How much is the stock market driven by Washington?

As the Wall Street Journal’s Heard on the Street column reported on Tuesday, there has been astounding trade - on a volume basis - in Uncle Sam’s ‘ward’ stocks for the past week or so:
How much is the stock market driven by Washington? Forget bailouts, a stimulus package and a ballooning Fed balance sheet boosting share prices. Now, it seems, Uncle Sam’s wards also dominate trading volumes. On Friday, Citigroup, Fannie Mae and Freddie Mac — all recipients of government largesse — accounted for 18% of shares traded on U.S. exchanges. Monday, Themis Trading said, they accounted for nearly one-quarter. Fannie’s and Freddie’s zombie status doesn’t seem to have deterred day traders. Monday, the bets paid off with gains of 42% and 19%, respectively.

In fact, volumes in Fannie Mae were so high on Tuesday they nearly matched the levels seen at the peak of the crisis last year. In a market tweet, Joe Saluzzi, high-frequency-trading volume-watcher and equity strategist at Themis Trading, commented the stock had been responsible for some 21 per cent of all US volume on the day so far.







So far analysts appear stumped by the moves, especially with regard to the GSEs where fundamental news has been light on the ground. In fact, in the case of Freddie Mac, the government sponsored agency actually reported another rise in delinquencies on the loans it guarantees on Tuesday as well as a 44.5 per cent drop in the size of its mortgage investment portfolio.

As the Washington Post reported:

…most analysts say that because the companies owe the government far more than they are able to generate in profits, the real value of the shares is zero. Analysts said much of the trading volume has come from retail investors and day traders. “It’s very hard to come up with scenarios where they’re worth any money,” Bose George, an analyst at Keefe, Bruyette & Woods, said of Fannie and Freddie. “There’s a tremendous amount of sentiment trading in general.”

BusinessWeek, meanwhile, offered the following view:

The volume of Monday and late last week on the shares is “kind of strange,” said Keefe, Bruyette & Woods analyst Bose George. He thinks retail traders, coming from online brokerages such as Charles Schwab Corp., are driving the trading. It’s not from institutional investors, he said.

Whatever the forces behind the moves, as Joe Saluzzi noted in a report on Monday, when four companies heavily supported by the US government represent 20 per cent of the overall volume you’ve got to ask — is this really the sign of a healthy, growing market?

http://ftalphaville.ft.com/blog/2009/08/25/68536/volume-magnets/

 

Part of "it" can be a positive feedback loop among The Algos. This may sound like heresy but it is slightly unhealthy that The Best & Brightest are speculating with money in dead stocks instead of doing something "productive" with it. Oh well.

 

There are murmurs about the GSE portfolios being profitable, which leads to them paying off the bailout on their own.

You don't need to know the specifics of the information to look at the volume and know someone knows.. And no, those 10 million blocks flying are not dad's 401k. They are also not your neighbor's eTrade account. The people buying this spend 14 hours each day and hundreds of thousands of dollars to get information before other people. Be grateful the volume numbers on the exchanges are accurate.

 

....commented the stock had been responsible for some 21 per cent of all US volume on the day so far.
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Let me rephrase that.


....commented that toilet paper had been responsible for some 21 per cent of all Wall Mart volume on the day so far.

Sumbody knows sumpin.

Chrissakes, if I brought an article like that to my boss he'd kick my ass.

P.s.

"Kinda strange"

"Chrales Scwabbb"

do do do do do do do do twilight zone.....

 

The volume alert wakes me up every day with same message in the last couple of weeks. Financials, financials, financials....