ChocoVine!

ChocoVine? Chocolate Red Wine? Really?

These last few days we found ourselves engaged in some thoughtful discussion on market structure.

First, on Sunday evening, we met with some thought leaders on the buy-side, among a few other key folks from DC. We all talked about what we perceived as a danger going forward to our capital markets, and how to make our collective voice heard. You see, there is no shortage of representation in Washington, through lobbying firms like Patton Boggs and others, making sure that the views of the Exchanges and Proprietary Trading Group are heard loud and clear. (You all see the Bloomberg Businessweek article this morning?

(http://www.businessweek.com/news/2010-11-09/high-frequency-traders-lobby-donate-to-head-off-u-s-rules.html)

You all know what they want. They want the status quo. Their biggest targets : Eric Cantor, Bachus, Hensarling, to name a few. And those guys all wrote great letters to the SEC after their checks cleared.)

 

The buy-side is in a much tougher spot, as they are more constrained by corporate infrastructure on what they can say, and they know that DC tends to listen to the “other side” a tad more than it listens to them, and so they are guarded in drawing attention from unfriendly folks to their viewpoints (while I know that is a generalization, and not true across the board, hopefully it resonates enough truth and you take my point). But make no mistake, their viewpoints are well thought out, strong, and they will be heard.

Secondly, yesterday I attended at NOIP (National Organization of Investment Professionals) conference in Manhattan, and I was privileged to share my views on the May 6th Flash Crash on a panel with Larry Liebowitz (NYSE), Eric Knoll (NSDQ), and Adam Nunes, (Hudson River Trading). The panel was moderated by Jamie Selway, (ITG). He did a marvelous job of encouraging a meaningful discussion around a topic where the panelists obviously had passionate differences, and Jamie did it in a way where it remained spirited, and yet civil.

A blow by blow would be boring, so I’ll touch on the flavor of the discussion. There was some discussion on circuit breakers, and how combined with collars, they would avoid the $0.01 prints in stocks that so upset issuers and investors alike, although I did point out PGN, where the NYSE circuit breaker worked, but it took 10 milliseconds to go into effect, which was still enough time for PGN to go from $44 to $4. There was also discussion about stop-loss orders, whether algorithms were irresponsible (they are not), and internalizers, and the role they had in the Crash. At several points I felt compelled to try to steer the discussion to conflicts of interest at many levels (payment for order flow at numerous levels), the exchanges for profit status and the effect that has on fairness and fragmentation, as well as fiduciary duty. The points were made, the panelists all debated well, and I felt the audience got a presentation that was successful in bringing out the many sides of this debate. Win.

I will finish my recap by saying that there was a great deal of heads nodding at me approvingly throughout the presentation, as well as at a reception afterwards. This was not because they like me or how I debate, rather it was because the core issues of right and wrong are much more crystal and intuitive than the industry collectively would like everyone to believe. Truth cuts through.

Which brings me to ChocoVine, the taste of Dutch chocolate and fine red wine! You have all heard the expression “you can’t have your cake and eat it too”. You may have heard it in the context of our modern market structure as well, as in “you can’t have the benefits of our current structure, and HFT, like narrow spreads and volume (note I didn’t say liquidity!), and think you can restrain and regulate those that provide it.” Well, I beg to differ; maybe you can get close. It starts with an honest self-assessment on what you like and what your needs are. An honest one. Like maybe you like chocolate. And maybe you like red wine. And maybe you like IPO’s and economic growth and deep liquidity, as opposed to shallow layers of volume. Admit it. Because if you do, then maybe we can get to the point of creativity, where we can find a product (market) which works best for everyone. It also might take some trial and error, and tweaking. Kind of like ChocoVine.

 

 

Where we left off 4:00pm EST:

DJIA                                             11,406.84                                      -37.24

S&P500                                          1,223.25                                        -2.60

NASDAQ Composite                     2,580.05                                        +1.70

Futures now at 7:30am EST:

DJIA:                                                     +30

S&P500:                                                +2.90

NASDAQ 100:                                     +9.00

Key Data out today:

 

07:30:                    NFIB Small Business Optimism

10:00:                    Wholesale Inventories

10:00:                    IBD Economic Optimism

 

Since the prior close, some key stories:

 

–       HCA to plan $2b dividend funded by bond sale.

–       2 Candidates on election day died before the election and were still elected.

–       Stocks, Futures, Yen all rose in price. Heck add commodities, hair gel, gas, and pizza to that list.

–       High Frequency Firms and Exchanges Lobbying Hard in DC: http://www.businessweek.com/news/2010-11-09/high-frequency-traders-lobby-donate-to-head-off-u-s-rules.html

–       CCL ship catches fire in Mexico; no one hurt.

–       GE set to invest $2b in China.

–       GM to kill Goodwrench brand.

–       HOG mentioned cautiously in Barron’s online.

–       LRCX downgraded at GSCO

–       MSFT launches Windows 7 Phone devices.

–       KKR interested in Yahoo.

–       CVX buying ATLS.

–       Citi adds POT to recommended list.

–       AKS downgraded at GSCO.

–       SOHU downgraded at UBS.

–       SEC bans stubs quotes.

 

Earnings:

 

Pre-market: DF, MMC, ROK, SRE, TYC

 

After the Close: IGT

 

 

Significant Movers This Morning:

APEI +9.7% (earnings) LDK +7.4% (earnings) PCLN +5.9% (earnings) SCLN +5.4% (earnings) JASO +4.5% (new supply agreements) EGLE +3.7%,  ABK -63.3% (files for Ch 11 bankruptcy) APT -20.5% (earnings) SNTS -9% (earnings) ENOC -6.7% (earnings) AKAM -6%, RAX -3.5%, ABAT -4.4% (to restate financials) BLK -3%