The Sad Plight of the Fundamental Analyst

June 16, 2011

Perhaps I should preface this post by saying that some of my best friends are fundamental analysts. This excerpt is taken from a funny article on Wall Street dress codes by Josh Brown of The Reformed Broker.

Prospective sell-side analysts should pretty much come in with a brown bag over their heads, eyeholes cut out of course. You will spend the next decade blowing people up with nonsensical calls like “overweight” or “strong neutral”. Your price targets will be based on discounted cash flow analysis which doesn’t really mean anything in the actual supply and demand-based stock market. Getting used to hiding and wearing a bag to cover your shame is probably a great idea, start early.

As he points out, the actual stock market is based on supply and demand. Found at the intersection of Supply Street and Demand Avenue: price.

2 Comments | Just for Fun, Markets | Permalink
Posted by Mike Moody

No One Cares About Greece

June 16, 2011

Most investors don’t care what happens in Greece. Street riots will be news for a week or two, or until Charlie Sheen does something entertaining. Here’s what everyone is actually worried about:

U.S. banks had total exposure of $41 billion to Greece by the end of 2010, according to the latest figures, issued June 9, from the Bank for International Settlements. Most of the financial commitments appear to be indirect.

About 83% is tied to “guarantees” that range from protection for sellers of credit-derivative contracts to other obligations owed to third parties. Still the data are murky, according to economic consultant Kash Mansori.

“We don’t know exactly what the form of exposure is,” said Mansori, who authors the Street Light blog. “We can only make educated guesses.”

Marketwatch has a good point. US institutions have a lot of exposure to Greece, but no one knows exactly what it is. In the absence of transparency, investors are going to protect themselves by assuming the worst case scenario is true. It wouldn’t be surprising to see investors avoid US banks or overseas banks with Greek exposure entirely. In fact, it’s probably already going on. The financial sector has been one of the weakest areas of the market recently.

In Price We Trust

Source: Yahoo! Finance

One of the beautiful things about relative strength is that price is informed by the opinions of many large and knowledgeable market participants. You don’t have to be an expert on the Greek crisis or impending bank regulations to see that investors have concluded, at least for the time being, that banks are not where you want to be.

Leave a Comment » | Markets, Thought Process | Permalink
Posted by Mike Moody

Fund Flows

June 16, 2011

The Investment Company Institute is the national association of U.S. investment companies, including mutual funds, closed-end funds, exchange-traded funds (ETFs), and unit investment trusts (UITs). Members of ICI manage total assets of $11.82 trillion and serve nearly 90 million shareholders. Flow estimates are derived from data collected covering more than 95 percent of industry assets and are adjusted to represent industry totals.

Domestic equity fund investors apparently aren’t sticking around to find out how this correction plays out. Domestic equity funds flows are now negative for the year, along with municipal bond funds. Taxable bond funds added another $5 billion last week, bringing their YTD total to $86 billion in net new money.

Leave a Comment » | Markets | Permalink
Posted by Andy Hyer