Conference Call: New Forces Moving Global Equities Markets [10/27/08]
New Forces Moving Global Equities Markets
The global financial markets seem like a bunch of lemmings: moving in chaotic tandem, tripping over each other only to fall down. Why do the various market indices, especially the US equities markets keep moving in lock-step? (Dow Jones Industrial Average, S&P 500, Nasdaq) Our research team reveals the secret. We shed light on the key factors moving these volatile markets. You'd be surprised to know what's really going on behind the scenes. Who's pulling the strings?
During volatile markets your cash, liquid assets are most important. They are the foundation of your lifestyle. We provide a consistent strategy for you to keep your assets in cash equivalent accounts. These accounts allow you full, uninterrupted access to your money. Meanwhile our asset management teams can manage the value of your account to provide consistent returns. Your money, your accounts. No lock-in period, no redemption period or early exit fees. Millennium Lyon provides a better way to manage your cash and investment accounts. Liquidity, safety and low risk with peace of mind.
Join our conference call every Monday @ 5PM (EST).
Time: 5PM - 5:15PM (EST)
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Thanks to all who attended our conference call on Monday. If you missed the call, you can access the summary on our blog.
Millennium Lyon Asset Management
Labels: equity markets, global markets
Despite record, S&P 500 stocks a bargain
Despite record, S&P 500 stocks a bargainStocks that make up the Standard & Poor's 500 are 45% less expensive relative to historical profits than when the index last peaked, and 30% cheaper than when it fell to a decade low nearly five years ago. The S&P 500 closed at 1,530.23 Wednesday, surpassing a previous high in March 2000.'
S&P 500 Stocks Are 45% Cheaper Than When Index Last Hit RecordBy Michael Patterson
May 31 (Bloomberg) -- Companies in the Standard & Poor's 500 Index may still be a bargain after the benchmark for U.S. equities surpassed its 2000 record.
The index's 500 members are 45 percent less expensive relative to historical profits than when the index last peaked, and 30 percent cheaper than when it fell to a decade low in October 2002. Price-to-earnings ratios declined after companies reported 14 straight quarters of 10 percent-plus profit growth, the longest streak since 1950.
The S&P 500 rose 0.8 percent to 1530.23 yesterday, eclipsing its previous high of 1527.46 set March 24, 2000, led by Exxon Mobil Corp., Goldman Sachs Group Inc. and Apple Inc. The gauge, whose members have a median market value of $14 billion, rallied 7.9 percent this year after first-quarter earnings climbed three times more than analysts' estimates.
``The market is definitely much more fairly priced than it was back in 2000,'' said Michael Mullaney, who helps manage $10 billion at Fiduciary Trust Co. in Boston. ``It's on a much more solid fundamental footing -- we're in pretty good standing for at least the remaining part of the year.''
Investors plowed $199 billion into mutual funds dedicated to U.S. equities during the 10-month stretch leading up to the 2000 record, including $36.5 billion in February of that year, the biggest increase in any month during the past nine years, according to data compiled by TrimTabs Investment Research in Sausalito, California.
Price-Earnings The flood of money into the U.S. stock market helped boost the average price-earnings multiple for S&P 500 shares to 32.8 in March 2000. That compares with a 25.7 average earnings multiple when the market fell to a low in October 2002 and an 18 multiple today.
The S&P 500 plunged 49 percent between March 2000 and Oct. 9, 2002, dragged down by an 82 percent decline in computer- related shares. Those stocks had surged more than 12-fold during the 1990s and led the S&P 500's record-breaking rally.
The index climbed 26 percent in 2003 as the Federal Reserve trimmed interest rates to the lowest since 1958. The so-called federal funds target remained at 1 percent for a year before policy makers raised it 17 straight times.
Other U.S. equity benchmarks have performed better than the S&P 500 since March 2000. The 30-stock Dow Jones Industrial Average has climbed 23 percent during the period, while the Russell 2000 Index, consisting of companies with a median market value of $664 million, has gained 47 percent.
Asia, Europe Shares in Asia and so-called emerging markets have also outperformed the S&P 500 since 2000. The Morgan Stanley Capital International Asia-Pacific Index has jumped 26 percent since 2000 and is valued at 19.2 times historical profits. The MSCI Emerging Markets Index has soared 94 percent and trades for 15.2 times past earnings.
The Dow Jones Euro Stoxx 50, a measure for the 13 nations sharing the euro, has a price-earnings multiple of 13.9 after it declined 17 percent.
The Nasdaq Composite Index, which gets more than two-fifths of its value from computer-related shares, is still 49 percent below its March 10, 2000, peak.
Energy and utilities shares led the S&P 500's rally, climbing about threefold since October 2002. Exxon, the world's largest oil company, contributed the most to the advance as it surged 156 percent. Williams Cos., the biggest U.S. pipeline operator by market value, jumped more than 21-fold for the top gain in the index.
``Lingering nervousness'' about the market's plunge from the 2000 peak spurred many investors to reduce their holdings of U.S. stocks even as the S&P 500 rallied, said Kevin Bannon, chief investment officer at Bank of New York Co. Pension plans, wealthy individuals and other investors poured money into hedge funds and international stocks instead, Bannon said.
Fund Flows About $8.6 billion was siphoned from U.S. equity mutual funds since May 2006, just before the S&P 500 fell to a seven- month low, according to TrimTabs data. Meanwhile, mutual funds that invest in international stocks raised $113 billion during the same period.
Hedge funds globally attracted $120 billion during the past three quarters, according to Chicago-based Hedge Fund Research Inc. Total hedge fund assets ballooned to $1.6 trillion last quarter from $490.6 billion in 2000. Hedge funds are private, largely unregulated pools of capital whose managers can buy or sell any assets and participate substantially in profits from money invested.
``The crash in the market scared people -- most of the traditional buyers are re-allocating assets into alternatives,'' said Bannon, who helps oversee $120 billion in New York. ``All these private equity buyers see the real value.''
Takeovers The S&P 500's 25 percent rally from its 2006 low in June was fueled by a record pace of takeovers.
Mergers and acquisitions totaled about $1.7 trillion in 2006, breaking a record set in 2000, according to data compiled by Bloomberg. Announced deals this year amount to more than $1.1 trillion, 61 percent ahead of last year's pace.
Dow Jones & Co. jumped 55 percent on May 1 after Rupert Murdoch's News Corp. bid $5 billion for the publisher of the Wall Street Journal. TXU Corp. climbed 25 percent this year after investors led by Kohlberg Kravis Roberts & Co. and TPG Inc. bid $32 billion for the largest power producer in Texas.
The surge in acquisitions was spurred in part by the widening gap between what companies yield in earnings and the cost of borrowing, said Sean Clark, chief investment officer at Clark Capital Management.
Estimated profit at companies in the S&P 500 represented a yield of 6.53 percent at the end of the first quarter, when 10- year U.S. Treasuries yielded 4.65 percent. The 1.88-percentage- point advantage was the biggest since at least 1986. As of yesterday, the gap totaled 1.24 percentage points.
``One reason why there's been so much M&A activity with the private equity firms is because valuations are so palatable right now,'' said Clark, who oversees about $1.2 billion in Philadelphia. ``The market is more reasonably priced, especially compared to bonds.''
To contact the reporter on this story: Michael Patterson in New York at
mpatterson10@bloomberg.netfull articles&p, stocks, equity markets, economicsLabels: economics, equity markets, sp, stocks
Goldman Sachs New Trading Sytem for Unregistered Stocks
Goldman unveils new private-trading systemGoldman Sachs Group, the most profitable Wall Street securities firm, unveiled a private system to trade the stocks of companies that have not gone public. The system, Goldman Sachs Tradable Unregistered Equity, launched Monday with an $880 million sale of a stake in alternative-investment manager
Oaktree Capital Management.
Goldman Takes'Private' EquityTo a New Level
Firm's Trading System Lets Unregistered Stock Reach Exclusive Market
By RANDALL SMITH
Goldman Sachs Group Inc. ranks as the most profitable securities firm on Wall Street -- reflecting its mastery of trading on the world's public markets.
Now Goldman is turning that franchise on its head, creating its own private system to trade the stocks of companies that don't want the scrutiny and regulatory burdens of going public.
The new system, GS TRuE -- short for
Goldman Sachs Tradable Unregistered Equity -- was announced two weeks ago and made its debut on Monday with an $880 million sale of a 15% stake in Oaktree Capital Management LLC, an alternative-investment manager.
It is the first of several new, private exchanges like these being considered by Wall Street firms and others. Nasdaq is also planning its own new market for smaller, unregistered securities.
These markets will generally be closed to individual investors. For instance, Goldman's market is open only to large institutional investors with assets of more than $100 million. That is because the stocks traded on GS TRuE aren't registered with the Securities and Exchange Commission and issuers aren't subject to SEC regulations designed to protect individual investors.
It represents the latest step in the creeping exclusion of individual investors from a growing proportion of financial-market activity. For instance, giant private-equity firms are busy buying public companies and delisting them from stock exchanges. The growing importance of hedge funds -- which are generally limited to wealthy investors, institutions and endowments -- also excludes individuals.
The new system is "a manifestation of the growth of private-equity relative to public equity," said Jay Ritter, a finance professor at the University of Florida in Gainesville, pointing to the record-setting pace of private-equity buyouts of public companies recently. (For more on Goldman's product, see
Breakingviews column.)
Traditional mutual funds -- one of the main investment tools at the disposal of individual investors -- are also limited in the amount of unregistered securities they can buy or sell. Hedge funds, by contrast, have more freedom to buy unregistered stocks and bonds.
Indeed, bankers and capital-markets executives at rival firms say that, at GS TRuE's debut, hedge funds were prominent among buyers for the issue by Los Angeles-based Oaktree.
Some investor advocates criticized the trend of selling more securities faster with less disclosure. "It becomes much more of a buyer-beware marketplace with little regulatory oversight or protection," said Steven B. Caruso, a New York lawyer who represents investors in disputes with Wall Street.
Business BacklashGoldman's move partly reflects a business-community backlash against increased regulation of public-company accounting practices -- a favorite theme, as it happens, of Treasury Secretary Henry M. Paulson Jr., who is also a former Goldman chief executive.
Wall Street executives said the market offers an alternative to companies that don't want to wait for regulators to approve their financial disclosures needed for an initial public offering, which can take 90 days or more.
They also said it offers a haven for firms that don't want to be subject to what Oaktree described as "the full panoply of regulations applicable to publicly traded companies in the United States." In a memorandum describing the stock sale, Oaktree added that staying private would avoid "pressure to describe the company as one capable of steady growth, whereas our underlying business is actually quite variable."
Although the Oaktree offering was sold to only about 50 buyers, it traded at roughly the same multiple of expected 2008 earnings as Fortress Investment Group LLC, a comparable alternative-investment manager that recently sold stock in a conventional initial public offering, according to Wall Street traders.
In other words, the Oaktree stock traded without a price discount that would reflect the lack of a public market with multiple dealers. In that respect, the new market passed an important first test. If stocks traded at too much of a discount, that might dissuade other companies from listing there.
What History SaysBankers at rival firms -- many of which are developing similar systems -- predict that there will be consolidation among the different platforms.
"History in other markets would indicate that this will converge into a single platform," said Daniel Simkowitz, a managing director in capital markets at Morgan Stanley, which advised Oaktree on the issue.
Indeed,
Nasdaq Stock Market Inc. is in the home stretch of getting approval for a similar unregistered trading facility for smaller companies called Portal. Another securities firm,
Friedman, Billings, Ramsey Group Inc., has sold unregistered stock for numerous companies in real estate, energy and lodging.
Goldman executives said one reason they launched their own system solo, without asking other rival securities firms to participate, was to insure control over the number of investors in any particular security. That is crucial, they said, because any company that goes over 499 investors must register as a public company.
That 499-investor limit, said one executive of a top private-equity firm, is one reason why such buyout firms aren't likely to rush pell-mell into this type of new issue for their portfolio companies. The buyout firms want to attract far more investors to make sure they get the best prices for their stock, he explained.
'New Tool' in the Kit
Rob Pace, a senior capital-markets executive who played a lead role in developing the Goldman system, called such issues "a new tool in the tool kit" for investors, filling out a spot between harder-to-trade traditional private placements and public offerings.
Mr. Pace noted that Goldman still believes "the U.S. public capital markets are the deepest and most liquid," and will continue to represent "a more prevalent way to raise equity capital."
Goldman also said companies that issue stock on its system must promise to issue quarterly, annual and event-related financial reports comparable to those of public companies. However, they don't have the same obligation for widespread dissemination of detailed business information that can be of use to competitors.
Gregg Weinstein, a Goldman trading executive who also worked on the system, said Goldman doesn't "have any expectation that we're going to be able to stand alone in this product forever." But, he said, working with other dealers on the first issue would have risked delays.
Write to Randall Smith at
randall.smith@wsj.comLabels: 144 A, equity markets, Reg M, restricted stock, unregistered stock
NYSE: Electronic Trading on the Front Lines
SEC asks if NYSE's electronic-trading push played role in sell-off
The Securities and Exchange Commission wants to know if the NYSE's push into electronic trading may have played a role in Tuesday's market plunge. In November, the NYSE said it would cut costs by closing one of its five trading rooms. Now regulators are asking if that made it tougher for the NYSE to handle Tuesday's trading surge.
Full StoryComputer problem may have exacerbated massive fall on Wall StreetIn the midst of what was already a rough day on Wall Street, the Dow Jones industrial average suddenly plummeted 200 points within seconds -- one of the fastest falls in the history of the market. Now it appears that the decline may have been the result of a glitch in a Dow Jones computer system.
Full StoryRosenblatt says automation may make NYSE less effectiveRichard Rosenblatt, a member of the
NYSE since 1979 and chairman of Rosenblatt Securities, issued a warning about the automation of the exchange. "The benchmark is whether automation makes the process more efficient but I suspect NYSE and the Securities and Exchange Commission have gone too far with the assumption that transparency equals liquidity," Rosenblatt said.
Full StoryNYSE, NASDAQ, global markets, equity markets, electronic trading, automation, technologyLabels: automation, electronic trading, equity markets, global markets, NASDAQ, NYSE, technology
Fear/Greed Index suggests market is in trouble
Fear/Greed Index suggests market is in troubleThe Fear/Greed Index recently hit an all-time high -- indicating that lust has trumped caution in the markets, according to investment bank Dresdner Kleinwort. And if the index is correct, then a major market correction is coming.
more infomarket signals, fear, greed, equity marketsLabels: equity markets, fear, greed, market signals
