Spooking Investors

Fri, 2012/12/14 - 12:41pm | Your editor
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If you want to spook stock investors, nattering on about the fiscal cliff or the threat of inflation just will not cut it. What you need to do is cause doubts and fears about market integrity.

Yesterday Nasdaq managed to do that yet again by canceling pre-market trades in top stocks like Citigroup, Goldman Sachs, AT&T, and IBM, plus another half dozen NYSE blue chips. The pre-market orders came from a single unnamed securities firm and were based on “bad data” (Nasdaq said) from some non-named mysterious source. All trades more than 10% above or below the prior day's close were busted.

And boy were they below! C having closed at $36 fell to $20. Hewlett-Packard crashed from $14.55 to (gasp) $3.06.

 

As institutional investors rush to window-dress their results for the year with last-minute trades, this kind of panic selling can go viral. And it also can pay off by improving the figures for some players.  Having won the second prize in Dick Davis Investment of the Week for dividend picks, I can confirm that this kind of volatility can work in your favor or against it. Today I write about surprise stock price rises and falls for paid subscribers. Usually this stuff is what pundits call "noise", movements which do not indicate future trends either way.

A Canadian pundit, Tom Bradley, AKA “Steadyhand” warns that there are problems with the stocks-vs-bonds consensus up north. The consensus says interest rates aren't likely to rise soon because “the economy is too weak to support higher yields and the flight to safety will continue” because of Euro-messes and the US political impasse over debt. He adds:

“These views are translating into bond portfolios that are neutral or only slightly short on during. Bond managers aren't willing to get too defensive because it mens bringing down the current yield on their portfolios [and] lagging behind their benchmark.

“They all say, and this is the point, that they stand ready to move quickly when the market turns. As much as any time in my career, it feels like everyone in the theatre is planning to do the same thing. At the first sign of smoke, they're heading for the exit. If I'm right, when the turn comes, we may seem exaggerated price moves, as the urgency shift from buyers to sellers. With everyone thinkgint he same way, [you won't get] the smooth, controlled transition investors are hoping for.”

 

Bollywood's no. 2 film-maker Eros International Media plans (again) an initial public offering on the NYSE. The last time this movie ran it got hit by the global financial crisis, but now Eros is baaack aiming at the Big Apple. It will delist from the illiquid London AIM and hopes to get re-rated by 35% to match other film studios like Lion's Gate.

 

Your editor ranked second for performance in the Dick Davis Digest Dividend Investment of the Week contest for 2012, for a pick which produced a gain of 40%, only 10% of which came from dividends. These contests are ways to validate your performance, but they are no substitute for the daily blog because you only get to revise your opinion at mid-year. (I didn't but I might have to with another pick.)

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