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Trader Talk with Bob Pisani

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  Tuesday, 17 Jun 2014 | 9:57 AM ET

Inflation rears its head in May: Does it matter?

Posted By: Bob Pisani
Traders work the floor of the New York Stock Exchange.
Getty Images
Traders work the floor of the New York Stock Exchange.

Consumer prices in May were slightly hotter than expected, which helped to send bond yields higher and stocks lower.The data showed there is still not a lot of wage pressure, but it looks like the market is trying to get ahead of that.

Is it a threat to stock multiples? Not yet.

Trader will be looking carefully at the Federal Reserve when it issues its policy statement on Wednesday. As usual, look for any subtle changes to the narrative—such as references to shifts in wage expectations, for example. Also, look for even more discussion about "complacency", that being a byword for excessive risk taking.

»Read more
  Monday, 16 Jun 2014 | 5:03 PM ET

Senate investigates high-speed trading. So what?

Posted By: Bob Pisani
Brad Katsuyama, chief executive officer of IEX Group Inc.
Chris Goodney | Bloomberg | Getty Images
Brad Katsuyama, chief executive officer of IEX Group Inc.

The U.S. Senate Permanent Subcommittee on Investigations is holding hearings tomorrow on high-frequency trading (HFT), specifically in the Homeland Security and Government Affairs Subcommittee.

Not a surprise, given the recent interest in HFT, but the lineup is a bit strange.

The first panel consists of Brad Katsuyama of IEX and Robert Battalio, a professor from Notre Dame.

Then a couple heads of the exchanges...new NYSE head Tom Farley, and BATS CEO Joe Ratterman. There's also Joseph Brennan, the Head of Global Equity Index Group at Vanguard, and Steven Quirk, a VP at TD Ameritrade (AMTD).

This, for a hearing on high-frequency trading. Except there are not high-frequency traders on the witness list, no dark pools, and nobody from the SEC. And NASDAQ is not on the list!

Kind of strange, no? Kind of light on the stakeholders in the business, right?

Brad Katsuyama will likely speak about what IEX's business model is doing to protect the long-term investor from perceptions that the exchanges favor HFT.

Read More'Flash Boys' subject says he gave people an easy out by using 'rigged'

My guess is that Ratterman will be grilled because the Committee wants to ask if exchanges are kotowing too much to HFT. He will also likely defend the current rebate structure.

The wildcard is Tom Farley, the new President of the NYSE. This is a big platform for his debut. Arguably, Duncan Niederauer, who will be departing as CEO of the NYSE, should be the one doing the testimony, but whatever.

Fortunately for Farley, his boss, Jeff Sprecher, head of IntercontinentalExchange (ICE), which owns the NYSE, has recently said ICE is willing to explore changes in market structure. Sprecher has made it clear that he is looking for a simplified trading structure: Fewer exchanges, fewer order types. He's also signalled he is willing to consider changes in the rebates exchanges offer to traders, much of which drives firms (particularly HFT firms) to trade at exchanges.

Sprecher has implied he would consider changing that, though it's not clear if he wants to eliminate rebates or just reduce the amount paid.

Either way, this kind of talk is likely to be greeted with somewhat more sympathy by the Commitee. In fact, the NYSE could come out smelling relatively sweet here.

Read MoreHere's what the SEC needs to do about HFT: Jon Najarian

As for the rest of the panel, Battalio has recently written a paper somewhat critical of brokerage firms taking payments for their order flow, implying that some may be routing to venues for economic benefits that are not consistent with best execution requirements.

He is likely to call for more disclosure from the brokerage firms, but it's unlikely he is going to engage in wholesale bashing of HFTs.

That's probably why Quirk from Ameritrade is there--to answer that question. TD Ameritrade last week released details that it had received $236 million as payment for order flow in 2013. That's only 8.5 percent of net revenue, but it's been growing.

It will be very interesting to hear what Joseph Brennan from Vanguard has to say. Bill McNabb, the CEO of Vanguard, has previously made comments that HFT firms have helped investors cut trading costs.

So where does this leave us? A rather uneven open for a hearing, if you are investing HFT and the broader subject of market structure.

There will certainly be more hearings...my understanding is another hearing has been set for July 8th, though the Committee declined to confirm that to me.

And...in case you don't think enough is being done on HFT...Senator Mark Warner, chairman of the Senate Banking Committee's Subcommittee on Securities, Insurance, and Investments, will chair ANOTHER Senate hearing on HFT and its impact on the economy and U.S. securities markets.

That's on Wednesday. The day after the Senate Permanent Subcommittee holds hearings. On the same subject.

What, ultimately, is going to happen? The Committee will undoubtedly try to stir up some moral outrage, but what will be the long-term effect?

My sense is that we are heading toward a system where HFTs will be much more regulated; this was implied by SEC Chair Mary Jo White's recent speech at the Sandler O'Neill Brokerage and Exchange Conference.

Read MoreSEC chief wants to see changes in trading

HFTs are going to have to register with the SEC, and they will likely be required to report profits, just like broker/dealers.

As for dark pools, there will be much more disclosure...about volumes by broker and other information. There will be more info on where the orders are coming from. That's a good thing.

What about real changes in market structure? It's unlikely there will be wholesale changes in Reg NMS, the main regulation that created the current market structure. Wholesale elimination of rebates? Unlikely. A pilot program, yes. Elimination, no.

»Read more
  Monday, 16 Jun 2014 | 9:40 AM ET

Alibaba squares its inner circle in new filing

Posted By: Bob Pisani
Alibaba.com's headquarters in Hangzhou, China
Thomas Lombard | Wikipedia
Alibaba.com's headquarters in Hangzhou, China

In an updated initial public offering filing, Alibaba revealed the names of all 27 individuals who comprise the "inner circle" that nominates the majority of the board of directors.

The full 9-member board was also disclosed, which includes 4 independents: Yahoo co-founder Jerry Yang; Chee Hwa Tung, the first chief executive of Hong Kong; J. Michael Evans, former Vice-Chair of Goldman Sachs (and chairman of Asia operations) until 2013; and Walter Teh Ming Kwauk, a consultant at Motorola Solutions.

The 27 partners are elected annually; it is this "partnership" that has the exclusive right to approve a majority of the board of directors.

»Read more
  Friday, 13 Jun 2014 | 9:36 AM ET

Priceline nets OpenTable as new offers return

Posted By: Bob Pisani
Traders work on the floor of the New York Stock Exchange, April 1, 2014.
Getty Images
Traders work on the floor of the New York Stock Exchange, April 1, 2014.

Here's one for the Freaky Friday files: Priceline announced it's buying OpenTable! That was unusual, given that merger news normally happens on Mondays.

The offer is for $103 a share in cash for the company, a 46 percent premium over its closing price Thursday.

What does this mean? There will be more interest across the board in apps with a local flavor. Analysts note that Priceline will drive even more intense digital marketing efforts. They will also help with growth internationally, particularly in Europe.

The key is stable, predictable, growing cash flows in the U.S., these observers say.

»Read more
  Thursday, 12 Jun 2014 | 4:42 PM ET

Traders buy Chinese IPOs, betting on demographics

Posted By: Bob Pisani
The New York Stock Exchange.
Adam Jeffery | CNBC
The New York Stock Exchange.

China slowdown not showing up in IPOs.

Evan Gul, the CEO of Zhaopin Limited (ZPIN), was smiling from ear to ear on the floor of the NYSE when I walked over and said hello to him this morning.

He had good reason to smile. His company, which runs China's second biggest online job board for white-collar workers, had just gone public, pricing 5.6 million shares at $13.50, in the middle of the $12.50 to $14.50 range, and closed at $14.65, up 8.5 percent.

Gul had just become a wealthy man.

I congratulated him, but then asked him if he was worried about reports that China's growth was slowing down.

Gul said he wasn't worried, and implied that I was asking the wrong question. I should be more interested in the demographic and sociological trends that were emerging in China.

Gul said he followed a simple rule: Follow the Starbucks. Starbucks represents the urbanization of China. The country is switching from a tea culture to a coffee culture.

It's also moving from a manufacturing base to a service base. Right now 45 percent of the GDP is manufacturing, but that is getting smaller as the services sector expands.

And it is expanding rapidly. China has 1.6 billion people, with 700 million in the workforce. And there is now 100 million white collar workers.

Not only are their ranks growing, they are making more money. Salaries, he notes, have been increasing because there have been labor shortages in key industries, particularly white-collar jobs.

That's why, despite genuine concerns about China's growth, investors continue to pile into Chinese IPOs listing in the U.S.

I noted this morning that Chinese IPOs have outperformed U.S. IPOs this year by a wide margin. On average, last year's Chinese IPOs are up 63% from their IPO price (almost half on the first day, the other half post-first day), according to Renaissance Capital. The average U.S. IPO is up 25 percent in that same period.

Why? Despite the worries about slower growth in China, everyone wants to get on board with the explosive growth in internet services in China, which is itself a reflection of the changing demographics Mr. Gul is talking about.

But all trends have their day, just ask biotech, which is now lagging other IPO sectors this years. There is a worry is that the Alibaba IPO may take the air out of the Chinese IPO market. Still expecting an IPO in August, but much depends on how many questions the SEC has for the company.

»Read more
  Thursday, 12 Jun 2014 | 3:48 PM ET

US becoming the global oil powerhouse

Posted By: Bob Pisani

Oil: Not good about Iraq, but the U.S. is becoming the global powerhouse.

It's certainly not good that Iraq is in danger of splintering into three separate countries, but before everyone freaks out about the price of oil remember one thing: The U.S. is making up for the difference.

Right now, Iraq produces about three million of the roughly 90 million barrels produced globally on a daily basis.

Given the state of the country, it's a miracle Iraq even produces that much.

Read MoreOil prices head higher as Iraq tensions flare

The U.S., by contrast, produces roughly 8.5 million barrels a day. And--this is the key point--that number has grown by one million barrels a day this year, and will likely grow by an additional one million barrels a day next year.

How is this happening? That's the shale revolution. Names like Marcellus, Bakken, Permian Basin, and Eagle Ford--all production centers for oil and natural gas--have become household names. Add to that a revolution in the technology to get at that oil and natural gas, making drilling much more efficient.

Take a look at the largest oil producers in the world.

Largest oil producers in the world (millions of barrels a day)

  • Saudi Arabia: 11.0
  • Russia: 10.0
  • U.S.: 9.0
  • China: 4.0
  • Canada: 3.7
  • Iran: 3.7
  • U.A.E.: 3.4
  • Iraq: 3.1
  • Kuwait: 3.1
  • Mexico: 2.9
  • Venezuela: 2.7
  • Source: BP

By contrast, the Bakken producers over a million barrels a day. The Eagle Ford is over a million. And Marcellus is growing fast. Get the picture?

Will oil prices go higher? Sure, they could go higher, but bear in mind there is already an awfully high "risk premium" in oil from events in Ukraine, and remember there is also a civil war going on in Libya, continuing downward production trends in Venezuela and Mexico, and ongoing supply problems (i.e. theft) in Nigeria.

How much is that risk premium? It's not sure, but some of my oil trader friends think that if all these issues went away, oil would in the $80's rather than $106.

As for Iraq, every analyst I have spoken with or seen a report from today has noted that almost all Iraq exports are coming from southern Iraq, not the northern part where the fighting is occurring.

That's one reason oil, while up, is not up big.

And what about the drop in airline stocks? Many are down five percent. It's clearly an over-reaction...but remember airlines have become quasi-momentum stocks this year. They have high betas: Delta (DAL) has a beta of 1.6, meaning if the S&P is up 1.0 percent, DAL moves up 1.6 percent on average. The stock has almost doubled in the last nine months!

It's a good excuse to sell off transports.

»Read more
  Thursday, 12 Jun 2014 | 10:37 AM ET

IPOs test waters again after short holiday break

Posted By: Bob Pisani
Traders work on the floor of the New York Stock Exchange.
Getty Images
Traders work on the floor of the New York Stock Exchange.

The hit-or-miss market for initial public offerings is heating up again. After a brief lull during Memorial Day, a few new names are testing the waters. Last night, wearable camera maker GoPro announced they will list on the NASDAQ under the symbol (GPRO), looking to raise 17.8 million shares, with pricing expected between a range of $21—$24.

But today we have four new issues that will begin trading across several sectors. In particular, two are attracting attention because they are in very hot sectors: energy and China. On the NYSE, Zhaopin Limited (ZPIN), which runs China's second biggest online job board for white-collar workers, priced 5.6 million shares at $13.50, in the middle of the $12.50 to $14.50 range.

Hard to believe, but Chinese IPOs have outperformed U.S. IPOs this year by a wide margin. On average, the last year's Chinese pricings are up 63 percent from the IPO price (almost half on the first day, the other half post-first day). The average U.S. IPO is up 25 percent in that same period.


»Read more
  Monday, 9 Jun 2014 | 3:58 PM ET

Growing market bullishness not a concern yet

Posted By: Bob Pisani
Traders on the floor of the New York Stock Exchange.
Getty Images
Traders on the floor of the New York Stock Exchange.

The weekend press was full of surprisingly bullish stories ("Clear Skies for U.S. Shares," the WSJ headline read) on how the stock market, now that Nonfarm Payrolls are back to modest growth and the ECB will be keeping rates low and lower for a long time, is likely to keep rising through the summer.

Great. This on the heels of last week's Institutional Investor bull/bear numbers. At 62.2 bullish, it was the second-highest on record. Bears are nowhere to be found: 17.3 percent! Close to historic lows.

Suddenly, a lot of people have gone from hating the rally to believing the modest economic recovery means the rally has legs.

And it's starting to show in the stock market. The sector leaders this month are ALL cyclical groups that do better when the economy is improving.

Sector leaders this month:

  • Financials: +2.7%
  • Industrials: +2.2%
  • Cons. Discretionary: +1.9%
  • Energy: +1.6%
  • Tech: +1.5%

Telecom, Utilities, Healthcare and Consumer Staples--defensive sectors--all lag.

Now, we're getting another lift as many are taking off hedges because they are lagging the markets.

That worries me. When the bears capitulate, when everyone thinks a correction will never come, that's when the correction will come. The only reason I am not too worried is that there is a difference between being "euphoric" and believing a correction is less likely.

We are not in a "euphoria" phase, at least not yet.

And that give me some comfort that this "Rodney Dangerfield of all-time bull rallies" (as one trader called it) might continue. But what a strange rally! We seem technically overbought on a short-term basis. The put/call ratio is absurdly low, the Volatility Index (VIX) is moving toward single digits. And volume has dried up everywhere--in stocks, in bonds, in foreign exchange.

What about the bond market? Ten-year yields at 2.6 percent certainly do not signal expectations that the economy is in lift-off mode. But that could change very quickly: Look at the David Malpass editorial in WSJ today, arguing that the data supports the idea the Fed should begin to raise rates soon.

Amen to that. I still think yields are too low, since Q2 real GDP is looking much better. Most traders I know were expecting 10-year bond yields to hit 3.5 to 4 percent this year.

As for inflation, well, I've been wrong on this all year. I thought PPI and CPI would pick up more dramatically by now and that there would be some wage pressures as we got unemployment in the low-6 percent range. Not yet, but I still think that is likely soon.

That's where we are at. Slow grind higher.

»Read more
  Friday, 6 Jun 2014 | 9:51 AM ET

All that glitters in jobs data isn't Goldilocks

Posted By: Bob Pisani
Getty Images

Last month's employment report can be classified in one way: steady as she goes. The data were basically in-line across the board: the headline number (217,000), hourly earnings, and private sector jobs growth. Even the revisions were modest.

What did bonds do? Bonds rallied, yields declined, and stocks rallied modestly. The economy is improving, but not accelerating, making it unlikely there will be a change in the narrative over Federal Reserve monetary policy.

»Read more
  Thursday, 5 Jun 2014 | 5:12 PM ET

SEC chief wants to see changes in trading

Posted By: Bob Pisani
Securities and Exchange Commission Chairwoman Mary Jo White.
Getty Images
Securities and Exchange Commission Chairwoman Mary Jo White.

SEC Chairwoman Mary Jo White gave a surprising broad speech about market structure at the Sandler O'Neill Exchange and Brokerage Conference in New York.

She spoke of the need for a "comprehensive review" of market structure, including rules adopted a decade ago that helped create high-speed trading.

Read MoreSEC chief: Major rules coming for HFT, dark pools

She began by insisting that investors are doing better today than they did in the past:

"[T]he current market structure is not fundamentally broken, let alone rigged."

She also said new rules put in place since the 2010 Flash Crash have made the markets safer. For example, market wide circuit breakers and limit up/limit down rules were put in place that are "moderating price volatility in individual securities."

Read MoreBank regulators have gone too far: Bove

But she made it clear there are aspects of the market that are troubling to the SEC. Much of her commentary was built around what, if anything, should be done about high frequency trading (HFT): "We must consider, for example, whether the increasingly expensive search for speed has passed the point of diminishing returns." She made it clear that she was wary of any attempt to make a rule that limited trading speed, but said she was open to other methods to address HFT, including affirmative or negative trading obligations for HFT firms. In other words, she is considering subjecting HFTs to certain obligations as market makers. This might require them to post more definitive bids and offers for longer periods, for example.

She also said she was concerned that certain "destabilizing" trading strategies might harm the markets during periods of high volatility. She has proposed an anti-disruptive trading rule that would apply to high-speed traders during periods of high volatility. She was vague on this proposal, but this is likely to be controversial.

She also is proposing to subject high frequency traders (HFT) and other "unregistered active proprietary traders" to a new rule requiring registration with the SEC and membership in FINRA, which is responsible for much of the regulatory oversight of the industry.

Read MoreFINRA gives US investors access to dark-pool data

That's an interesting idea. Many HFT firms have objected to being required to join FINRA because of the relatively high cost.

She also spoke of the need to make sure the technology works as advertised. Reg SCI would mandate uniform testing standards for the technology used by the exchanges; after sitting on it for many months, the SEC is now finalizing rules that would put it in place.

»Read more

About Trader Talk with Bob Pisani

  • Direct from the floor of the NYSE, Trader Talk with Bob Pisani provides a dynamic look at the reasons for the day’s actions on Wall Street. If you want to go beyond the latest numbers— Bob will tell you why the market does what it does and what it means for the next day’s trading.

 

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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