Bread & Circus

Legendary “Queen of the Internet”, Mary Meeker, released her annual internet trends report last week.  The lengthy presentation is fascinating from many aspects, but one of the clear takeaways is just how dominant mobile digital usage has become in society and how it is only likely to grow over time.

For example, adults now spend close to 3 hours a day consuming digital media via their phone – that’s over half of their usage and has skyrocketed since just a few years ago.

Index funds which have grown increasingly larger over the past several years generally trade during the last half hour of the day.  Computer trading models have picked up on this trend and have funneled more of their trading volume toward this time period as well.  Seems innocent enough, but the result is that there a noticeably lower level of liquidity for stocks during the day.   That means that the cost of trading during the less liquid mid-day period is higher and the potential for big price swings is greater.  For now, most traders are aware but not overly concerned, but if we experien

Five banks pleaded guilty to criminal charges related interest rate manipulation on Wednesday.  This is literally admitting guilt of a felony.  But no one is going to jail.  In fact, the banks are simply paying a combined fine of roughly $5 billion that is funded from funds that would otherwise go to shareholders.  And unlike most felons, the banks are allowed to carry on business as usual thanks to a special waiver from the SEC.  And the Market reaction? – This seems to just be the price of doing business.

The stunning rout in German bonds over the past week has left many investors dumbfounded.  With an 800% increase in yield over a matter of days that wiped out roughly $450 billion dollars according to the Wall Street Journal, German bonds have experienced an unprecedented level of volatility for the so-called “safe” asset.  

While yesterday’s first quarter GDP reported growth of just 0.2% was a disappointment, it was also a rather big surprise to many forecasters – except one.  As the chart below shows, the Atlanta GDPNow model had the number completely nailed while the rest of the consensus forecasts missed by a wide margin.  Somewhat concerning is the model’s newly released estimate for Q2 – just 0.9% versus a consensus of a rebound back to about 3.3% growth.  Something to keep an eye on.

May 6th marks the 5 year anniversary of the “Flash Crash” when the Dow Jones Index plunged almost 10 percent in a matter of minutes for seemingly no reason. Computer driven trading accelerated the anomaly sending some stock prices to a penny and others to $99,999.  Just this month, a trader working out of his basement in London is being accused of setting the whole fiasco into motion utilizing an illegal trading strategy called “Spoofing”.  Seems unlikely that he is the real cause, but five years on, it looks like we may never find out the truth.        

The Nasdaq Composite Index finally caught up with its counterparts, the S&P 500 Index and the Dow Jones Industrial Average, in revisiting all-time high levels.  It happened to take 15 years, but the Index accomplished the feat nonetheless.  Today’s Nasdaq is very different than the one from the manic days of the Dotcom era as you can see from the graphic below from Reuters.  Additionally, if you take inflation into account, Nasdaq would have to climb another 39% to reach its previous peak according to Bespoke Investment Group.  

The Hang Seng Index contunied it's tear higher today.  Gains are being fueled by the easing of restrictions of mainland Chinese assets which have now found their way to Hong Kong after sending the Shanghai Composite 91% higher over the past 12 months. Trading volume is 230% of the 30-day average.

Greece made a scheduled 460 million euro loan repayment to the IMF today, but they are just entering a crucial period between now and September when over 20 billion euros of debt are due to be paid.  The pictures below from the Wall Street Journal illustrate the staggering magnitude of these obstacles.  The IMF has given Greece 6 business days to work out a solution…

Greek Debt Due in 2015: