That April Fool’s Feeling In The Stock Market

I have been laying off markets for the past few days. Friends in town, paid a visit to the hospital, more friends in town and catching up with other old friends.

Today is pandan chiffon cake today too and we baked a batch before I brought the boy out for that foot massage I promised him, for it is his school break.

April has been surreal with US stocks surging to new records, renewed confidence in EM and simply amazing resilience in bond prices.

And as we are on the topic of fools on the week of April’s Fool, I decided to examine some statistics to corroborate the rumours I have been hearing about many “stuck” positions i.e. investors who are unable to sell because there is not enough demand to match their sell volume and thus have to hold back for fear of creating an exodus in their stock counter.

The information is quite impossible to acquire for Singapore. Thus I took the NYSE numbers that are publicly available and the results are pretty astounding.


For some months now, the bears in America have been bleating plaintively about the sheer quantum of the NYSE’s margin debt, since early 2013 when the number overtook the all time high in margin trading set back in 2007. The number has only gotten larger and we are seeing new records almost daily.

Yet at the same time, it does not look like the traded volumes are anywhere close to the highs of the past or trending at historical averages.

It is perhaps easier to digest the margin debt number and people borrowing heavily to buy shares if we consider that the Fed’s balance sheet will still grow another US 55 bio in April till next month’s Taper and their balance sheet stands at US 4.23 trillion to date.

But such light volumes can only suggest that investors are not selling or no one is buying much and buy backs are in the in thing, along with buy outs and acquisitions.

I counted 202 buy back announcements for the FSSTI stocks between 3 April 2013 – 3 April 2014. 8 companies participated – Capitaland, DBS, OCBC, Sembcorp Industries, Sembcorp Marine, SIA, SPH and Singtel.

We are reading about some major global acquisitions going on – Comcast for Time Warner Cable, Facebook for Whatsapp, Suntory for Jim Beam, Temasek for Olam, Temasek for Watsons, Vodafone for Grupo and so on.

Investors borrow money to buy stocks  for a single reason – capital gains when they sell to someone else at a higher price. Someone who is perhaps foolish or desperate enough to buy it from them. Cash rich companies have to pay a premium if they want to acquire lock stock and barrel, like in Temasek’s attempt with Olam and Watsons.

Yet not every single company out there is a target for acquisition and investors who borrow money to buy their stocks are probably hoping for the windfall in a revision of the company’s outlook that will propel the stock price higher for them to sell to another investor who is hoping for the same thing. In the meantime, they are “stuck” and I do not like to label the future investor as the greater fool because it sounds just a little sour grapes.

Therefore, I suppose I would be an April’s fool for even considering that anyone would be “stuck” in any stock against their will, and I am a greater fool for worrying about the all time high in margin debt that the borrowers themselves are not worried about. And only the greatest fool would think that issuing bonds to buy back stock and acquire others is risky business because the bond investors are loving it.

As for the “geopolitical risks” that Roubini and gang are yapping about, only a fool would believe that after Yellen’s and PBoC’s assurances.

But April is a month for fools afterall and if we are running short of fools in the market, then I suppose it is time to make some new ones.