MARKET COMMENT
October 16, 2006
Contradictions as
outlined for librarians? Have we gone
off our rocker? Reading news headlines from
MarketWatch may cause confusion. Take today for example:
“Fed’s Yellen sees housing ghost towns.”
“Home-building
stocks finding a floor?”
After reading both articles, I found the above featured diagram/flow
chart to make as much sense.
In the first story here
the Fed governor said that areas of Phoenix and Las Vegas had inventories
of 80% implying that the market may not recover for several years. This was linked with the next article here
where analyst Todd Vencil from BB&T (not the
railroad silly!) speculated that while we’re not at the bottom of the cycle
yet, the end may be near enough to recommend hopping on that train before it
leaves the station by purchasing some of the homebuilder stocks. Yellen? Vencil?
Then there were these one two headlines from Investment News
Daily:
“Grassley: ‘Unfettered’
hedge funds pose risk.”
“SEC loosens up
margin trading.” (Supposedly in response to hedge fund demands.)
Okay, let’s try to find logic elsewhere. Most equity markets were well bid but volume
was Monday-light. Earnings reports will
be key.
Schwab (SCHW) posted earnings that reflected something we’ve
been discussing for some time—lower than expected revenues from retail trading. It just reinforces the view that markets are
captive to trading desks and hedge funds.
Inside the numbers from AMG Data.com you’ll note mutual funds showed net
withdrawals while ETFs reported inflows. Remember, ETFs are
utilized by institutional investors to get invested quickly only to be sold
later as individual stocks are purchased.
Looking overseas we’d like to feature IFN (India Fund) since
we’ve been discussing good upside potential for it over the past few
weeks. The India Stock market index has
reached new highs, but IFN has struggled.
Why? Because the premium for IFN
exceeded 35% in the spring and in anticipation of several ETFs
that, when issued, would capture more investor interest. But the premium on IFN fell from high levels
to single-digit last month and is now at a more manageable 12%. The fall in the premium also reflects low
volume and indicates that “hot money” that previously dominated IFN activity is
gone. Further the one ETF PowerShares has filed with the SEC to issue has a large
weighting in just one issue. Morgan
Stanley has issued an India ETF trading in Singapore. It’s been well-received there which isn’t
surprising given the large Indian population.
Will it be imported to US markets?
Who knows, but it wouldn’t surprise me.
In the meantime IFN is breaking-out.
The logic that emanates from Wall Street can test your
sanity sometimes. But, who are we to
argue? It’s just fun sometimes to point
out how silly things seem sometimes.
Disclaimer: The ETF
Digest maintains positions in: SPY, IEF, GLD, IFN and BSE Index.