September 3, 2013 Update

DJIA:14,810 S&P 500:1,633 NASDAQ:3,580 Gold:$1,394 Oil:$107.19 EURO:$1.32 YEN:99.38

On Human Nature and Market Behavior

Over the past three weeks, I traveled Europe alone without any idea of where I was going next or when I would return home. I traveled to seven countries and eleven cities and made friends in every place I passed through, despite the language barriers that divided me and my peers. I found that making friends was effortless because human nature is the same in every country and the same in every language. I learned that human beings share impulses, urges, wants, and ways of thinking and feeling. Universally speaking, people love and hate the same sorts of things in the same irrational manner. I know that markets are largely a byproduct of human behavior, a quantitative reflection of desire and despair. Because human behavior is universal, then logically, markets must behave universally, too. The creation of the internet has deconstructed the walls that once separated the lives of people around the world. I think markets have become increasingly correlated because more investors have been given access to the same information, so there are more people reacting to the same events in every market internationally. And since globalization has caused mankind to become more entangled with one another, markets have become more interconnected than ever before. Culture is what truly distinguishes one population from the next, so I believe that it’s cultural differences that make various markets unique. And because behavior is contagious, I strongly believe that by understanding human behavior a trader can adapt to a foreign market by completely submerging himself with the desk of the new market he wishes to trade. Unconsciously, the actions and emotions of the desk collectively will transmit to the trader so that, he too, will start acting the same way, and reacting the same way. After all, the influence of others is much stronger than most people perceive it to be. Technological advancements have altered markets and caused them to behave in ways investors have never experienced before, but if you study the movement it seems as though markets are just intertwined, not dissimilar. A person can travel alone and go anywhere and make a friend just as easily as a trader can venture to any market and understand it’s behavior. After all, the more things change, the more they stay the same. 

Domestic News

• Market Update Futures are trading up ahead of data on the ISM and PMI. 
• Data on the PMI will be released at 8:58, and is expected to come in at 53.8 in August vs. July’s 55.4. 
• The ISM will be released at 10:00, and is expected to drop to 54.1% in August from July’s 13-month high of 55.3%. Construction spending is anticipated to have climbed to 0.3% in July from June’s 0.6% decline. 

International Updates

Asia

• Market Update  Markets rallied as a result of strong PMI data from China and Europe.
• Chinese housing prices increase 8.6% YoY in August, despite recent regulation that attempted to slow down the sector. Beijing rose 22.5%, Guangzhou rose 24.2%, and Shanghai rose 7.7%

Europe

• Market Update Markets traded lower as investors take profits from yesterday’s strong rally, despite  bullish PMI data.
• U.K. construction activity increased to its highest level in six years, unexpectedly, from growth in commercial and home building and a rise in civil engineering. August’s PMI rose to 59.1 higher than both the expectation of 56.8 and July’s 57 level.

Corporate News

• Verizon (VZ) has begun syndicating a $61B one-year bridge loan that will support a $130B acquisition of 45% of Verizon Wireless from Vodafone. VZ intends to fund the deal using $49B in bonds and $14B in other debt, but could need the bridge loan when the transaction closes in 1Q14.