Daily Investment Interpretations

January 7, 2011

2011-1-7 (Friday Night): Stocks fell somewhat today in the face of a disappointing job report: All About Jobs (Again). The NASDAQ Composite retreated 6.72 points (-0.25%) to 2,703.17. The Dow dropped 22.55 points (-0.19%) to  11,674.76, while the S&P 500 fell 2.35 points (-0.18%) to close at: 1,271.50. Oil closed at $88.48 a barrel, and Gold ended at $1,370. The VIX declined 0.26 to 17.14. 
    Traders were hoping that the job numbers would show that the U. S. had turned a corner, and was on its way back up. But U.S. economy, you are a tease. "After a questionable 297,000 increase in the ADP employment report earlier in the week, the markets were primed for a blowout gain in the government’s official report on nonfarm payrolls for December. We didn’t get it. Payrolls rose by 103,000 on the month, less than the 175,000 median forecast and much less than the 300,000 some analysts were hoping for. Read MarketWatch's full story on the payrolls report. 
    "The unemployment rate fell to 9.4%, the lowest in a year and a half. It’s hard to celebrate a drop in the jobless rate that’s due, in part, to a decline in the number of people in the labor force. The participation rate fell to its lowest level of this recession. For adult men, the participation rate fell to a record-low 73.6%.
We know intellectually that this recovery will be painfully slow. But we are impatient. We want the nightmare to be over. And so we’re receptive emotionally to the argument that we’re just about to turn the corner. Maybe next month."
    Mark Hulbert has written: Government shutdown and the stock market.  
    Goldman Sachs Ups Year-End S&P 500 Forecast  
    Goldman sees S&P at 1,500 by year-end  
    Jobs data disappointing, but not bad  
    Joblessness at 19-mo. low  
    Technical Talk: Bears Getting Back In The Game 
    After thinking about it, I suddenly realized that Richard Meiers' three-month track record detailed in
The Daily Decision Stock Trade may not include transaction costs... and that would make a  difference in the reported returns. For example, suppose that someone decides to invest $10,000 to buy 1,000 shares of a day-traded $10 stock. Suppose that the stock rises 1% between the time it's bought at $10,000 and the time it's sold at $10,100, for a day's profit of $100. The minimum difference between the bid price and the asked price of a share of stock is 1¢. (It can sometimes be 2¢ a share or even higher.) Since we'll buy at the asking price and sell our stocks at the bid price, we'll pay at least 1¢ a share to cover the spread between the bid price and the asking price... $10 for 1,000 shares of stock. Then at Interactive Brokers, the commission fee for our trade will run $1 + $4.50 when we buy and $1 + $4.50 when we sell, the total commission cost would be $11. Adding that to the presumed $10 "spread" cost gives us $21 for our total trading costs for the day. This means that the first 0.21% (or more) of our gain on the day goes into simply paying the transaction costs. on a day when we make 0 gains, we'll lose 0.21% (or more) through transaction costs.
    For a $20 stock, we'd be buying 500 shares. The "spread" cost would be $10 and the trading fees would be $6, for a total transaction cost of $16, or 0.16%
    For a $50 stock, we'd be buying 200 shares. The "spread" cost would be $4 and the trading cost would be $3, for a total of $7, or 0.07%.
    Richard Meiers' portfolio rose at an average rate of about 1.00% per day. If we take $20 to be the average stock price for the stocks listed, 
then we would have to subtract 0.16% from the above 1.00% per day average gain, for a net average gain of 0.84%. That would stretch out the doubling-time to about four months, and would give us an annual gain of about 8-to-1. That still would be pretty spectacular.