April 10, 2013

April 10, 2013

Robotics:  New Applications, Mass Technologies

Robots have been a theme of science fiction for nearly a century, and a gleam in investors’ eyes for about half that time.  As with many such secular themes, especially technological ones, public excitement and the vision of possibilities can outrun real options for investment.  Promises of dramatic opportunities are almost always overdone and premature, but nevertheless, some more humble, less hyped, and more profitable entrants in this field could be set to benefit.  Below we note several social and technological inflection points that may make robotics a more attractive opportunity for investors with some patience and a medium- to long-term outlook. 

In our full analysis we discuss:

  • DARPA’s Robotics Challenge
  • Inflectors for Wider Adoption
  • Open-Source Makes Robotics Available to Small and Mid-sized Companies
  • Xbox Sparks Off-the-shelf Components
  • Stealing Jobs or Boosting Productivity?
  • Robot Stocks to Examine

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FBI Joins Other Agencies in Scrutinizing High Frequency Trading

We reported recently on a speech in which New York Attorney General Eric Schneiderman recounted his own efforts to rein in firms that engage in high-frequency trading (HFT).  Then financial journalist and author Michael Lewis’ book Flash Boys hit the bookstores and the airwaves.  Although it contained little that was new, it focused public attention on the issue — an issue that we’ve been writing about for years.

As the media attention got hot, HFT firm Virtu Financial, which was set to be the first pure-play HFT firm to go public, delayed its IPO.  The prospectus for that IPO had drawn critical attention, since it highlighted the firm’s nearly four-year trading history — with just one day that showed a loss.  Too good to be true, some thought, but more thought they must be cheating.

High-frequency traders are the antithesis of investors, entering and leaving their positions within milliseconds.  Observers accuse them of various forms of market manipulation — front-running other investors, placing and cancelling trades in rapid succession, getting privileged access to market data, positioning their servers nearer those of the exchanges to secure a tiny advantage in timing.  Often, critics say, exchanges and market data providers themselves have colluded with HFT firms in some of these activities.  The end result is pennies shaved off each of millions of market transactions daily — in effect a hidden tax on investors.

Following this surge of public interest, we read that the FBI has now opened a probe into HFT.  According to FBI officials, the investigation actually began about a year ago, and is “still in its early stages.”  It includes cooperation with other agencies — such as the Securities and Exchange Commission (SEC), the Commodity Future Trading Commission (CFTC), and the Financial Industry Regulatory Authority (FINRA).

The FBI is examining trading patterns that may indicate problematic activity, and discussing them with prosecutors to determine if a criminal case can be made.  Currently, every case will have to be evaluated individually.

This flurry of anti-HFT sentiment, and the announcement of this ongoing investigation by the FBI, may simply be prompted by the publicity generated by Mr Lewis’ new book.  Perhaps it will die down, and we’ll return to “normal,” with an SEC that seems unwilling to act against HFT.  We hope not.

In the meantime, we note that although HFT firms may steal pennies from each transaction, they can’t undermine the longer-term gains that the U.S. stock market historically gives.  HFT is noise and a nuisance, and, we believe, simple theft from honest market participants — but losing pennies should not dissuade investors from participating in a market that makes them dollars.

Hot New Issues — Is This a Warning to the Market?

The market for newly-listed companies continues, even hotter than last year, with first-quarter offerings more than double the number that came in the same period last year.  But some signs of stress are beginning to emerge, with investors rotating out of the excessively valued names that have been the drivers of IPO performance. 

What are our observations?  What are the positives?  What sectors are we watching?  Upgrade today, to read our full analysis.  




Workforce Expands in the First Quarter

Last Friday’s jobs report was clouded by poor market performance.  Many observers noted that it was a “Goldilocks” report from the perspective of Fed action: neither too hot (causing the Fed to rethink the measured pace of its stimulus withdrawal) nor too cold (causing investors to believe that the recovery was stalling).  Effects from bad weather were subtle, if they were present at all.  Unemployment remained at 6.7 percent, while consensus expected a drop to 6.6 percent.

Nevertheless, we noted something positive…What does this mean for the U.S. economy?

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Market Summary

In this week’s market summary we discuss:

  • U.S. GDP
  • Capital Spending
  • Japan
  • Europe
  • China


In Last Week’s Global Market Commentary, We Also Discussed:

  • El Niño Weather Pattern Looks Likely in 2014
  • China Eases — One More Step in the Dance
  • No Such Thing As Ex-KGB
  • Lies, Damn Lies, and Statistics
  • Europe Edges Closer to QE