Posts Tagged ‘Markets’
After a shocking $170M was paid this week for a not Picasso, Cezanne, or Monet, but a Modigliani, painting, many asked whether the white hot market for art was finally topping. The chart below from Marketwatch suggests that Sotheby’s own weakening stock price may not only be a proxy for declines in art prices ahead, but for US equity prices as well. While essentially two cycles are a limited data set to infer this relationship, it is worth noting.
“Each of the last six great merger waves on record” — going back more than 125 years — “ended with a precipitous decline in equity prices,” says Matthew Rhodes-Kropf, a professor at Harvard Business School and an expert in mergers and acquisitions.
Mark Hulbert examines the current frenzy in Merger and Acquisition activity and its implications for the stock market as a whole. The use of the word “precipitous” in the quote above does give one pause.
Professor Rhodes-Kropf is convinced this will all end badly though neither ventures to predict when the “peak” of the current M&A boom will arise. Until then, the trend is decidedly up. Party on, I presume.
The bottom line? Unless you can find some other way of defusing the historical precedents, you should squarely face the prospect that the current merger wave will — just as was the case following each of the previous six — end with a precipitous decline in stock prices.
Anecdotal signs are starting to accumulate that this bull market cycle may be nearing at least a pause. More than one client has contacted me of late wondering why they can’t make more money in the seemingly unstoppable rise of the US market. I need to have the chart above laminated and hung next to my desk.
If your model of the stock market is that companies that are building businesses come to the stock market to finance those businesses, your model is wrong. The stock market is where companies that have built businesses go to cash out their shareholders.
The always astute Jason Zweig on why companies really go public. As he says, it is not to raise money to operate, they have already done that by raising private capital. It is to create a market to facilitate insiders and early private investors cashing out their shares by selling into a broader and deeper public market. See this example on Bloomberg about the current financing of Uber.
On “60 Minutes” last night, author Michael Lewis made a bland assertion: High-frequency traders, he said, working with U.S. stock exchanges and big banks, have rigged the markets in their own favor. The only surprising thing about Lewis’s assertion was that anyone could be even remotely surprised by it.
Barry Ritholz, author of the above quote, goes on to explain how The Securities and Exchange Commission has licensed High Frequency Trading firms to essentially steal pennies from every trade on the major stock exchanges. Yes, there is a theoretical benefit to this system of legalized front-running. But it has not proven to have much, if any, value in actual practice.
They are the centerpiece of a flawed system without any socially redeeming qualities.
As I have said all along, while the theft of minute amounts from individual investors should obviously be outlawed, the damage from sanctioning this corrupt behavior is immeasurable to the brand image of the US capital marketplace. With global competitors from London to Hong Kong, and Sinagpore to Dubai, integrity and the strict rule of law were the supreme competitive advantages for Team USA. Those longstanding advantages continue to be wastefully squandered by misguided Congressional policies, from the deregulation of derivatives trading in 2000 to the present lack of constraints on high frequency trading systems.
Hopefully, there will be enough outrage over the 60 Minutes segment and Lewis’ new book to empower our more ethical defenders of consumer rights in Congress (I am talking to you, Senator Warren) to enact legislation that reigns in this noxious business practice.