James Bianco explains the dramatically changing investing preferences of the public, writing: There is no one definitive measure to show this shift, but the signs are unmistakable. Trading in individual stock options has been booming to new records, according to data from the Options Clearing Corporation. This has been led by purchases of options to buy stocks in lots of 10 contracts or fewer. Nearly 15 per cent of all trades are for one contract. Penny stocks have recently caught the fancy of investors. In December 2020, they traded 1tn shares, according to data firm SentimenTrader. That … [Read more...]

This is a new dynamic. We’ve referenced GameStop (see here and here) and other stocks with high short interest being targets of message board traders before, but we haven’t seen coordinated action with this kind of an impact before. Instead of investing based on company fundamentals, traders in GameStop are trying to squeeze short investors. A short squeeze is when an investor who shorts a stock is forced to buy it back because the price has risen so much. In pre-market trading early this morning GameStop shares traded as high as $365. Ten days ago the stock was selling for $20. Short … [Read more...]

The global capital markets are booming. The FT reports that companies have raised $400 billion in debt and equity over the first three weeks of the year. That exceeds the average for this time of year by $170 billion. And it’s not just a debt boom that's being fueled by the global central banks robbing savers and retirees with ultra-low interest rates. Equity markets are white-hot as well. Speculative activity in the stock market has reached levels not seen since the height of the dot-com bubble. Stocks don’t often double, triple, and quadruple over the course of a few days or weeks for … [Read more...]

With equity valuations at or near record levels by many measures, publicly traded corporations are racing to sell shares into the market. Karen Langley reports at The Wall Street Journal: Public companies have been taking advantage of a hot stock market by issuing shares at record pace in January. U.S.-listed companies have conducted 57 follow-on stock offerings this year through Wednesday, raising $12.35 billion. Both numbers are records for this point in the year, according to Dealogic data going back to 1995. Many of the offerings have been from small pharmaceutical and other … [Read more...]

The Financial Times reports on comments by Seth Klarman comparing investors to frogs in slowly boiling water who can't feel the change in temperature until it's too late, writing: Seth Klarman, the founder of hedge fund Baupost Group, has told clients central bank policies and government stimulus have convinced investors that risk “has simply vanished”, leaving the market unable to fulfil its role as a price discovery mechanism. The private letter to investors in his fund, seen by the Financial Times, amounts to a damning critique of market behaviour by one of the world’s foremost value … [Read more...]

James Mackintosh reports at the Wall Street Journal that stock fundamentals are being ignored by investors. It's not clear whether the cause is an influx of new investors who are ignorant of fundamental analysis, or heightened appetite for risk. Whatever it is, it's probably unsafe for the market. Mackintosh writes: Sometimes it’s hard to argue that market capitalism has any chance of correctly allocating money to the companies that can use it best. Case in point: Stock-market performance this year has been driven by the raw share price, with lower-priced stocks doing better and higher-priced … [Read more...]

Blank check IPOs, where public offerings are made with the promise to buy another company, have seen a record $78 billion raised this year. That’s more than the combined total of all blank check IPOs in all previous years. Some investors apparently don’t even care if the stocks they are buying are an actual business. If you have a business you have even thought about taking public, now’s the time. The IPO market is as hot and speculative as it has been since the dotcom bubble. Bloomberg has more: Special purpose acquisition companies, or SPACs, went from a back-of-the-shelf financial … [Read more...]