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Opening Bell: 11.04.08

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JPMorgan advertises Q4 profit, Reuters picks it up, runs it for free. (Reuters)
This is the strangest endeavor into Financial Journalism I've ever seen: basically, JPMorgan Asset Management came out and said "We see ourselves making money in the fourth Quarter" and given that things are so phenomenally crappy world wide this made the news. The JPMorgan AM team has had an awful year, losing roughly 44% of their headcount (down to 900 from 1600). The one shining light was that the team saw inflows this year somewhere in the neighborhood of $170B, but the Chief Executive screwed that in his mind blowing description of the event: "as a lot of people were moving cash to JPMorgan". Way to knock that one out of the park, Jay.
To be fair, the JPMorgan people did provide numbers in re: Q3:
"JPMorgan Asset Management previously reported net income of about $350 million and a margin of 30 percent in the third quarter, down from about $500 million in the same period of the year before."
Swiss Bank UBS Posts Third-Quarter Profit. (NYT)
UBS, formerly seen as a conservative institution, has been having serious issues since the downturn of the market: wealth management clients are fleeing en masse, they've written down $49B and their Operating Income is down 38%. So, the $252MM Q3 upswing is welcome, especially when one considers only things they've got going for them at this point are a Tier-1 capital ratio of 10.8%, and the Swiss (they've already injected 6B Francs, taking a 9% ownership).
Goldman Fund Loses Nearly $1 Billion in 9 Months: Report. (CNBC)
The Mark Spilker magic touch strikes again!
U.S. Stock-Index Futures Advance. (Bloomberg)
Let's just cut to the chase: everything that is up overnight is up because of the Election. It's the 800lb Fuld in the room. Everyone is going to pretend like they're all excited that we're going off to elect the next President of the United States, but the fact is that they're not: they don't know what the next guy is going to do, neither do we, and everyone everywhere is just kind of holding their breath. Why not trade down? Well because that doesn't look very good does it?
Three-Month Dollar Libor Falls to Lowest Since June 9, BBA Says. (Bloomberg)
"The Libor-OIS spread, a gauge of cash scarcity among banks, narrowed 12 basis points to 211 basis points."
Online Retail Account Numbers Soar. (FT)
All three major online retailers (TD Ameritrade, Charles Schwab and Fidelity) are showing surges both in their account numbers and in their trading volume, while "Merrill Lynch, whose army of brokers was known as the "thundering herd", reported a drop in brokerage commission revenue of 6 per cent, to $1.7bn, for the September quarter compared with the same quarter the previous year."
More than likely, what we're seeing here is a move on the part of retail investors away from the Financial Advisor model and into something we'll call the "Roll the Dice Model". The simple fact of the matter is that for anything other than an indexed buy and hold strategy the average person doesn't know enough about the markets to operate with any efficiency. Moreover, they don't know enough to beat the markets, which is what this is all about. If the average person, let's say your parents, were less interested in beating the market and making millions, and more interested in a steady return that leads to retirement, they would have been invested in bonds.
That the public is so enthralled with the prospects of getting rich in the stock market isn't anything new, but it's something that people have come to feel entitled to, which is kind of new. It's that sense of entitlement that has led to the backlash from the huddled masses: they actually believe that regardless of how everything plays out on the street, that they deserve 10% risk free. They use phrases like "it's not fair" and "they screwed us" but it is far, and we didn't screw you: this isn't a pension, this is the stock market. This trend isn't solely taking place in the public sector either, over the past 20 years the standards boards have moved to ensure that corporations act in a manner that best reflects shareholder interest, which as things have it can be in direct conflict with the best line of action for the company.
I guess what I'm getting at here is this: maybe we've moved in the wrong direction. Maybe we need to saddle up and address the fact that the equity markets are not now, nor have they ever been an appropriate vehicle for retail investors at large. The bond markets don't have the flashy returns and the BSD thrill of the equity markets, but they do provide one thing: consistency.
--William Richards