Interesting developments to come - See what made the cut...|
Twitter Tweet, Fact or Fiction
Investors large and small, regulators, big banks and lawmakers are not seen
simply brushing off the impact of the bogus tweet Tuesday April 23, that
sent the markets tumbling. The Dow Industrial Average plummeted from a
nearly 140 point-gain to a 13-point drop in a time span reminiscent of the
May 2010 “flash crash”. In the blink of an eye, around 1:00pm ET markets
reacted to a tweet that surfaced on the Twitter account of the Associated
Press reported two explosions had gone off at the White House and that U.S.
President Barack Obama had been injured. During an approximate time span of
four minutes, total chaos ensued as the markets literally, crashed. Across
the board - the Dow (DJIA), S&P 500 Index (SPX), Nasdaq Composite Index
(COMP), and crude oil (CLM3) dumped 1%. The CBOE Volatility Index (VIX)
spiked 10%. The yield on the 10-year Treasury note fell 4 basis points. As
quickly as the tank began, the rebound took hold and the markets returned
toward pre-tweet levels in nearly four minutes after the tweet was reported
as - a hoax.
The 'twitter tank' - the term for the market reaction to the fake tweet -
shows how investors rely and react to social media, even when the news is
fake. The move by the markets shows how automated trading and high frequency
trading, literally make the markets move. While Twitter tweets may be
influential, they could prove to be problematic, as well. Plain and simple,
Twitter tweets consist of unfiltered news - act at your own risk.
The Securities and Exchange Commission has given companies explicit
permission to utilize social media sources such as Twitter, Facebook and
With the recent hack attack on the AP, regulators and lawmakers could
potentially delve deeper into potential regulatory use of social media in
the markets and how it can negatively impact high frequency and/or automated
Goldman Throwing Life Preserve to J.C. Penney
In a release on Friday, Goldman Sachs (GS) reportedly arranged a $1.75
billion financing package for J.C. Penney Co Inc (JCP). The deal has not yet
been finalized as it is still pending acceptance from Penney as they
determine the value of the deal as it would be secured by Penney's real
estate as well as, other assets. Just a day earlier, billionaire investor
George Soros reported a 7.9% passive stake in the Penney although the
reasoning remains unclear.
The retailer has been exploring various options to shore up capital after
ending last fiscal year with less than $1 billion in cash as a result of a
steep sales slump following a botched turnaround attempt by former CEO Ron
Johnson. The elimination of coupons turned off Penney's core shoppers,
leading to a 25% decline in sales in recent fiscal year. Penney recently
withdrew $850 million from its $1.85 billion revolving credit facility to
help buy inventory and revamp its business strategy.
Is the move by Goldman a potential new method of bail outs, something like
following a trend set by the U.S. Treasury Department.
Interest Rate Cut Pressures European Central Bank
"Monetary policy is not an all-purpose weapon for any kind of economic
illness," European Central Bank top official for international relations
Joerg Asmussen said in a speech in London. Another rate cut may prove as
little help for eurozone countries in recession. Markets have shown
expectations that ECB will cut rates from a record low of 0.75 percent to
stimulate the economy of the 17 European Union countries that use the euro.
"The euro area has to move ahead with deeper union," Asmussen said. "Like it
or not, the euro area has become the engine of European integration, for its
own sake, and that of the EU as a whole."
Asmussen said the "pass-through of rate cuts" would be "limited" to reach
businesses and consumers since troubled banks are already unable to pass on
Asmussen added that the central bank would find it difficult to carry out
monetary stimulus through the purchase of financial assets. Other central
banks have sought to expand the supply of money in their economies in an
effort to boost growth - such as the U.S. Federal Reserve and the Bank of
Japan. The difficulties of using the method by the eurozone is that the 17
countries have differing market interest rates and because companies tend to
get their financing from banks, and not from bond or money markets.
Ahead of the ECB's bank meeting on Thursday, warnings were noted as means to
reduce expectations for a rate cut after stocks have been seen rising and
the euro falling on the expectations.
German Chancellor Angela Merkel noted the difficult task of finding one rate
that suits the entire eurozone. With Germany at such high levels of
employment, other countries such as Greece and Spain have unemployment rate
of 25%. "At the moment it (the ECB) would probably in principle have to
raise interest rates somewhat for Germany, but it has to do even more for
other countries so that liquidity is really made available and above all so
that this liquidity really reaches corporate financing," Merkel said.
Wall Street will be in tune to monetary action, across the pond, as it could
provide market moving action, right here in the USA.
April 29, 2013