Sandy

After two days of closure the markets are now open. It will be a couple of days before the market players get back anywhere near 90% as New York is running on a skeleton crew now. Also with the elections next week I expect the markets to just chop around.
Though lots of folks think the market is due for a significant pullback I believe they are jumping the gun and we go higher after election and Sandy recovery

Futures off the cliff-

Yesterday  posted about the bad numbers of earnings but today it seems to be manifesting in the futures for sure-


Stock index futures fell on Tuesday on concerns the slow global economy will continue to dent corporate revenues, with a trio of Dow components appearing to confirm investor worries.
United Technologies Corp (UTX) reported a 3.3 percent decline in third-quarter earnings and cut its sales forecast for the year, citing weak demand from airlines and an uncertain economy.
Fellow Dow component DuPont (DD) reported a lower-than-expected quarterly profit on Tuesday and announced 1,500 job cuts as part of a cost savings program designed to offset falling sales around the world. Its shares dropped 5.4 percent to $47.10 in premarket trade.
3M Co (MMM) fell 2.7 percent to $90 in premarket trade after the diversified U.S. manufacturer reported a 6.7 percent rise in third-quarter profit, but the company cut its profit forecast for the full year as acquisition costs and a strengthening dollar hurt margins.
"It was ever so modest and ever so subtle but there was a shift to the markets really starting to trade on U.S. economic and U.S. company fundamentals and the market didn't seem to care much about what central banks were doing or what was going on in Europe," said Keith Bliss, senior vice-president at Cuttone & Co in New York.
"Then all of a sudden - wham - we get weaker earnings this quarter and it refocuses everybody's attention on the global economy."
Adding to the global economic concerns was a fall in Spanish bond prices after Moody's downgraded five of the country's regions including economically important but deeply indebted Catalonia.
S&P 500 futures fell 16.1 points and were well below fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures dropped 112 points, and Nasdaq 100 futures declined 25 points.
According to Thomson Reuters data, 33 S&P 500 companies are scheduled to post earnings on Tuesday. Of the 123 S&P 500 (^GSPC) companies that have reported earnings through Monday morning, 60.2 percent have topped analysts' expectations, shy of the 62 percent average since 1994 and below the 67 percent average over the past four quarters.
Earnings are expected to fall 2.4 percent in the third quarter from a year ago. Even more disconcerting to investors, top-line expectations have been more discouraging, with 61 percent of companies having missed revenue expectations.
Apple Inc (AAPL) shed 0.6 percent to $630.01 in premarket trade. The company is expected to make its biggest product move on Tuesday since the iPad's debut two years ago, launching a smaller, cheaper tablet into a market staked out by Amazon.com Inc (AMZN) and Google Inc (GOOG).
Whirlpool Corp (WHR) advanced 2 percent to $88 after reporting a higher-than-expected quarterly profit, helped by price increases and tight cost controls, and the world's largest appliance maker raised its earnings outlook for the year.
RadioShack Corp (RSH) tumbled 15.5 percent to $2.02 in premarket after the consumer electronics chain reported a much wider-than-expected quarterly loss, hurt by weak margins in its smartphone business.
The U.S. Federal Reserve's policy committee is also set to begin the first day of a two-day meeting on interest rate policy on Tuesday. The Federal Open Market Committee is likely to hold off from taking fresh steps at the meeting, opting to review the impact of the significant action it took last month and keep a low profile in its last gathering before the November 6 general election.

Earnings

Facts:
Barely 40% of large companies have been able to top analysts' consensus for the third quarter. This is the worst top line showing since the first quarter of 2009

GOOG Halt

wow Halted down 9%.
Should bounce when it opens-

GOOG earnings leaked early

GOOG earnings just leaked out early before they were suppose to. Earnings were to be announced after market close. Earnings came in below expectations

Decline of stock trading

Wall Street’s smaller stock traders are throwing in the towel as their fees fail to recover from a three-year slump in equity volume and a shift to computer-driven transactions.
ThinkEquity LLC, the San Francisco-based investment bank, said yesterday its stock-trading business will close. Oscar Gruss & Son Inc. halted merger-arbitrage operations on Oct. 12. Rodman & Renshaw LLC, which acquired brokerage Hudson Holding Corp. last year, told regulators in a September filing that it didn’t have enough capital and would stop trading.

Commissions are drying up for brokers who complete trades by phone or sell research as money managers buy and sell fewer securities and execute more transactions electronically. Average daily volume for U.S. equities has dropped 36 percent since 2009. The average fee to trade a share of stock fell 31 percent in the period, according to Investment Technology Group Inc.
“It’s an impossibly tough business,” Greg Wright, chief executive officer of ThinkEquity, said yesterday in a telephone interview. “There aren’t enough commission dollars today for the number of market participants so there will be further consolidation.”
Nomura Holdings Inc. (8604), Auriga Holdings LLC, Pritchard Capital Partners LLC, WJB Capital Group Inc., Ticonderoga Securities LLC and Kaufman Bros. LP have also fired equity traders or shut their doors this year.
With most stock trading handled by computers, the sales staff who work the phones for small securities firms generally make money by sending investment ideas to money managers. They trust the investors to reciprocate by paying for trading services or sending cash later.

Sales Ethics

“It doesn’t really take much talent to buy 100,000 shares of Wal-Mart,” said Sean Gambino, who trades consumer stocks for Schottenfeld Group LLC. “There’s a code of ethics that says, ‘I’m using their information, they’re giving it to me, I’ll trade through them.’”
Regulations that went into effect in 2007 increased competition among exchanges and drove brokers to boost their use of algorithms to execute client orders. Brokers who trade manually charge about twice as much as those who use algorithms, or software systems that break blocks into smaller pieces, according to Tabb Group LLC. Money managers pay about 7.3 cents to trade $100 of stock, down from 10.6 cents three years ago, ITG data show.
“Commissions are set by the customer and unfortunately they’re setting them lower each quarter,” said Tommy Pritchard, who left his eponymous investment bank in April to join Imperial Capital Group Inc.

Trading Less

Pritchard, a firm that once employed as many as 60 people, profited more from investment-banking fees than trading, he said. It closed in June as the pace of stock offerings by energy companies slowed, Pritchard said.
Investors are trading less even as stocks rise. Average daily volume for U.S. equities fell to 6 billion shares in the third quarter from 8.7 billion a year earlier and 9.3 billion in the same period of 2009. The Standard & Poor’s 500 Index has gained about 16 percent this year.
Equities firms split $10.9 billion in fees last year from asset managers, the least since 2006, according to data compiled by Greenwich Associates. Asset managers consolidated more of their trading with larger brokers to ensure they kept getting research, advice and access to deals, the firm said in May.

Difficult Environment

“A lot of people were hoping that we’d get a better recovery than we got and went out and invested,” said Packy Jones, chairman of JonesTrading Institutional Services LLC, a Westlake Village, California-based broker. “Now with the volumes drying up, it’s been difficult for a lot of these brokerage firms to make money.”
The decline in commissions has hit even larger firms. Goldman Sachs Group Inc., the fifth-biggest U.S. bank by assets, collected $5.91 billion of revenue from equities trading in the first nine months of this year, down 10 percent from a year earlier as commission and fee revenue tumbled 18 percent. The firm handles “the vast majority” of client trades electronically today, a change from 10 years ago when most were handled by phone, Chief Financial Officer David A. Viniar said in February.
Interactive Brokers Group Inc., which sells computerized trading services to individuals and hedge funds, has benefited from the trend. It had pretax profit of $741.1 million last year, the most since 2008, according to data compiled by Bloomberg. Steve Sanders, senior vice president of business development for the firm, said he’s gaining business as institutional clients pay more attention to costs.
“A good deal of this industry’s business has been through personal relationships,” Sanders said. “That’s changing. I don’t think people can justify the higher costs anymore.”
Tom Laresca, who traded non-U.S. stocks for New York-based Rodman & Renshaw, said sales staff there relied on relationships with money managers that went back years or decades.
“It was much easier five years ago,” Laresca said. “It seems like everybody’s fighting for the same dime these days.”

Again Citibank !!!!!!!!!!

Just like yesterday when I saw the citibank number and questioned it, this morning CEO Pandit just stepped down immediately. There is fire somewhere here, who knows what but why would you quit right after so called excellent numbers after having a rough road since 2008.

Something is up !!!

Watching carefully

Took a week off to do some important stuff but my time will be limited in the next few weeks blogging. Watching all morning but the markets are so far chopping and with this being options expiration week we might have to chop out the week.

Citibank beat earnings ! I wonder how did that happen? Oh well we will see in a few upcoming quarters if it is real

What Business is Wall Street in? by Mark Cuban

Wall Street doesn’t know what business it is in. Regulators don’t know what the business of Wall Street is. Investor/shareholders don’t know what business Wall Street is in.

The only people who know what business Wall Street is in are the high frequency and automated traders. They know what business Wall Street is in better than everyone else.  To traders, whether day traders or high frequency or somewhere in between, Wall Street has nothing to do with creating capital for businesses, its original goal. Wall Street is a platform. It’s a platform to be exploited by every technological and intellectual means possible.
The best analogy for traders  ? They are hackers. Just as hackers search for and exploit operating system and application shortcomings, high frequency  traders do the same thing.  A hacker wants to jump in front of your shopping cart and grab your credit card and then sell it.  A high frequency trader wants to jump in front of your trade and then sell that stock to you. A hacker will tell you that they are serving a purpose by identifying the weak links in your system. A trader will tell you they deserve the pennies they are making on the trade  or the rebate they are getting from the exchange because they provide liquidity to the market.
I recognize that one is illegal, the other is not. That isn’t the important issue.
The important issue is recognizing that Wall Street is no longer serving the purpose  what it was designed to .  Wall Street was designed to be a market to which companies provide securities (stocks/bonds), from which they received capital that would help them start/grow/sell businesses. Investors made their money by recognizing value where others did not, or by simply committing to a company and growing with it as a shareholder, receiving dividends or appreciation in their holdings.  What percentage of the market is driven by investors these days ?
I started actively trading stocks in 1992. I traded a lot. Over the years I’ve written quite a bit about the market. I have always thought I had a good handle on the market. Until recently.
Over just the past 5 years, the market has changed. It is getting increasingly difficult to just invest in companies you believe in. Discussion in the market place is not about the performance of specific companies and their returns. Discussion is about macro issues that impact all stocks. And those macro issues impact automated trading decisions, which impact any and every stock that is part of any and every index or ETF.  Combine that with the leverage of derivatives tracking companies,  indexes and other packages or the leveraged ETFs, and individual stocks become pawns in a much bigger game than I feel increasingly less  comfortable playing. It is a game fraught with ever increasing risk.
So back to the original question. What business is Wall Street in ?
Its primary business is no longer creating capital for business. Creating capital for business has to be less than 1pct of the volume on Wall Street in any given period. (I would be curious if anyone out there knows what percentage of transactions actually return money to a company for any reason). It wouldn’t shock me that even in this environment that more money flows from companies to the market in the form of buybacks (which i think are always a mistake), than flows into companies in the form of equity.
My 2 cents is that it is important for this country to push Wall Street back to the business of creating capital for business.  Whether its through a use of taxes on trades(hit every trade on a stock held less than 1 hour with a 10c tax and all these problems go away), or changing the capital gains tax structure so that there is no capital gains tax on any shares of stock (private or public company) held for 1 year or more, and no tax on dividends paid to shareholders who have held stock in the company for more than 5 years.  However we need to do it, we need to get the smart money on Wall Street back to thinking about ways to use their capital to help start and grow companies. That is what will create jobs. That is where we will find the next big thing that will accelerate the world economy.  It won’t come from traders trying to hack the financial system for a few pennies per trade.
And solutions won’t come from bureaucrats trying to prevent the traders from hacking the system. The only certainty when bureaucrats step in is that the law of unintended consequences will smack us all in the head and the trader/hackers will find new ways to exploit the system that makes them big money and even more money for the big institutions that develop products for the other institutions that are desperate to play the game.

Regulators have got to start to recognize that traders are not investors and vice versa and treat them differently. Different regulations. Different tax structure.  Different oversight. Individual investors and the funds that just invest in stocks and bonds are not going to crash the market.  Big traders who are always leveraging up and maximizing the number of trades/hacks they make will always put the system at risk.  We need to recognize that they do not serve much of a purpose other than to add substantial risk to the global economy.  That their stated value add of liquidity does not compensate the US and World Economy nearly enough for the risk of collapse they introduce into the system.
Wall Street as a whole needs to be in the business of creating capital for companies and selling shares to investors who believe they are shareholders.  The Government needs to create simple and obvious incentives for this business and extract compensation from the traders/hackers for the systemic failure risk they introduce.
There will be another flash crash, and probably a crash far worse than the May 2010 flash crash simply because there are too many players looking for the trillion dollar score. They can’t all win, yet how many do you think wouldn’t risk everything, even what is not theirs, for that remote chance to score big ? Put another way, there is zero recognition of the  moral hazard attached to every trade. So why wouldn’t traders take the biggest risk possible ? 
There is value to trading automation. It is here to stay. There is absolutely NO VALUE to High Frequency Trading. None. We need to bring our markets back to their original goals of creating capital for business.  It’s impossible to guess how many small to medium size companies have been held back from growing and creating jobs and wealth because of lack of access to capital from the stock market. It’s not impossible to know that our economy has suffered because Wall Street equity markets are no longer a source of equity for helping companies grow, it is not a platform for hackers and that needs to change. Quickly.