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Observations on My Afternoon in New York City

Posted by Larry Doyle on August 19, 2010 12:14 PM |

I spent yesterday afternoon in New York City meeting with a variety of people. Without violating any confidences, there were a number of common themes that came from all my conversations. The themes included:

1. The financial system remains very fragile.

2. The economy remains in very tough shape.

3. Trading volumes in both equity and fixed income markets remain depressed. Equity volumes from just this past May are down by over 30%. I have heard of summer doldrums, but these figures are a lot more than that.

4. Investors do not want to sell what they currently own because they do not know what they might purchase to replace it. Investors do not want to allocate more capital because they are concerned about market valuations in general.

5. We are one ‘tape bomb’ (unexpected news story) away from a major market decline.

6. Wall Street is a decidedly different industry relative to a few years ago.

7. What and who are people really supposed to believe? There is a general lack of trust in information provided by the industry, the media, and the government. Consistent, major revisions in economic numbers lend to a lack of credibility in the reports.

Nothing dramatically new here, but hearing these themes run across three meetings with more than a dozen people provides an honest assessment of the pulse around New York City.

Navigate accordingly.

Larry Doyle

  • phil trupp

    The concerns you found in the City appear to be shared nationwide. There is a consist lack of investor trust. The meltdown of 2008 has probably destroyed the good will of an entire generation.

    At dinner last night in Washington with a CFO, I was asked, “Do you think we’ve learned from that experience?”

    Answer: “Yes, and what we’ve learned is that accountability has become quaint.”

    In a series of conversations with a well-known Texas politician, I have been told that the next state attorney general will seek to sue the major Wall Street banks and brokerages for $18 billion in damages to the citizens of Texas. Other states are mulling similar actions.

    Account managers at various banks and wire houses are walking off the job because, according to one manager, it is no longer possible to make accurate (read: truthful) market projections.

    This combination of fear and loathing among investors and money managers plays a large role in the stunning lack of volume in the markets; this morning the Washington Post reported that volume is off by 30 percent). Even the grizzled, die-hard traders are backing off; they fear “broken markets” that no longer make sense, and regulators who are either indifferent, bewildered, or just plain incompetent.

    Are we one headline away from another loss of another 2000 point drop in the Dow? Probably. Everyone is edgy.

    “There’s so much panic out there,” says one money manager. “I spend most of my day holding clients’ hands.”

    I’m afraid the sentiments you experienced in New York are shared nationwide. A few weeks ago, I learned of a movement by Southern California investors to pull the plug on risk and go straight to cash and Treasury bonds. Why? “In order to make a statement to the money crowd,” according to one former equity investor. “So I can sleep,” said another.

    Wall Street has made fearsome enemies of those upon whom the markets depend. Could it be time for the so-called “best and brightest” to grow up, to quit playing games with people’s lives? Front running, insider arbitrage and the now-ubiquitous HFT are on the cusp of becoming forms of financial bullying.

    And isn’t it time for our regulators to make sure that actual adults are in charge? Of course we’d need adult regulators, and they are in short supply.

    I certainly hope the markets can one day return to mature behavior and a sense of ethical responsibility. If and when this ever happens, America can once again be a place where we make things instead of deals, and trust is more than a code word for “con.”

  • LD


    Thank you for the super-duper-sized portion of sense on cents!!

  • TeakWoodKite

    Sometimes it is better to sit tight. Getting sleep is a priority….great insights LD and Phil. Thanks.

  • fred


    Whatever you do, don’t lose hope. On behalf of all the baby boomers, let me appologize. We inherited the greatest country on earth and within a generation messed it all up. A combination of selfishness, a sense of entitlement, and a lack of morality have all conspired to turn the worlds envy into contempt.

    In our impatience we settle for the most convenient answers rather than the most prudent; no wonder we move from crisis to crisis rather than from solution to solution.

    Phil remember two things 1)as long as there are people who care there is a chance to get things right, and 2) if nothing else, at least it ain’t boring!

    • phil trupp


      I have followed your comments over time with interest and respect. Your insights are always appreciated. As to “hope”: There’s an old saying: “We live in hope and die in despair.” I intend to keep on living with hope, if for no other reason than it is, as you say, more interesting.

      Could it be that the markets, and the financial services industry in general, are in the process of metamorphosis? Perhaps “evolution” is a more precise description. “Creative destruction” also might apply.

      I would view any of the above concepts as positive indications of change. Clearly the current market system is structurally flawed, and technology appears to be pushing the old structure(s) over a cliff. This is no place to go into detail over structural weaknesses; the obvious is there for all to see.

      My hope is for a market that makes its way back to basic functions, such as efficient pricing and value. The economy needs strong markets in order to grow and compete. We do not need markets that view the general economy through the lens of a host and parasite model. History teaches that strong economies proceed in a balance between economic dynamism and advances in socioeconomic policy. Both work in tandem; if not, we can expect further disruption and uncertainty.

      I hope we are moving toward positive balance, and I will keep doing what little I can to help in achieving it.

      Again, thanks for your wise commentary.

      • fred


        Economic dynamism and socioeconomic progessivism…powerful combination, Obama are you listening?

  • divvytrader

    Knight Trading Reports July Average Daily Share Volume Lowest Since April 2009

    For a firm which describes itself as “the leading source of off-exchange liquidity in U.S. equities and [has] greater share volume than any U.S. exchange” , “share volume”, as one can surmise, is the lifeblood of the firm. And should there be a dramatic drop in “share volume” it means that both revenue, as well as the general volume of other exchanges must be very low, since Knight is presumably a good proxy of trends elsewhere. Which is why when we pulled up Knight’s recent trading volume we were rather surprised by the dramatic plunge in stock trading over the past 4 months. After hitting a near record in April of just under 16 billion daily average shares, volume has since plunged to 7.4 billion, or the lowest since last April, when it was a mere 5.9 billion. And no, this is not merely the seasonal summer slowdown: last July Knight did an average of 10.2 billion shares, thus July 2010 was a 27% decline in share volume. But one doesn’t need to look far to confirm this: a casual glimpse at the NYSE daily volume, or the ridiculous moves in stocks on vapor trading when a block of SPOOs can move the bid ask by a quarter of a dollar, are sufficient to demonstrate just how fragmented the market has become. This merely reinforces our observations that in addition to pulling capital out of equity mutual funds, retail investors and increasingly institutional ones, simply refuse to trade. Luckily our message that the market is (at least for the time being) broken has finally been heard far and wide. And to all those who think that based on a series of lucky coin tosses, they can outwit an irrational and chaotic system, we wish them all the best.

    • fred


      One of the concepts of a well functioning market that has always facinated me is the enormity of the human intelligence and emotion contained within it.

      When confronted by this truly magnificant power, it never ceases to amaze me that there will always be those who think themselves smarter.

      Whether functioning well or barely functioning at all the market was here first and will be here last so there is wisdom in what it is saying.

      • phil trupp


        You are speaking of the market as a kind of demi-god, a modern day Alpha and Omega. Surely you know this is a philosophical concept with Biblical overtones.

        Still, you’re correct to say we can and do learn from the markets. But the so-called efficient market “theory” (I quote the word to underscore my point) has been corrupted in countless ways. I’m not telling you anything you don’t already know. I’m simply commenting that the vision of an eternal market, filled with grand wisdom, strikes me as more faith than reality. Markets can be correct (even efficient) and they can be terribly incorrect and skewed. Markets are little more than reflections of who we are with our strengths, weaknesses, foibles, and sometimes devilish ways.

        • fred


          To bring the discussion from the philisophical back to the practical, the market should be respected not exploited and of course it’s wisdom is left to the interpretation of each participant and reflected in market prices.

          If I were to attempt to interpret the markets message now and apply it to our economy and institutions, it would be nothing more than a reflection of what we read here daily at Sense on Cents: People are skittish (volitlity), suspicious (risk management), and angry (bear raids), they have been lied to (false breakouts) and taken advantage of (fees and commissions) regarding the pillars of financial security whether it be homeownership (always goes up in value), investing long term in the stock market (best return of all asset classes), or social security security (retire at age 65). Institutions created to protect our wealth (stock exchanges, big banks) are rife with corruption (HFT, mark to model) and have now begun to micromanage (lobbyists) not only the economy but also our lives (expected higher cap gains and div tax rates). The citizenry is beginning to drop out of the work force (low volume) and lose hope (all time low tbond yields).

          • fred

            I seem to have misplaced my GM stock certificates(as good as gold), can anyone give me a current quote? “So goes GM, so goes the country”.

          • phil trupp


            Getting back to you late, but better than never. You hit every point and nicely make the points: the market reflects our reality. I was making a similar observation in somewhat different way. Just different words, different reflections, all based on “reality.” But of course that word is another trip wire of equally abstract quality.

  • Kathy

    Speaking as one of the ordinary investing public: I appreciate hearing that the industry has been changed by the disasters it wrought — at least I hope that’s what LD meant.

    But my trust is gone. The entire industry has entirely lost my trust. Permanently.

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