Blaming the Retail Investor

Earlier today, I mentioned  an example of the wrong analysis/right investment posture. Here’s a perfect example of that:

Last week, I read this surprisingly ugly quote from TrimTab’s uber-Bull, Charles Biderman:

"Fear and ignorance seem to be gripping retail investors these days," said Charles Biderman, chief executive of Santa Rosa, Calif.-based TrimTabs on Thursday.  "There’s no credit risk; no bank is going to lose money on this subprime fear," he added. "Income-tax collections are strong, and you don’t have a housing collapse when wage income and job growth are surging.  This is a complete panic by individual investors," he commented. "They just don’t know what’s going on." 

My initial reaction was total annoyance. I was meaning to pen a response to Mr. Biderman, but then I saw the response written by Jack McHugh of Praetorian Advisors, and any further words on my part had become unnecessary. Last week, Jack wrote:

"Sorry, but the ignorance is yours, Mr. Biderman. Banks have already lost tidy sums "on this subprime fear", and home prices are indeed collapsing in many locales. Whether it all spreads to the general economy is the question we need to answer if we are to know whether to load the boat with tech stocks right now or take a more conservative approach.  In my opinion, it’s tough to see how tougher lending terms and pricier credit WON’T impact our economy. 

And as to whether stocks are a bargain right here because they’ve dropped a few percentage points off the recent highs, try to remember that a "normal" correction takes prices down by 10% or more. Keep in mind, too, that the 52 week gains in the major averages from last July until last week’s highs are as follows:  The Dow was up 28%, the S&P was up 25%, the Russell 2000 was up 27%, and the NASDAQ was up a full 33%. 

That some of these averages have given up 5% or so really isn’t much in the context of the run they’ve had just in the last year.  So, no, we’re not there yet; we might instead have quite a way to go."   

–Jack McHugh, Praetorian Advisors

Why blame the underwriters of mortgages who sold these sub-primes to unqualified persons, or the  investment banks that packaged and re-packaged them, or the prime brokers that provided the leverage to hedge funds to buy this junk, or the hedge fund gunners who owned all this shite without really knowing what was in it — when, instead, we can place all of the blame on the small investor?

What an asshat . . .

>

Source:
U.S. mutual-fund assets drop $5.5 billion
Murray Coleman
MarketWatch, 1:51 PM ET July 26, 2007
http://tinyurl.com/yoposw

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  1. johntron commented on Aug 1

    I thought that the retail investors dumped all of their money into remodeled/second homes?

    I’m sure if someone does a Lexis/Google search on Biderman there will be some quote in which he says the markets will be posed to go even higher once the retail investor wises up that there’s a bull market and jumps in a la the cover of Barron’s a few weeks back.

    What kind of boss keeps these types of people?

  2. Stuart commented on Aug 1

    Yes, Bidderman’s comment was an asshat viewpoint but it’s a typical viewpoint of many within the Wall Street establishment (doesn’t matter if it’s based in Santa Rona). The markets are their territory. Main street investors are to serve them, and to be fed upon for their profit, not to be served as clientele of utmost importancel. Diversification of cost, concentration of benefits, promote through slick and savy media and most importantly keep the underpinnings opaque, whether the convoluted CDO/CDS et al, DTCC workings, transparency is not to the MM advantage. Voila, feeding grounds. The irony is the retail investor has been mainly out of the markets in any direct way relative to the past so perhaps are finally cluing in.

  3. AD commented on Aug 1

    I think someone needs to provide him with a link to the Case-Schiller index, and an explanation of why median home prices in NAR reports do not necessarily reflect home price trends (they are cherry picking the sample if low end homes are not selling at all!).

    The question in my head is does he actually believe this garbage, or is he engaging in the same sort of “opinion management” the fed seems concerned with lately?

    Also, if you do write him a letter, I suggest you use the more formal “rectal chapeau” in place of asshat.

  4. Mike M commented on Aug 1

    I don’t know how many times I have read, over and over, that the retail investor has not invested, that this rally is institutionally driven. That once the retail investor participates, the bull market will explode. Yet now, we get a pull back, and it is the retail investors fault? What a douche bag.

  5. Michael A commented on Aug 1

    I’ve got news for everyone. The retail investor never left. They never sold. They will go down with the ship just like they always do.

  6. Ralph commented on Aug 1

    I love these kinds of posts.
    Thanks for doing our dirty work for us.

    I think we should require this guy to put all his retirement money into real estate. Its perfectly safe. NO?

  7. paul commented on Aug 1

    Keep Your Eyes on Adjustable-Rate Mortgages
    By DAVID LEONHARDT
    Published: August 1, 2007, New York Times

    The peak month for the resetting of mortgages will come this October, according to Credit Suisse, when more than $50 billion in mortgages will switch to a new rate for the first time. The level will remain above $30 billion a month through September 2008. In all, the interest rates on about $1 trillion worth of mortgages, or 12 percent of the nation’s total, will reset for the first time this year or next. A couple of years ago, by comparison, only a marginal amount of mortgage debt — a few billion dollars — was resetting each month.

    So all the carnage in the mortgage market thus far has come even before the bulk of mortgages have reset. “The worst is not over in the subprime mortgage market,” analysts at JPMorgan recently wrote to the firm’s clients. “The reason for our pessimism is that loans originated in late 2005 and all of 2006, the period that saw peak origination volumes and sharply decreased underwriting quality, are only now starting to reset in large numbers.”

    http://www.nytimes.com/2007/08/01/business/01leonhardt.html?ref=business

  8. Pool Shark commented on Aug 1

    There’s no credit risk; no bank is going to lose money on this subprime fear.

    I guess Mr. Biderman must have been living on another planet when HSBC announced back in February that it was charging $10.5 billion in bad debt due to subprime loans.

    Or maybe $10.5 billion isn’t a real “loss” to Mr. Biderman?

  9. michael schumacher commented on Aug 1

    Nice “rally”
    http://finance.yahoo.com/advances

    THe up/down volumes have made no sense for about two weeks, they seem to always be incorrect for both swings. Pay attention to the upper portion……A/D line.

    the question was asked regarding what is being done with the treasury auction money???

    It’s fairly obvious looking at the above. It’s called “handing off”…..

    Ciao
    MS

  10. Pool Shark commented on Aug 1

    GOOD NEWS!!!

    It looks like the decline in housing is finally over!:

    http://tinyurl.com/2umpov

    At last, the bottom has been reached! Remember, you heard about it here first!

    [we now return you to your regularly-scheduled reality]

  11. Stuart commented on Aug 1

    “The peak month for the resetting of mortgages will come this October, according to Credit Suisse, when more than $50 billion in mortgages will switch to a new rate for the first time. The level will remain above $30 billion a month through September 2008. In all, the interest rates on about $1 trillion worth of mortgages, or 12 percent of the nation’s total, will reset for the first time this year or next. A couple of years ago, by comparison, only a marginal amount of mortgage debt — a few billion dollars — was resetting each month.”

    And the effects are cumulative and are time lagged. Those claiming like Paulson that its contained have simply lost any credibility they ever earned.

  12. angryinch commented on Aug 1

    Barry,

    If it’s any consolation, your friend Chuck “Asshat” Biderman threw “200% long” a couple weeks ago with the SPX at 1530 or so.

    He based his “teets-long” call on his interpretation of mutual fund inflow data. The theory: Joe Sixpack is shunning U.S. stocks, ergo, they must be a buy.

    As if Joe6 matters right now in the slightest.

    Anyhoo, according to my kalkalations, Biderman is now -12% on his bet at this morning’s lows. Hate to engage in schadenfrade, but there you go.

    Unlike the Chuckster, I have no crystal ball. So I have no idea if he’ll end up lookin’ like a smartypants or not. But one thing is clear: Chuck ain’t much of a timer.

  13. angryinch commented on Aug 1

    BTW, speaking of “asshats”, anyone heard from Kenny Fisher lately about the homebubblers?

    Here’s a choice quote from Kenny-Boy from early February when the bubblers were finishing up their dead-cat bounce:

    “Housing crisis? Don’t buy it. There won’t be any housing disaster. We won’t have a landing at all, soft or hard. Right now the U.S. and global economies are both accelerating.”

    “You can see right through the housing crash story by looking at the prices of housing stocks. The market knows what the economic worrywarts do not, which is that the housing sector is already making a comeback. In the last six months housing stocks are up 24%, well ahead of the overall market. If housing were destined to fall apart in 2007 these stocks wouldn’t be so strong now.”

    Whoopsie-doodle. Fisher made his “bottom is in!” call about 40% ago.

    The market likes to make monkeys out of everyone, especially those who are unable to adapt their views. We’ve seen the permabears carried out on a stretcher one by one over the past four years. Looks like it’s time for some of the more hubris-engorged bullzies to feel the heat.

  14. hal commented on Aug 1

    at least two issues:

    the black box leveraged hedge funds are trading like “sybil” right now (i have a black box at home but as a retail investor I use that black box for storage in the basement), and

    The AHM situation: the tail unmentioned is whats happening to homebuyers expecting to close this week and cannot–and the sellers who need the money to close on their next home purchase or get out from under. Ans so on–the dominos can fall.

  15. Chris commented on Aug 1

    My hair is a mess today, I could really use an asshat.

  16. Stuart commented on Aug 1

    you can take one of Gordon Brown’s bowlers.

  17. sean commented on Aug 1

    Those quotes certainly makes me question the wisdom of the man behind TrimTabs.

  18. VJ commented on Aug 1

    Biderman:

    you don’t have a housing collapse when wage income and job growth are surging

    Got both of those wrong as well.

    Another Kudlow in the making ?
    .

  19. Alex Khenkin commented on Aug 1

    “…when, instead, we can place all of the blame on the small investor?”
    He found me out! What should I do?? My 70% cash allocation is to blame for the whole mess!!!

  20. spongetoddsquarepants commented on Aug 1

    I think Biderman plays golf with Luskin, Kudlow and Laffer. It is the “greatest story never told”.

  21. speedlet commented on Aug 1

    On the other end of the spectrum of madness, Jim Cramer (who I thought was America’s foremost bull) has suddenly undergone a conversion and is advising people who are underwater on their mortgages to go into default and walk away from their homes.

    He says that housing prices are down %20-30 everywhere in America “with the exception of a small part of Baltimore and south of Houston in Manhattan”, and that the Inland Empire of California should be bulldozed.

    http://housingdoom.com/2007/07/30/cramer-says-walk-away-from-underwater-homes/

    Then he came back and said it again the next day so people would realize he’s serious:

    http://housingdoom.com/2007/07/31/cramers-not-kidding-just-default/#more-824

    I don’t even know what to make of this…

  22. Groty commented on Aug 1

    For a financial professional to EVER say “there’s no credit risk” is stupid. But taking it a step further and saying “no bank is going to lose money on this subprime fear,” is even more stupid.

    Why does he think the prime brokers are raising margin requirements for hedge funds who deal in this paper if there’s no credit risk? Why is the debt of the broker dealers being sold down to where it’s trading at junk spreads? It must be the retail guy doing the selling. And I suppose its retail investors who are causing credit default swap premiums to soar.

    What a boneheaded shill.

  23. lauteus commented on Aug 1

    Who decided to wait until the end of the day to buy… What a push… Looks like someone is shopping for bag holders.

  24. MarkTX commented on Aug 1

    maybe “retail investors” finally decided to

    pile into the market – all in 30 minutes…

  25. michael schumacher commented on Aug 1

    Talk about a bullshit rally……..

    The SPY chart looks just like the oil markets at the same point of time of it’s day. Gotta get that print. They must have let the oil pit traders take over

    Not even trying to hide the buys on the SPY at this point.

    Ciao
    MS

  26. MarkTX commented on Aug 1

    250 dow move in 30 minutes

    “FREE MARKETS” right??

  27. lauteus commented on Aug 1

    A matter of opinions…

    A) someone BIG decided the market was a bargain

    B) someone BIG decided to pump the short interest for an exit

    C) as MarkTX said, the retail investor is back

  28. Stuart commented on Aug 1

    250 dow move in 30 minutes

    “FREE MARKETS” right??

    D) perhaps covered by B), PPT to the rescue.

  29. michael schumacher commented on Aug 1

    My data feed could’nt even keep up with the prices on the spy. I saw .20 and .30 over the ask on this all the way up…..and that’s just what I was able to see.

    and people STILL say it’s not manipulated…..

    HOLY CRAP……what an effing scam this is

    Ciao
    MS

  30. lauteus commented on Aug 1

    and people are upset about the retail investor possibly sitting this out… Poor bastards lost their ass last week and decided to jump on the slide only to get another chance to hold the bag

    MM, it’s not just a candy anymore

  31. Lorenza commented on Aug 1

    The critical issue to understand is that it is not ‘retail’ investors, or the so-called PPT, or other possible manipulations, it is all about buying power.

    Nothing else really matters.

    In recent years the real “support” of the Market has come from Corporate Buybacks and Easy Credit.

    “Fundamentals” among many other so-called “golden rules” are merely tools by which 99% are parted with their money over time.

    Buying power is directly affected here by the credit availability.

    If indeed that is going to contract significantly, the Market will fall in proportion thereto, regardless of any other matter or intervention.

    Everything you ‘think’ matters, doesn’t. It all comes down to that.

    What we are seeing here is either recognition of that possibility at the least, or as usual, the Market leading the way to that outcome.

    The most important fact never remembered is that in every bull market in history, 99% of the people never actually realize the wealth in the end.

    Never have and never will.

  32. Joe Klein’s conscience commented on Aug 1

    spongetoddsquarepants:
    Did you see today’s add in the WSJ? It was sponsored by Club for Growth. I forgot to look for Laffer. Luskin and Krazy Kudlow were there though.

  33. Woodshedder commented on Aug 1

    Markets go up and they go down. Why is it surprising that it rallied into the close?

    While surely technicals can be gunned-down by fundamental woes, the technicals this afternoon were about as oversold as they typically get before a bounce.

    I’m not saying that the market is done correcting. I’m just saying that the markets go up, and go down, and we were due for a bounce, and go one.

    Consider Occam’s razor…

    Why does it always have to be a conspiracy?

  34. techy2468 commented on Aug 1

    to put to rest conspiracy theories…..is it possible for us to know who bought what?….and if there is any connection between their purchase and fed printing press (they may not correlate immediately but if the data is analyzed over time…we may discover something)

    but its very hard to believe that people are not scared of losing their money (unless most trading was done with not own money but someone’s money??)

    if i am not wrong isnt news all around about mortgage related business going bankrupt….isnt it enough sign of things to come atleast in financial sector and of course loss of all the liquidity.

  35. johntron commented on Aug 1

    haha, ya, the mortgage resets will hit just as people start making their Christmas shopping lists.

    hmmm, RSH RCII WMT BIG EZPW. low-end obviously is hurting. will the next ones to have their bollocks squeezed by resets and energy the Alt-A/”poseur” upper-middle consumer?

    the rally off of this sell-off through October will be the tell on whether people are thinking recession.

  36. spongetoddsquarepants commented on Aug 1

    Joe Klein’s conscience,

    I don’t read the WSJ anymore. I hate getting news print on my hands as much as I hate the News Corp. I read Barry’s blog and others instead.

  37. michael schumacher commented on Aug 1

    Woodshedder-

    It does not have to be any sort of conspiracy…..much in the way that blind buying 30 minutes into the close without ANY sort of news or technical breach occurring (we were already at the levels it came from earlier in the day-oversold/overbought is COMPLETELY relative) raises the entire market from loss to about a .75% gain across the board (avg.)in approximately 33 minutes.

    Come on even you can see what was done….
    If you can’t or are unwilling to see what that was then I suppose everything is easily explained from a technical, fundamental or whatever you choose as your reason to understand it-especially if it supports your on-going viewpoint and trash the opposite view in the process. It is not as simple as you would like to believe based on your statements.

    Ciao
    MS

  38. michael schumacher commented on Aug 1

    one more thing:

    How does one explain the Advance/Decline imbalance on every “up” day. Also New highs and New Lows is skewed to the low….

    The volumes up/down (although horribly inaccurate at times) seem to suggest this divergence from what the Index(s) are doing as well.

    There is too much of a disconnect to call this anything other than the work of a very select few. Remember the analogy of an engine that gets shots of nitrous………..

    Ciao
    MS

  39. jake commented on Aug 1

    WARNING……WALK WITH YOUR HEAD UP…..BERNANKE WILL BE DROPPING BAGS OF CASH FROM A HELICOPTER SOON….END OF WARNING..

  40. Strasser commented on Aug 1

    Barry, they just won’t stop! In case you were not aware, again today… subprime is contained!

    “BEIJING (Reuters) — Treasury Secretary Henry Paulson said on Wednesday that the market impact of the U.S. sub-prime mortgage fallout is largely contained and that the global economy is as strong as it has been in decades.”

    And my husband asks, “And did Paulson say he still believed in a “strong dollar”?”

  41. Woodshedder commented on Aug 1

    MS- I actually wasn’t referring to you this time with the conspiracy talk. Seriously, I wasn’t. Someone else mentioned the PPT again. However, without looking up the term, I believe what you describe could certainly be labled a conspiracy.

    I think that we can create many viable scenarios which would explain why a 30 minute rush of buying would push the indexes to a small gain. For example, at what point do the shorts begin to cover? If I were short going into the close, I would have been covering, simply because the technicals are oversold and due for a bounce. Another scenario- you mention this is the work of a select few. Well, if I were the select few, I’d drive it up so that I could sell higher tomorrow. Why is that so wrong, or hard to stomach? It is done all the time- re: juicing the futures. Also, why can it not be just that simple? As a trader, I find it easy to trade from simple explanations, where complex explanations relying on a confluence of variables do not make me profitable. YMMV.

    Finally, I don’t have an “ongoing” viewpoint. My viewpoint changes based on the technicals.

  42. zell commented on Aug 1

    M.S.: Right on! Although strange outcomes can come from natural causes – this smells real bad. If it wasn’t human connivance perhaps Hal was behind it and we’re all on a Space Odyssey.

  43. Winston Munn commented on Aug 1

    michael schumacher:

    Keep in my, though, the two things that U.S. administrations consistently misestimate: the capabilities of the U.S. military; the power of the bond markets.

    The PPT could keep mild dips from occuring too often, but if the markets decided to sell off in a big way, you would see Paulson in China again, hat in hat, begging for more handouts. The PPT would be too busy changing underwear to do anything about it.

  44. Stuart commented on Aug 1

    “Barry, they just won’t stop! In case you were not aware, again today… subprime is contained!

    “BEIJING (Reuters) — Treasury Secretary Henry Paulson said on Wednesday that the market impact of the U.S. sub-prime mortgage fallout is largely contained and that the global economy is as strong as it has been in decades.”

    And my husband asks, “And did Paulson say he still believed in a “strong dollar”?””

    Paulson is either Baghdad Bob II or Nero II. His credibility is long past becoming a joke.

  45. Woodshedder commented on Aug 1

    MS- also, a big favor. Would you email me the .pdfs of the billions borrowed recently. I can’t find the article you originally posted them on. Thanks. Or you could point me to the website where they are housed.
    email is my nickname with _blogspot@yahoo.com attached to it.

  46. Michael Schumacher commented on Aug 1

    Wood- touche’…..I am rationale and can see it from both angles. The whole thing stinks because of the short covering. I’ve made the point of an engine on nitrous oxide…….at some point it becomes a self-fulfilling action as just enough gas gets the desired result and then physics take over. That, I believe, is exactly what we saw today. It’s not hard to believe but considering some of the very SERIOUS overhangs we have had and will continue to have it’s just a bit hard to think that no one will notice what is being done.

    Utilizing it for a monetary gain is one thing…..not the main focus of this site IMO……but the acceptance of the reasons for it’s happening in the first place-at least this is my reason to be on this site your’s may vary. I think those are two different points of discussion and often get confused here in the overall process of trying to become a better trader.

    I can make money from it but it still can suck at times- Keke Rosberg, 1982 F1 WC

    Ciao
    MS

  47. tjofpa commented on Aug 1

    Well, what would U expect after a 3 % worldwide selloff? The owners have too much more to dump… they don’t want lower prices just yet.

  48. Brian commented on Aug 1

    MS…
    I saw .20 and .30 over the ask on this all the way up

    I sold my last long position… Placed a limit order at about .30 over the current bid. A few seconds later my order was filled at about .20 over my ask.

    I’m not complaining about the few extra dollars I received, but the whole transaction left me very confused.

  49. jkw commented on Aug 1

    The move at the end today was not all that different from the move at the end of yesterday, except in the opposite direction. Today had a high level of volatility. The indices went up and down 1% in 30 minutes several times. The first hour had 2 moves with nearly the same momentum. The downward move around 10am was actually larger and faster than the closing move in RUT.

    How do you know which moves are conspiracies that you should complain about and which moves are the natural market forces?

  50. Rdub9000 commented on Aug 2

    If Cramer is down on the housing market, then an article in Time magazine isn’t far away…and you know what that means…

  51. VJ commented on Aug 2

    Joe Klein’s conscience,

    Did you see today’s add in the WSJ? It was sponsored by Club for Growth. I forgot to look for Laffer. Luskin and Krazy Kudlow were there though.

    What, no Stephen Moore ?

    The “Club for Growth” should be called ‘Wrong for Decades’.
    .

  52. Marion Knight commented on Aug 2

    Too many clowns on this board, listen to Suge if you want to make $$$$$$$$. The Dow has another 750 points to go (lower). Buy then, not now. Comprende?

    Suge

  53. Steve C commented on Aug 2

    Suge with his “another 750 points to go (lower)” prediction is betting on an exact 10% correction from the top (his bottom is 12600 on the DJIA which many have forecasted).
    Didn’t I hear yesterday on CNBC that the series of 5-7% dips we’ve had in the last 5 yrs are actually “the new 10%”?

  54. speedlet commented on Aug 2

    %5-7 is the new %10… is that like “40 is the new 30”?

    I’m sure Maria Bartiromo would like us to believe both of those notions.

  55. The Big Picture commented on Mar 3

    Consumer Spendables Indicator

    I’ll give TrimTab’s Charles Biderman credit: He is not the one trick pony I previously pegged him as. To review: Back in August, I read this horrifically ugly quote from Biderman in Marketwatch:Fear and ignorance seem to be gripping retail investors th…

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