Two very ridiculous things have happened to IDFC. First, instead of promoting a new Bank they chose to transfer some portion of the IDFC assets to the Bank. Vaguely analysts placed the value of assets transferred to IDFC Bank at Rs 60 per share. That might be so. However, the surprise is that the entire top brass has moved to the Bank and left behind the Development Finance Institution which trades at Rs 62 now, and the bifurcation has already resulted in a 15-20 per cent loss to all Investors who went long with the De-merger in mind.
Glencore is unaware of what may have prompted its Hong Kong-listed shares to surge as much as 71.6 per cent in trading on Monday.
In a response to a query from the Hong Kong Stock Exchange, the board of the embattled mining company said it:
Is not aware of any reasons for these price and volume movements or of any information which must be announced to avoid a false market in the Company’s securities or of any outside information that needs to be disclosed under Part XIVA of the Securities and Futures Ordinance
Glencore shares climbed steadily through the morning session in Hong, but gained as much as 71.6 per cent to HK$18.36 during the afternoon session. It has since pulled back to a gain of 31.4 per cent.
Its listing in Hong Kong is a secondary one, with London being its main one.
In his latest weekly note, DB’s derivatives analyst Alekandar Kocic focuses on the interplay between US inflation expectations and US equities, and points out something curious, and very much spot on:
Policy response to the crisis post-2008 consisted of unprecedented injection of liquidity, transfer of risk from private to public balance sheet, and reduction of volatility from its toxic levels. The net result was near-zero rate levels and collapse of volatility across the board, while different market sectors developed high degrees of coordination. The last effect has been an indirect result of the central banks’ flows and the distortions they introduced in the bond market. In this environment other markets acted as a complement to rates (through which monetary policy was transmitted) and crowding out there pushed investors to articulate their views elsewhere. Their participation was a function of amount of liquidity injection. As a consequence everything was trading off of US inflation expectations as the main expression of the QE effects.
That was the case for the first 5 years of “unconventional policy” until some time in 2013. Then something snapped. Kocic continues:
With deflation as the main risk tackled by monetary policy, its success or failure was gauged by the ability to reflate the economy. Inflation expectations and breakevens were therefore signals for risk-on or risk-off trade. In fact, most market sectors, from FX to EM equities, were trading in high coordination with breakevens. Taper tantrum was the end of these correlations and a beginning of dispersion across different assets. In effect, it was the unwind of the “QE” trade, its first phase. While most other assets, like credit spreads, EM equities or different currencies, do not have a logical connection with US breakevens, US equities do. The dispersion between these assets and breakevens was an expected consequence of policy unwind. However, for US equities this unwind distorted their “natural” correlation with inflation. Persistence of these dislocations is just a manifestation of to what extent QE has been an important driver of post-2008 markets.
Here is a link to the transcript of this documentary.
Narrator: At sea and on land, everyone seemed to be making money. It was a stampede of buying. And major speculators like John Jacob Rascob whipped up the frenzy. He told readers of The Ladies’ Home Journal that now everyone could be rich. September 2nd, Labor Day. It was the hottest day of the year. The markets were closed and people were at the beach. A reporter checked in with astrologer Evangeline to ask about the future of stock prices. Her answer: the Dow Jones could climb to heaven. The very next day, September 3rd, the stock market hit its all-time high.
Ben Karol, Former Newspaper Delivery Boy: My father and I had an ongoing discussion about the stock market. And I used to say, “Pop, everybody’s getting rich but you. You know, you work so hard and you’re never going to make a nickel. All you do is you keep delivering these newspapers and that’s about it. The guy who’s shining shoes is in the stock market, the grocery clerk is in the stock market, the school teacher’s in the stock market. The teller at the bank is in the stock market. Everybody’s in the stock market. You’re the only one that’s not in the stock market.” And he used to sit and laugh and say, “You’ll see. You’ll see. You’ll see.”
Narrator: On September 5th, economist Roger Babson gave a speech to a group of businessmen. “Sooner or later, a crash is coming and it may be terrific.” He’d been saying the same thing for two years, but now, for some reason, investors were listening. The market took a severe dip. They called it the “Babson Break.” The next day, prices stabilized, but several days later, they began to drift lower. Though investors had no way of knowing it, the collapse had already begun
Opening indications for Chinese stockmarkets:
- Shanghai Comp to open up 1.7%
- CSI300 index to open up 2.2%
–Meanwhile, elsewhere around the place a few minutes ago …
- Japan up 2.8% (getting the gold medal so far)
- Korea up 1.1%
- Singapore up 2.2%
- Taiwan up 1%
- Australia (take a bow … ) up 1.6%
- Hot stocks are only good when they are in up trends, when the party is over you have to break up with them.
- Hot stocks are great to trade in and out of but you don’t want to turn them into a life long investment.
- A good stock might look great on the outside with it’s price action but it may not have the best fundamentals for getting serious with.
- Hot stocks are great for the short term but for the long term you want a solid investment.
- Be careful with hot stocks they may look great on the outside but they can break your heart at any moment.
- A hot stock can be a lot of fun for awhile but they can be a lot of drama when no one wants them anymore.
- As long as a hot girlfriend is very popular she will be happy but when no one wants to date her she goes into a downward spiral. This applies to hot stocks as well.
The stock market is bipolar creature, driven by sentiment and irrational expectations. One day, it is an ingenious forward-looking mechanism that anticipates and discounts future events beautifully. Another day, it is a stubborn schizophrenic that can’t see further than its nose.
Markets constantly overreact to both, identified risks and opportunities. It is in the nature of financial markets to exaggerate, to magnify. This is why they are not always discounting the future. Sometimes, they are correcting previously incorrect view. Sometimes, they just go bonkers and send prices to levels that cannot possibly be justified by any future scenario. Boys will be boys. Markets will be markets. They’ll fluctuate violently, up and down and to levels that will seem incomprehensible to many. Indexing, robo-advising and social media won’t change that. The Internet might have made people smarter; but it hasn’t made financial markets more efficient. You could complain and whine about financial markets’ irrationality or you could find a way to take advantage of it. Or don’t. It’s your choice.
If you understand people’s incentives, you are very likely to predict correctly their future behavior and sometimes even influence it. Most incentives have expiration date. What is important today, might not be as important tomorrow. This applies perfectly to life, but not always in financial markets that live in their own world. Incentives require the existence of rationality. We have already made the point that more often than not, markets are not rational, but emotional, at least in a short-term perspective. As Howard Marks eloquently puts it:
European stock market close 22 June 2015
- FTSE +1.7%
- Cac +4.1%
- Dax +3.9%
- Ibex +4.1%
- FTSE Mib +3.5%
- Italy 2.16% -12bp
- Spain 2.12% -16bp
- Portugal 2.80% -24bp
- Germany 0.882% +13bp
- Greece 11.18% -148bp
The Athens stock exchange had been up over 10% until a bout of profit taking knocked it back slightly
European stock market close 17 June 2015
- FTSE -0.4%
- Cac -1.0%
- Dax -0.7%
- Ibex -0.1%
- FTSE Mib -0.7%
- Italy 2.31% -2bp
- Spain 2.33% -2bp
- Portugal 3.17% -5bp
- Germany 0.812% +1bp
- Greece 13.01% +7bp
The bright spot for European stocks is holding up above yesterday’s lows. We’re still in no mans land though while Greece is front and centre