Morning Review - 083110

Nicholas Colas (Chief Market Strategist): 212 448 6095 or ncolas@convergex.
com
Christine Clark: 212 448 6085 or cclark@convergex.com
Beth Reed: 212 448 6096 or breed@convergex.com
After concluding last week with a rally, stocks ended sharply lower Monday (S&P 500 -1.5%, Dow Morning Markets Briefing
-1.4%, Nasdaq -1.6%) amid light volume as investors remained skeptical about the recovery. The VIX
rose more than 11%, climbing above 26, while only one Dow component (HPQ) was in the black.
Market Commentary: August 31st, 2010
Consumer spending accelerated more than personal income in July, rising 0.4% compared with a 0.2%
gain in income. Both were flat the previous month. According to the PCE price index, inflation ticked A snapshot of the markets through the
up 0.2% last month, while core prices (excluding food & energy) added 0.1%. Tuesday is relatively lens of ConvergEx.
busy in terms of economic data: Case-Shiller, Conference Board consumer confidence index, Chicago
PMI, and FOMC minutes are all on tap.
Back to the Future – Money Flows into Bond Funds (Now) versus Stock Funds (1990s)
Summary: Today we compare recent money flows into bond funds and ETFs to those experienced by U.S. equity funds during the heyday of the dot com bubble. The first
takeaway: money is currently moving into bonds even faster than it did into stocks in the late 1990s. Starting the count from the death of Bear Stearns (March 2008), U.S.
bond mutual funds and major ETFs have seen some $550 billion of new money. The equivalent, inflation-adjusted amount of money that bought stocks funds in the
1990s: $499 billion, using Alan Greenspan’s “irrational exuberance” (December 1996) comment as the starting point for the U.S. stock bubble. But we all know bubbles
can last longer than anyone thinks possible, and the money flows give us a sense just how much more cash may be waiting in the wings. In total, U.S. equity stock funds
logged some $840 billion in new capital from Greenie’s warning to the peak of the NASDAQ, and over $1 trillion before money actually stopped flowing into stocks. So
that $550 billion in new bond fund money may have some more company soon, if the 1990s period is any guide.
To me, the greatest irony of the recent tsunami of money into fixed income is that bonds are every bit as hard to value as stocks. Treasuries, theoretically the
safest securities on the planet, are still subject to long term inflation expectations to determine true value. Corporates have default risk, call risk, business risk, and the
possibility that the company will make a large acquisition for cash/debt and cause the rating agencies to lower the rating on your bonds. Asset-backed bonds have many
of the same issues. Stocks seem pretty simple in comparison – you own a piece of a business. If it does well, you should do well over time.
Market Commentary – Pages 1-3, Equities/Conferences & Earnings – Page 4, Fixed Income – Page 5, Options – Page 6, Exchange-Traded Funds/Indexes – Page 7, Social
Media & Internet Blogs Top Stories – Page 8
1 1
Nicholas Colas (Chief Market Strategist): 212 448 6095 or ncolas@convergex.com
Still, bonds are very much the flavor of the month for a reason. Well, really two reasons: lower volatility than stocks, and greater certainty of a return of interest and
principal. That’s proving to be a winning formula at the moment. The question most investors ask is “How long can it continue?” Or, put more bluntly: “Is this a bubble?”
To put that question in some historical context, let’s compare the current money flows into bond mutual funds and exchange traded funds (ETFs) with what
happened in the late 1990s with respect to U.S. equity mutual funds. After all, most people agree that the tech stock mania of the period created a bubble in U.S.
stocks. Here’s the process we followed to create the two charts that accompany this note:
• From the Investment Company Institute, we pulled the data for money flows into U.S. stock funds in the 1990s. We started the time series with December
1996, the month of Fed Chairman Alan Greenspan’s famous “irrational exuberance” comment. After all, Greenspan’s kite was flying pretty high at that time; his
nickname was “The Maestro.” Yet markets ignored his warnings, so we’ll call that the unofficial beginning of the U.S. equity bubble of the 1990s.
• We also included the SPY ETF in the mix. ETFs were, of course, really just beginning their growth in the late 1990s, so the numbers are small. The QQQQ ETF did
not begin life until the very end of the period we are considering, so we did not include it.
• We count the “end” of the bubble as the point in time at which no more money came into U.S. stocks through mutual funds or the SPY ETF – 61 weeks in
all from the December 1998 starting point. Note that the NASDAQ actually peaked 40 months from Greenspan’s comment. We’ll get to that surprising finding
in a minute.
• To track the recent inflows into U.S. bonds, we also used the ICI data for this asset class (as we did with U.S. stocks). However, as ETFs have become a
more important investment vehicle as well, we included the money flows into the top six U.S. bonds ETFs: TIP, LQD, AGG, BND, SHY and CSJ. That takes us to more
than half of the total assets under management in bond ETFs.
• For the starting point of the bond data, we used two dates. The first is the collapse of Bear Stearns in March 2008. That’s the unofficial start of the financial
crisis, in our book. But since bond fund money flows actually dipped during the worst of the Lehman Bros crisis some months later, we also include an analysis of
how money flows developed in bonds from January 2009 to the present day.
Three observations about this comparison of the 1990s stock market bubble to the recent actions of investors in U.S. bonds:
• Bursting bubbles aren’t as obvious to investors as one might think. Consider that the NASDAQ peaked 40 months after Alan Greenspan warned that equities
were potentially overvalued (March 2000). Yet, money continued to flow into U.S. stock mutual funds for 20 months more. Adjusted for inflation, investors put
$1 trillion into U.S. stock mutual funds from December 1996 to December 2001. Over $200 billion of that came after the peak in terms of the NASDAQ. There
were, in fact, billions of dollars put to work by mutual fund investors as the tech stock bubble collapsed through 2001.
• Current inflows into bond mutual funds and ETFs are well ahead of the pace set by the tech stock bubble, both in terms of actual dollars and even
adjusted for inflation. Depending on which month you choose as the starting point of a potential bond bubble (March 2008 or January 2009), investors have
poured $541 - $557 billion into U.S. bond mutual funds and ETFs.
At this same point in the development of the stock market bubble of the 1990s, investors had purchased “only” $391 billion in U.S. stock mutual funds. Adjusting
for inflation that would be $499 billion.
2
• While money flows into bond funds may be ahead of the run rate set by the stock market bubble of the 1990s, they still have not reached the level set
at the “peak” of the NASDAQ. Again, counting from Greenspan’s warning to the top of the NASDAQ, investors put just over $840 billion into U.S. stock funds in
the 40 months bracketed by this period. As we noted in the prior point, bond investors have “only” plunked in about $550 billion thus far.
We are always a little leery of direct comparisons between stocks and bonds, if only because their risk profiles and investor appeal are so different. It could well
be that the inflows into fixed income mutual funds and ETFs will eventually surpass the inflation-adjusted numbers set by the U.S. equity mutual fund/ETF data from the
1990s. Some of the bond ETFs we included in the study, for example, are extremely stable short term fixed income funds that investors might be using as a cash
substitute.
So are talking a bit of apples-and-oranges here, but it does seem that money can flow into bonds for some time to come. Whether that will result in ever-lower
yields is less certain, if the stock market bubble of the 1990s is any guide. Stock investors who left their 401(k) contributions on autopilot as the NASDAQ crumbled have
yet to make back their money, over 10 years later. Bond investors in the current environment can at least retort that they will, eventually, get all their money back.
Return OF principal has trumped return ON principal, at least until economic confidence reappears on the investment stage.
Cumulative Monthly Mutual Fund/ETF Flows Cumulative Monthly Mutual Fund/ETF Flows
Nasdaq peaked at 5,048 in 1,000,000 Nasdaq peaked at 5,048 in

950,000 March 2000 (Month 40) March 2000 (Month 40)
800,000
750,000 Inflation
Inflation adjusted
600,000 for 2010
550,000 adjusted
dollars =
for 2010
Inflation Inflation $1,053,424
dollars = 400,000 adjusted
350,000 adjusted $1,053,424
for 2010 for 2010
200,000 dollars =
dollars =
150,000 $385,796
$499,223
$499,223
0
-50,000
1 5 9 13 17 21 25 29 33 37 41 45 49 53 57 61 1 5 9 13 17 21 25 29 33 37 41 45 49 53 57 61
Month Month
Total Bond Flows March 2008-Present US Equity Flows Dec 1996-2001 Total Bond Flows Jan 2009-Present US Equity Flows Dec 1996-2001
3
U.S. EQUITIES
In the latest news from an increasingly busy M&A market, MMM (-1.7%) announced plans to buy COGT (+24.4%) for $10.50 a share, representing an
almost 18% premium. Additionally, PAR’s (-2.0%) board of directors determined HPQ’s $30 per share offer to be a “superior proposal” compared with a
bid from DELL (+1.1%). Shares of HPQ were up 1.5% after the company said its board approved an additional $10 billion for stock repurchase plans.
CMCSA dropped 1.5% on news the Justice Department is reviewing its purchase of GE’s NBC Universal, although reportedly the acquisition is not likely to
be stopped.
Important Earnings Today (with Estimates) From…

DG: $0.38 S&P Futures
DSW: $0.47 One Day (High –1072.75; Low – 1046.00):
Source: Bloomberg
Important Conferences/Corporate Meetings Today:

Morgan Stanley Global Industrials Conference
Three Part Advisors Midwest IDEAS Investor Conference – Chicago, IL
Prior Day SPX (High – 1064.40; Low – 1048.79; Close – 1048.92): Three Day (High – 1072.75; Low – 1037.25):
Source: Thomson ONE

4
FIXED INCOME
Treasuries gained Monday, erasing last week’s losses, ahead of several key economic reports later this week including the Friday jobs report which is
expected to show the U.S. eliminated jobs in August for a third consecutive month. The benchmark 10-year note yield fell 12 bps to 2.53% after hitting a
19-month low of 2.4158% last week. German bonds, headed for their best monthly returns in nearly 2 years, were also higher following the Bank of
Japan’s statement regarding growing “uncertainty” about the U.S. economy.
Source: Bloomberg Source: Bloomberg
Today’s Important Economic Indicators/Events (with Consensus):

S&P Case-Shiller HPI (9:00am EST)
Chicago PMI (9:45am EST): 56.0
Conference Board Consumer Confidence (10:00am EST): 51.0
State Street Investor Confidence Index
FOMC Minutes
Farm Prices
5
U.S. EQUITY OPTIONS
SPX – The underlying index sold off at the opening and remained in negative territory all day with a range of – 0.1% to -1.5%. Implied premium in the index options moved higher at the
opening and responding to the action in the index remained higher throughout the day with the VIX ending up over 11%. Despite the increase in downside risk reflected in the index and
the VIX, there were net sellers in several large index option trades. The November (10)/January (11)/June (11) 1000 Put calendar fly traded 25,000 x 50,000 x 25,000 with the wings sold
and the initiating trader receiving $16.20. The September 1000/1050 put spread was sold over 10,000 times and the September/November 1000 put spread was sold over 5,000 times, also
both bullish trades. There were some notable net buyers of puts as well, but the sizes and net premium paid tended to be smaller than the above noted sellers of premium. The
September 905 puts were bought outright 3,000 times for $0.70. The March (11) 800 puts were bought vs. selling the December 900 puts about 5,000 times for a net debit of $2.45. In a
‘collar’ trade, the December 950 puts were bought vs. selling the December 1150 calls about 3-4,000 times paying net $1165 for the trade.
ETF- The market fell lower over the course of the day causing the VIX to pop and premiums levels to expand. We saw investors selling premium in XRT as paper sold the Sep 38 / 32 Put
spread 5,500 times. Volatility sellers were present in the international space through selling 10,000 EWJ Jan 9 / 10 strangles as well as in EEM through selling 8,500 Jan 35 / 41 Call spreads
delta neutral. Conversely, over the course of the day there was bullish activity in the SPY weekly options which expire this Friday. We saw opening buyers of the Sept (3rd) 107 /110 Call
spreads along with sellers of the 105 and 106 puts separately. These investors could be speculating short term upside in SPYs heading into Friday’s economic news release.
CURRENT IMPLIED VOLATILITY / CURRENT HISTORICAL VOLATILITY

Rank 8/24/2010 8/25/2010 8/26/2010 8/27/2010 8/30/2010 30-Day Implied Vol
1 Q Q Q Q Q 34.71
2 ARG ARG ARG ARG ARG 21.22
NOVL NOVL NOVL NOVL FDO 34.41
3
4 FDO FDO FDO FRX HRB 38.74

BIGGEST MOVERS
5 CTL CTL FRX HRB NOVL 44.09 Top 10 30-Day Implied Vol Bottom 10 30-Day Implied Vol
AAPL FRX CTL FDO PEP 18.31
6
MFE 2618.48% 32.52 MET -96.35% 4.99
7 SBUX AAPL PX CTL FRX 34.34
8 MO STZ LM BMY CTL 14.10 WY 660.04% 40.89 Q -78.00% 28.03
9 WIN PX C AAPL NKE 27.05 PXD 221.52% 34.71 PSA -58.70% 11.09
10 FRX MO LMT BAC AAPL 31.39
11 STZ WIN CB MO CB 21.19 PTV 184.89% 34.17 GE -57.42% 26.87
12 AMAT DIS TIF NKE GS 32.47 PBI 143.26% 35.59 PBCT -55.78% 28.49
13 KR LM MO MSFT BAC 37.62
14 PX KR DIS LM STZ 27.80 WFR 94.74% 45.59 INTC -54.04% 28.48
15 PLL LUV BBT GS MO 16.69 HPQ 93.74% 38.74 FDO -44.00% 36.12
16 NSM STR BMY NVLS LM 41.59
17 LM AMAT NKE LMT BMY 24.56 INTU 90.65% 41.55 MDP -43.41% 29.46
18 WHR GS STZ STZ COG 42.92 FCX 88.02% 34.41 NSM -35.82% 39.33
19 NKE CPB HRB KR KR 27.65
20 MRK VLO PLL C MSFT 26.22 QLGC 83.20% 35.88 PCL -34.76% 41.42
21 VLO PM WIN AMAT CAM 43.30
22 LMT NSM PNW MCK PM 20.82
23 PM NKE PM PX MKC 22.60 We ranked the S&P 500 companies from the highest to lowest 30 day implied to
24 DIS CAM BAC PM WHR 45.59 historical volatility ratio. Above we identify the 10 most positive and negative
25 LUV TIF MRK SAI DVN 28.96 movers.
CPB MRK CAM MRK NVLS
MOLX WHR NSM PNW LMT
The table to the left represents the 25 highest 30 day implied to historical
NTRS PLL VLO WIN C
AMZN SBUX CPB PLL AMAT
volatility ratios within the S&P 500 companies. The green represents names
L GS BBT MCK new to the list while the red represents names that have fallen out.
HRB AMAT CB PX
NRG STR TIF SAI
MKC LUV DIS
SCG KR
AAPL
6
Exchange-Traded Funds/Indexes
Prior Day Peformance of Largest ETFs by Assets S&P 500 Sector ETFs
Name (Net Assets*) Ticker Category Daily Return Sector Ticker 1-Day Perf YTD Perf Sector Ticker 1-Day Perf YTD Perf
SPDRs SPY Large Blend -1.44% Energy XLE -1.46% -9.95% Telecomm IYZ -1.34% -0.90%
SPDR Gold Shares GLD N/A -0.08% Health XLV -1.26% -9.21% Technology XLK -1.33% -9.46%
iShares MSCI Emerging Markets Index EEM Diversified Emerging Mkts -1.65% Industrials XLI -1.53% 1.84% Consumer Discretionary XLY -1.76% 1.28%
iShares MSCI EAFE Index EFA Foreign Large Blend -1.43% Utilities XLU -1.51% -1.13% Financials XLF -2.08% -6.67%
iShares S&P 500 Index IVV Large Blend -1.41% Consumer Staples XLP -0.86% -0.04% Materials XLB -1.50% -6.30%
Prior Day Top Volume ETFs Currency ETFs
Name Ticker Category Shares Traded Currency Ticker 1-Day Perf YTD Perf Currency Ticker 1-Day Perf YTD Perf
SPDRs SPY Large Blend 140,081,624 Australian Dollar FXA -0.77% -0.64% Mexican Peso FXM -0.85% -0.74%
Financial Select SPDR XLF Specialty - Financial 52,952,574 British Pound Sterling FXB -0.34% -4.51% Swedish Krona FXS -0.47% -3.30%
PowerShares QQQ QQQQ Large Growth 48,909,808 Canadian Dollar FXC -0.73% -1.12% Swiss Franc FXF 0.34% 0.67%
iShares MSCI Emerging Markets Index EEM Diversified Emerging Mkts 40,209,104 Euro FXE -0.54% -11.69% USD Index Bearish UDN -0.31% -6.79%
iShares Russell 2000 Index IWM Small Blend 37,503,321 Japanese Yen FXY 0.97% 9.85% USD Index Bullish UUP 0.29% 4.59%
Prior Day Top Performers VIX ETNs Fixed Income ETFs
Name Ticker Category Daily Return Name Ticker 1-Day Perf YTD Perf Bonds Ticker 1-Day Perf YTD Perf
Direxion Daily Semicondct Bear 3X Shares SOXS N/A 7.97% iPath S&P 500 VIX VXX 3.16% -34.90% Aggregate AGG 0.61% 5.49%
ProShares UltraPro Short Russell2000 SRTY Bear Market 6.75% Short-Term Futures ETN Investment Grade LQD 0.64% 8.13%
Direxion Daily Small Cap Bear 3X Shares TZA Bear Market 6.57% High Yield HYG 0.14% -0.76%
Direxion Daily 30 Yr Treas Bull 3X Shares TMF Long Government 5.93% iPath S&P 500 VIX VXZ 1.80% 19.38% 1-3 Year Treasuries SHY 0.12% 1.63%
Direxion Daily Financial Bear 3X Shares FAZ Bear Market 5.51% Mid-Term Futures ETN 7-10 Year Treasuries IEF 0.77% 11.53%
20+ Year Treasuries TLT 1.88% 19.44%
Others
ETF Ticker 1-Day Perf YTD Perf ETF Ticker 1-Day Perf YTD Perf
Gold GLD -0.08% 12.68% Crude Oil USO -1.64% -15.94%
Silver SLV -0.37% 12.64% EAFE Index EFA -1.43% -9.91%
Natural Gas UNG 2.56% -36.51% Emerging Markets EEM -1.65% -4.05%
SPDRs SPY -1.44% -5.49%
Major Index Changes:

None
ETFs in the Headlines and Blogs:

Three Causes of Bond ETF Discounts and Premiums - http://seekingalpha.com/article/222877-three-causes-of-bond-etf-discounts-and-premiums
World Gold Council: ETFs Are Driving Demand - http://seekingalpha.com/article/222872-world-gold-council-etfs-are-driving-demand
7
Top Online Social Networking Stories
Latest Popular Digg.com Business Stories:

Facebook Faces Class Action Lawsuit Over “Like” Buttons - http://mashable.com/2010/08/27/facebook-class-action-suit/
U.S. Stocks Fall for Third Week, Longest Decline Since February - http://www.businessweek.com/news/2010-08-28/u-s-stocks-fall-for-third-week-longest-
decline-since-february.html
Calculated Risk
Personal Income, Spending Increase in July - http://www.calculatedriskblog.com/2010/08/personal-income-spending-increase-in.html
Another Housing Tax Credit? - http://www.calculatedriskblog.com/2010/08/another-housing-tax-credit.html
Employment report Preview: Will the unemployment rate spike higher? - http://www.calculatedriskblog.com/2010/08/employment-report-preview-
will.html
Petruno: Time to let home prices fall? - http://www.calculatedriskblog.com/2010/08/petruno-time-to-let-home-prices-fall.html
The Big Picture

History of US Interest Rates: 1790-Present - http://www.ritholtz.com/blog/2010/08/history-of-us-interest-rates-1790-present/
Are Wall Street Analysts Contrary Indicators? - http://www.ritholtz.com/blog/2010/08/are-wall-street-analysts-contrary-indicators/
Los Angeles Times

Foreclosures of million-dollar-plus homes on the rise - http://www.latimes.com/business/realestate/la-fi-luxury-foreclosures-20100829,0,479624,full.story
New York Times

Policy Options Dwindle as Economic Fears Grow - http://www.nytimes.com/2010/08/29/weekinreview/29goodman.html?_r=1
In Defense of Home Ownership - http://www.nytimes.com/2010/08/28/your-money/mortgages/28money.html
Bespoke Investment Group

Labor day Week Performance - http://www.bespokeinvest.com/thinkbig/2010/8/27/labor-day-week-performance.html
Pick a Stock. Any Stock. - http://www.bespokeinvest.com/thinkbig/2010/8/27/pick-a-stock-any-stock.html
The Becker-Posner Blog

Is the Federal Government Broke? (Posner) - http://www.becker-posner-blog.com/2010/08/is-the-federal-government-broke-posner.html
How Dismal is the Fiscal Future for America and Europe? (Becker) - http://www.becker-posner-blog.com/2010/08/how-dismal-is-the-fiscal-future-for-
america-and-europe-becker.html
8
GENERAL DISCLOSURES
This presentation discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions. It is provided for general
informational purposes only and should not be relied on for any other purpose. It is not, and is not intended to be, research, a recommendation or investment advice,
as it does not constitute substantive research or analysis, nor an offer to sell or the solicitation of offers to buy any BNY ConvergEx Execution Solutions LLC
(“ConvergEx”) product or service in any jurisdiction. It does not take into account the particular investment objectives, restrictions, tax and financial situations or other
needs of any specific client or potential client. In addition, the information is not intended to provide sufficient basis on which to make an investment decision. Please
consult with your financial and other advisors before buying or selling any securities or other assets. This presentation is for qualified investors and NOT for retail
investors.
Please be advised that options carry a high level of risk and are not suitable for all investors. To receive a copy of the Options Disclosure Document please contact the
ConvergEx Compliance Department at (800) 367-8998.
The opinions and information herein are current only as of the date appearing on the cover. ConvergEx has no obligation to provide any updates or changes to such
opinions or information. The economic and market assumptions and forecasts are subject to high levels of uncertainty that may affect actual performance. Such
assumptions and forecasts may prove untrue or inaccurate and should be viewed as merely representative of a broad range of possibilities. They are subject to
significant revision and may change materially as market, economic, political and other conditions change.
Past performance is not indicative of future results, which may vary significantly. The value of investments and the income derived from investments can go down as
well as up. Future returns are not guaranteed, and a loss of principal may occur. The information and statements provided herein do not provide any assurance or
guarantee as to returns that may be realized from investments in any securities or other assets. This material does not purport to contain all of the information that an
interested party may desire and, in fact, provides only a limited view of a particular market.
The opinions expressed in this presentation are those of various authors, and do not necessarily represent the opinions of ConvergEx or its affiliates. This material has
been prepared by ConvergEx and is not a product, nor does it express the views, of other departments or divisions of BNY ConvergEx Group, LLC and its affiliates.

Morning Review - 083110

Загружено:

Сведения о документе

Исходное описание:

Авторское право

Доступные форматы

Поделиться этим документом

Поделиться или встроить документ

Параметры публикации

Этот документ был вам полезен?

Это неприемлемый материал?

Авторское право:

Доступные форматы

Morning Review - 083110

Загружено:

Авторское право:

Доступные форматы

Nicholas Colas (Chief Market Strategist): 212 448 6095 or ncolas@convergex.

Nasdaq peaked at 5,048 in 1,000,000 Nasdaq peaked at 5,048 in

Important Earnings Today (with Estimates) From…

Important Conferences/Corporate Meetings Today:

Source: Thomson ONE

Source: Bloomberg Source: Bloomberg

Today’s Important Economic Indicators/Events (with Consensus):

U.S. EQUITY OPTIONS

CURRENT IMPLIED VOLATILITY / CURRENT HISTORICAL VOLATILITY

4 FDO FDO FDO FRX HRB 38.74

Major Index Changes:

ETFs in the Headlines and Blogs:

Top Online Social Networking Stories

Latest Popular Digg.com Business Stories:

The Big Picture

Los Angeles Times

New York Times

Bespoke Investment Group

The Becker-Posner Blog

Вам также может понравиться