Thursday, August 5, 2010

Dead Money Littering Wall Street as Suckers Flee

When you buy into a stock that refuses to go up in a meaningful way (Pfizer over the past five years is a good example) you have what is known among traders as "dead money." It's just sitting there doing nothing, not earning interest, just kind of lying around.

Now, that might be a good thing during a deflationary debacle like the one we're currently undertaking, so, maybe the dead money issue isn't all that earth-shattering a concept, after all, though, if you're used to the usual 15% returns that Wall Street hucksters promise, money lying around isn't your typical bag.

For the rest of us, those smart enough to stick our money in a coffee can or inside a wall safe, it's all well and good, so long as prices don't go ridiculously higher all of a sudden. There are a slew of misconceptions about money and its uses and usefulness, most of them aimed at baby-boomers with excess cash they're supposedly saving for a child's college, or a wedding or retirement, and most of those misconceptions usually involve keeping your money at work and not lazing around in a lounge chair in the back yard getting a tan.

However, based on the trading (in)activity the past few days, the concept of dead money might just be catching on. Stocks have just undergone a pretty significant rally - first, off the lows of March 2009, and more recently, about an 11% move back to where they now have settled, and nobody seems willing to sell, or to buy. Volume has dried up rather abruptly over the past two days, leaving open the question of whether Wall Street is even relevant anymore.

It seems that the majority of Americans who don't really have a whole lot of faith in the publicly-traded equity markets and have moved, over the past two years, into largely bond-related funds, are more than content with just keeping what they have instead of risking it in stocks. With the small investor clearly out of the market, that leaves mostly professionals and the very wealthy to do most of he trading on a day-to-day basis, but even they have become significantly more risk-averse of late, which means that the bulk of the trading has been left in the rather unstable hands of hedge fund managers and high-frequency traders.

Now, when these boys slow down there's really nothing left to keep markets bubbling, creating a sea of dead money, or more in the vernacular of economists, a liquidity crunch, which is precisely what we're staring at today.

It would seem, after the worst weekly unemployment claims figures since April came out this morning, and retail sales from a wide variety of chain stores showed poorly, that stocks would be sold off rather dramatically, and that seemed to be the case early on, but, buyers stepped in midday to soak up some of the losses, leaving the markets in a rather untidy state of affairs, with all indices down slightly, spending the entire session in the red, on volume that has to be one of the lightest five days of the year.

Truly pathetic, it was.

Dow 10,674.98, -5.45 (0.05%)
NASDAQ 2,293.06, -10.51 (0.46%)
S&P 500 1,125.81, -1.43 (0.13%)
NYSE Composite 7,174.27, -7.87 (0.11%)

Market internals showed a different side of the story as declining issues ran rampant over advancers, 3898-2509. New highs managed to maintain their sizable edge over new lows, 372-92.

NASDAQ Volume 1,704,054,000
NYSE Volume 4,089,902,750

In commodities, the September light crude oil futures contract fell by 48 cents, to $82.01. Gold gained $3.50, to finish at $1,197.20. Silver was up 4 cents, to $18.31.

With the July non-farm payroll report out tomorrow prior to the open, one would have expected a little more excitement, especially in light of the dreary economic data that seems to roll onto the street every day, but there was little movement overall, suggesting that these markets are suffering from a lack of interest bordering on apathy, due to a number of factors, but mostly, distrust, fear, uncertainty of the future and having been burned once too often.

It's the same kind of thing that happens with crooked card games. In the early stages, there a pigeons a'plenty. But, once word begins to get around and a few mouthy types get taken to the cleaners, the game dries up, and the cheaters end up playing penny-ante games amongst themselves, wiling away the hours, days and weeks.

We may be witnessing the initial stages of the final collapse of the Wall Street Ponzi scheme. They may have run out of suckers.

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