Stock Market..Now paying for excesses
For several years the stock market has move up unfazed by fundamental and technical indicator warnings that have clearly indicated that too many (but not all) stocks were dangerously overvalued. Historically, along the way up, moderate if somewhat harsh corrections followed by returns up have been the normal market occurrence and would have avoided high risk overvaluations that we have seen before brutal bear markets such as those of 2001 and 2007.
We have seen it presently in too many trader and hedge fund favorites such as the high volume “fang stocks” and others that favor institutional investors but not the retail investors.
A serious problem with many major full service American brokerages is that they no longer can earn the same commission revenue as in the past. The fact is that they have been bludgeoned by the discount brokerages whose commissions are mere fractions of the full service brokers’ commission levels.
Today full service brokerages can no longer afford to cover companies on a comprehensive research basis. Thus, they focus on, over-promote and hype a very limited percentage of stocks. That is a major obstacle to investment success for the retail investing public and many institutional investors as well. They are guided by inaccurate inept analysts into their over-touted, over promoted and overvalued stocks rather than the many overlooked and undervalued stocks. Yet, in Canada and the U.S. there are numerous stocks that are incredibly undervalued such as the gold industry companies and other commodities related stocks.
Hype?… Just look at the “Fang” stocks. While performing astounding well, they were over promoted to ludicrous overvaluations which allowed for the liquidity needed for the hedge funds and high frequency trading desks. Adequate liquidity must be provided or brokerage profits plunge; thus the brokerage industry focuses on what is popular not what is undervalued.
Manipulation… The fact is that like everything else the stock market is and has been manipulated with central bank buying support (denied) at times and artificially low interest rates. A key reason is to prevent the destructive consequences of a bear market. In this debt laden economy it could be near chaotic.
We know that some naïve people refuse to accept the fact (yes, the fact!) that markets are often manipulated. They are manipulated to facilitate the profitability of the brokerage industry which cannot afford the stark reality of a bear market.
Once upon a time Originally the stock markets were created to allow a system for investors to buy and sell stocks and for companies to have access to the capital markets. In recent years the first priority seems to be for the banks and brokerages and their own traders and trading desks….first and foremost.
The profitability of many full service brokerages has declined with the enormous increase in the percentage of business now being done at the major discount brokerages. More and more retail investors have moved to the discount brokerages and that will continue. Many investors have decided that paying the high commissions and fees to full service brokers has not been worth it.
They found the research to be inaccurate and untimely. At the same time we believe that the loss of commission profits may be a reason that we now have the high frequency trading to make up for the commission losses.
Spreads Worse yet, brokerage trading desks no longer have the enormous profits from the spreads between the “bids’ and “offers.” Those profits were often larger than the commissions themselves. They are for the most part gone, investors have access to computers so nothing can be “hidden.” Note that spreads did finance research on stocks.
Officers and directors (insider) selling…enormous! In the last three months, we have seen by far the largest amount of sales in dollar value by the officers and directors the publicly traded stocks in the United States. Last week in merely the ten largest insider sales transactions totaled over $930 Million-that puts it among the highest weekly totals in market history. Keep in mind that those are sales of their very own personally owned shares. Note that we cannot recall seeing this mentioned on the business television. We have been told that their advertisers do not want it reported. So it remains somewhat “hidden” from the public.
Bench Jockeys.. Business television provides exceptionally valuable information for viewers. Yet, at times some people on business television behave like “bench jockeys” believing that it is their job to lament any declines and promote and act as “cheerleaders” and promoters for stocks and the market itself. That is a mistake as any guidance should influence viewers to look for and insist on value.
*For an in-depth look at stock market points, please review our prior article of October 25 right below. There are some extremely important points for consideration.*
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