Friday Roundup: PIPEs, Macro Breakdowns, Missile Defense, Zocor, Yer Out!
Workin' for the weekend...
PIPE prosecutions spawn compliance changes:
In response to the SEC (and perhaps now the NYSE) looking into insider trading charges on PIPEs, some hedge funds are requiring that all calls about PIPEs go to their compliance officers. The idea is the compliance officers can then make sure there are no trades in the name while the deal is evaluated. I know there are a large number of hedge funds who are unaware that trading on news of a PIPE is insider trading. It will be interesting how far the regulators are willing to take their fines and sanctions. If the SEC wanted, they could probably issue enough fines to cover their budget given the ubiquity of this "strategy" over the years.
Macro breakdowns finally matter?
In a piece I wrote about two years ago called "The Wrong End of the Telescope", I pointed out that all the difficult macro issues had to be taken into your risk assessment, but they couldn't be deferred to as a trading strategy. The market's move between that time and the recent highs validate that view. We've entered a time where all the macro disconnects you've read about over the past several quarters on this site may indeed be beginning to matter to traders. While the corporate bond market has not yet sprung a comparable leak, equity traders seem to be getting their heads spun in regards to the macro issues.
The bears certainly believe the breakdown is here – if the NYSE short interest data are any indication. Of course, the bears have been betting this breakdown was coming for years if you judge them by the increasing short interest (which might not be an accurate measure). The question is whether the breakdown is actually here or whether we're just enduring a period where the FOMC has again decided to use the market as a tool of monetary policy.
If it's the former, then running for the hills with your silver garden gnomes under one arm and your gold ingots under the other is an appropriate response. If it is the latter, then hunkering down is not an unreasonable response.
Dr. Greenspan declared the market a tool of monetary policy in 1999, and employed that tool in 2000. I suspect Dr. Bernanke is doing the same thing now. Ask yourself whether there is any way to get commodity, metals, and energy prices down other than wringing some speculation out of the markets. Over a dozen consecutive tightening of the Fed Funds Rate didn't do it, so the FOMC had to use a different tool.
The question is whether they'll keep beating on the markets as long as Dr. Greenspan did in 2000/2001. Answer that and, as long as the macro issues go back in the anxiety closet, you'll know when this market bottoms.
Do you deploy a missile defense system that nobody truly believes will work to stop the North Korean ballistic missile and take the chance it will miss? Or do you keep the system off and let the North Koreans run their test, preserving the illusion you can actually shoot one of these things down.
As one of the areas in the US that can be reached by the latest North Korean gizmo, it's not what I would call an idle question.
Interesting article in the NY Times today about the broad effects of Zocor coming off patent. The information in the article seemed strangely… familiar.
I will note the side effect profile of Crestor, rightly or wrongly, is widely considered inferior to that of Lipitor. That's why you don't see scripts for that statin as strong as one might expect given the data.
And Happy Birthday to Toddo. Swell guy, even if he was out at home plate at the MIM2 softball game.
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