What is the Story on Volume?
When you start getting to a place where things are out of hand, say after a non stop train ride to old stock highs, people get a little dizzy and start making things up to match something they see. Take volume during the stock market run up. It has been low. It has been really low. Days of UP moves (every day) are very light and days of DOWN moves are light, but heavier than the UP days. I can read a volume chart thanks. Of course you can see some other takes.
Barry Ritholtz notes that John Roque offers:
“Volume has been a curiosity for most and a problem for others. On an absolute basis, 2010 volume is averaging about 4.7 billion shares/day. This is down 15% vs. the 2009 average NYSE volume of 5.5 billion shares/day. Yet 2010’s average volume is only slightly less than the 2008 average of 4.96 billion shares/ day.”Sounds reasonable.
The chart provided has some useful information:
A comment left hit the bases I wanted to cover:
flipspiceland Says:Good questions indeed. The same stocks are heavily traded, and I mean heavily traded. Banner names like AIG, FNM, FRE, C, BAC to name a few.
April 14th, 2010 at 1:11 pm
How much of the volume is being generated by just a few entitties? vs 2008
How much of the volume is concentrated in Citibank? vs 2008
Another comment summed up the HFT angle:
crunched Says:Of course there is no real way to get an accurate HFT trading number, but certainly this is a factor as well.
April 14th, 2010 at 3:01 pm
None of these points mean anything because the proliferation of HFT and Program trading has expanded beyond measure SINCE 2008. If you factor out all the computers trading against each other for the sole purpose of rebates, every hedge fund inching the market higher based on their latest algo, the Trading desk at the Federal Reserve spending all our tax dollars pumping up name-brand ETFs so Joe Sixpack will buy stocks again… there isn’t much volume left. Hardly any, in fact.
One more from me. For all the "Rate of Change" maniacs that get all sweaty because some bad number is getting less bad more slowly, please note the RATE OF CHANGE FOR VOLUME IS GOING THE WRONG WAY! Sorry to yell, but it amazed me how intellectually bankrupt most people are. Also, the first year over year outright contraction in 18 years. But volume is the same. What ever.
Of course the mess that occurred in the bust was a factor in volumes for dog stocks. But even now some of the small change stocks command sometimes 25% of a days trading volume. Seems weird to me but I am an amateur. Two 5 year charts to think about the volume angle:
Nothing strange there in regards to volume.
Again, very normal. You have to squint to see the huge volume before the last two years, but it is there.
Look, maybe the new bull market will be in backstopped firms and those volumes mean more, but to pretend the market is internally backed up by the volume numbers is a stretch.
Where is the Money Coming from?
As we all know we are now in the midst of a new consumption spree and people who just a short time ago could not pay their mortgage now have money to blow on goods of all kinds, and not just higher priced gasoline. With a lack of job creation, wages stuck at neutral or in reverse, and no ay to make any money unless you want to play the stock market, just where is this money coming from anyway? Surely if everyone has enough cash to blow on an Ipad, they could maybe pay their mortgage instead and get me off the hook for it? Just a suggestion.
I have been skeptical that defaulting borrowers (all kinds) were behind this new drive of buying, but I am warming up to the idea. Last week in the comments reader Moneta did come envelope math and found:
You will find delinquency rates.Not a bad estimate in round terms and I noted at the time that numbers like that made it possible. I was still not 100% sold though.
Delinquency Rate (Residential RE):
4Q2009 = 10.80%
2Q2008 = 4.15%
2Q2005 = 0.07%
Let's say there are 110 million households in the US and 40% are mortgage free. That means 66M have a mortgage.
If 11% are not paying, it's probably those who have a huge mortgage because the others would want to keep their house.
So 1500$ * 12 = 18K per year + 3K in taxes = 21K in new found money per hh.
7.25 million * 21K = 150 billion ore for consumer goods.
Plus don't forget the thousands per household that were being spent on real estate and going into private fixed investment. Now a lot of this money is probably going into consumption... who would anyone want to put more money than they need to in a depreciating asset?
Let's say 25 million households are putting 5K less towards fixed investments, that would give them 125B more to spend on consumer goods.
Today another estimate comes out, and it is not very far from Moneta's guess (via Zero Hedge):
The Benefits Of Contract Abrogation According To Mark Zandi: 6 Million People Not Making Mortgage Payments Frees Up $8 Billion Each Month
Diana Olick get's Mark Zandi's take (yes, that Zandi! Do a search he pops up plenty here!) and his guess is that maybe 8 Billion a month is set free after mortgage default:
Diana Writes:Not too far from the reader math!
Then I decided to ask Mark Zandi, of Moody's Economy.com, who will often shoot down my more ridiculous theories.
I asked him if this was a crazy idea:
"No, not crazy. With some 6 million homeowners not making mortgage payments (some loans are in trial mod programs and paying something but still in delinquency or default status), this is probably freeing up roughly $8 billion in cash each month. Assuming this cash is spent (not too bad an assumption), it amounts to nearly one percent of consumer spending. The saving rate is also much lower as a result. The impact on spending growth is less significant as that is a function of the change in the number of homeowners not making payments.
I'm not sure I would say this is juicing up spending, but resulting in more spending than would be the case otherwise.
Many of these stressed homeowners (due to unemployment) are reducing their spending, just not as much as they would have if they were still making their mortgage payment."
Of course Mr. Zandi is always an optimist. In regards to defaulters blowing their new found cash as we all have to pay for their home (one way or another) he offers this gem:
"In some sense there might be a silver lining in that."
Well we have that going for us, which is good.
All of this makes me want to throw up. Will Ben Bernanke ever have to answer a question on this issue? Moral Hazard is a nasty thing and I never even thought of this angle. The new bull market may be in "strategic defaulters". Which stocks to buy then, retailers? Oh wait, have you seen the run retailers are on? Forget I said anything.
Have a good night.