• 529 days Will The ECB Continue To Hike Rates?
  • 529 days Forbes: Aramco Remains Largest Company In The Middle East
  • 531 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 931 days Could Crypto Overtake Traditional Investment?
  • 936 days Americans Still Quitting Jobs At Record Pace
  • 937 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 941 days Is The Dollar Too Strong?
  • 941 days Big Tech Disappoints Investors on Earnings Calls
  • 942 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 943 days China Is Quietly Trying To Distance Itself From Russia
  • 944 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 948 days Crypto Investors Won Big In 2021
  • 948 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 949 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 951 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 952 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 955 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 956 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 956 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 958 days Are NFTs About To Take Over Gaming?
How The Ultra-Wealthy Are Using Art To Dodge Taxes

How The Ultra-Wealthy Are Using Art To Dodge Taxes

More freeports open around the…

What's Behind The Global EV Sales Slowdown?

What's Behind The Global EV Sales Slowdown?

An economic slowdown in many…

  1. Home
  2. Markets
  3. Other

Helping the Fellow Out

After biotech stocks hiccupped on Thursday, April 11, 2014, ISI analyst Mark Schenebaum told the world: "Horrible day in biotech. I'm frankly at a loss for an explanation. And it's my job to know why. [The reason he gets paid the big bucks - FJS.] Schenebaum "has been following the sector since 2000," but maybe spent too much time golfing.


NASDAQ 2000: To the Brink and Back

  Closing Price Point Change Percent Change
March 10 5048 +182 +1.7%
March 13 4907 -141 -2.8%
March 14 4706 -201 -4.1%
March 15 4582 -124 -2.6%
March 16 4717 +135 +2.9%
March 17 4798 +81 +1.7%
March 20 4610 -188 -3.9%
March 21 4711 +101 +2.3%
March 22 4864 +153 +3.2%
March 23 4940 +76 +1.6%
March 24 4963 +23 +0.5%
March 27 4958 -5 -0.1%
March 28 4833 -125 -2.5%
March 29 4644 -189 -3.9%
March 30 4457 -186 -4.0%
March 31 4572 +115 +2.5%
April 3 4223 -349 -7.6%
April 4 4148 -75 -1.8%
April 5 4169 -21 +0.5%
April 6 4267 +98 +2.3%
April 7 4446 +179 +4.1%
April 10 4188 -258 -5.8%
April 11 4055 -133 -3.2%
April 12 3769 -286 -7.1%
April 13 3676 -93 -2.4%
April 14 3321 -355 -9.6%
April 17 3539 +218 +6.6%
April 18 3793 +254 +7.4%
Source: John Hancock Quarterly Market Review and Outlook, July 3, 2000, Frederick J. Sheehan, Andrea Whalen

Schenebaum is not alone. "Biotech Rout Perplexes Analysts," ran the Wall Street Journal headline. On April 10, the NASDAQ Biotechnology Index (NBI) fell 5.6%. The day before, it rose 4.1%. This is familiar ground. The NASDAQ (composite) chart from early 2000 - "The NASDAQ - To the Brink and Back" - shows many days a believer found encouragement to plunge on, but this was not the wise course.

Dr. Joseph Lawler, Senior Managing Partner at Merus Capital Management, told a Grant's Interest Rate Observer conference audience (April 8, 2014) the NBI trades at 42 times reported earnings. To arrive at that multiple, several leaky faucets need to be plugged. Removing the contrivances, including losses, the NBI is poised at 2,200 times current earnings. The NBI market capitalization is greater than the domestic automobile and aerospace industries added together.

Speculators want to make money. They buy what is going up. If it keeps going up, they buy more of it. They may "climb the wall of worry," as the saying goes, but get used to that. More savers decide they need to gamble so that they can eat, so jump in. The increasing participation is common to market excesses. Then more savers stare at the cat food in the cupboard and climb aboard.

Leverage contributes to the rising tide. Glenn Holderreed at Quacera L.L.C. in Sacramento, California reported on April 6, 2014, New York Stock Exchange margin debt is close to $500 billion. This is well above the highs in 2000 and 2007, after adjusting for price inflation.

It is often said how much faster a bull market dives than the time it took to rise. The reason involves panic, or a synonym of that. There is also a mechanical reason. It resides somewhere in our minds but the mechanism is worth repeating after a period of relative calm. From the April 6, 2014, Quacera Chronicle: "When setting up a margin account with a stock brokerage, the typical maximum for margin debt is 50% of the value of the account. In order to prevent a margin call (a request to raise collateral* in the account), the margin debt must remain below a specified percentage level of the total account balance, known as the minimum margin requirement. If stock prices fall the brokerage insists the margin debt be reduced, either by putting up additional money or selling stocks.... Unfortunately [for the margined punter in bio or Tesla - FJS] brokerage firms and banks want margin calls (demand for debt payments) paid on the same day." A brother-in-law broker might "want" and wait, for the rest, without payment, their stocks are sold.

*Collateral: There is probably no part of what remains of the so-called financial system that is more an illusion than collateral. The central banks have taken possession of government and agency securities that are ranked at or near the top in the hierarchy.

At the most basic level of collateral, we can wonder until Doomsday why the United States government has refused to return the German government's gold stored in New York. In January 2013, Germany demanded the U.S return 300 tons of the 1,500 tons it keeps stored at the New York Federal Reserve. At last count, the U.S. has returned three (3) tons. As a working assumption, the U.S. government cannot return it. It therefore does what it can to drive the price of gold down. A few minutes after Ukrainians and Russians (or their proxies) started shooting this morning, April 15, 2014, gold opened for trading in New York. Almost immediately, "over half a billion dollars of notional... gold futures contracts" were dumped. "This smashed gold futures down over $12 instantaneously, breaking below the 200 [day moving average] and triggered the futures exchange to halt trading in the precious metals for 10 seconds." (Zero Hedge)

It does not pay (over time, one must add) to mess with mother nature. Nothing is worse (in the long run) than attempting to destroy the very roots of money. For at least 5,000 years, money has been an immovable object planted in bedrock to protect the people from the folly and vanity of human weakness. To cripple gold's function destabilizes the financial ecosystem at every level. Witchcraft hexes on currencies, through money markets, bonds, common stocks, and uncommon stocks including the never-never, nothing-nothing, gossip and Peeping Tom shares as well as the medicine man miracle cures begs for annihilation.

 


Frederick Sheehan writes a blog at www.aucontrarian.com

 

Back to homepage

Leave a comment

Leave a comment