has summarily ruined every business model it was applied to, because companies are run by people and people tend to be greedy. Overnight, balance sheets are glowing, ideas are flowing and all is right with the world. Structure, oversight and due diligence are not just buzz words. Madoff will sit in jail for his thievery, and well he should. There are no laws to enforce that would put the rest of the Wall St crooks in the big house with him.
ReplyDeleteI agree with you on all of your points...Most importantly, the regulatory environment is non existent. But what has to be understood by the general public is that the US has an open check book as long Congress allows them to spend. Problem is the GOP has already drawn a line in the sand, there will be no more bailout money unless Obama gives in some place else...By that time...who knows.
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