Trader Talk

More Corporate Bonds Coming!


Midday thoughts:

1) What's up with September? Supposedly the worst month of the year, it's up nearly 7 percent so far. First off, it is the worst month, but only over a long period—in the last 60 years, September is down an average of 0.7 percent, one of only two months with a negative average performance (February is the second worst, down 0.3 percent), according to the Stock Trader's Almanac.

But that's over 60 years—the S&P 500 has been up five of the last six years!

Traders tell me the move up in September—and it began on the first trading day of September, after a miserable August—is due to two factors: elections and underexposure.

a) Will gridlock in Washington make businesses more willing to invest? No one knows, but the market seems to believe it.

b) The hope trade. Traders are underexposed to stocks for good reason: hedge funds have seen little outperformance in their stock picks this year because stock picking has not been particularly effective—it's all about getting the macroeconomic direction right. So active traders like hedge funds are going into the final third with little to show for their efforts--and little profits other than management fees. Time for alpha; someone's got to start placing a few more bets.

Note that today, while financials are leading, a small group of cyclicals are at new highs, including Caterpillar, Deere, Dupont, Union Pacific and Cummins.

2) The flood of corporate bond offerings trading desks telling me about deals coming soon from Deere, Royal Bank of Scotland, Amgen, Comerica, Entergy, and Southern, and new high-yield offerings from Borg Warner, BE Aerospace, Huntsman, and others.

3) Sign of the times? FINRA today announced that they had sanctions a small high frequency shop, Trillium Brokerage, $2.26 million for an illicit equities trading strategy. The charge: "Trillium, through nine proprietary traders, entered numerous layered, non-bona fide market moving orders to generate selling or buying interest in specific stocks." The effect, FINRA claimed, was that "Trillium's trading conduct was designed to improperly bait unsuspecting market participants into executing trades at illegitimately high or low prices for the advantage of Trillium's traders."

This is a clear signal FINRA is getting more aggressive going after high frequency shops that may be abusing the markets. I'll have more to say on this on my blog tomorrow; we'll also be discussing this more in our Man vs. Machines series that starts tomorrow.

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