VIDEO: Rigged Markets, FB and the Tech Final Four

by Charles Sizemore | April 1, 2014 8:26 am

I joined Varney & Co. on Monday for the Halftime Report[2]. First item on the agenda: Michael Lewis, best-selling author of Liar’s Poker[3] and Moneyball, came out guns blazing in his new book, calling the market a rigged game.

Stuart Varney wants to know: Is Lewis right?

I agree with Lewis completely. High-frequency trading has very much made the market a rigged game in which large institution can essentially front run legally. Will this have a meaningful impact on my returns over time? Probably not. The data indicates that the institutions are able to “scalp” something along the lines of a penny per share per trade, which is negligible to my long-term returns.

The bigger issue is the erosion in confidence this creates among rank-and-file investors. And an unappreciated point is that the increase in liquidity that high-frequency trading purports to create — the whole reason it is tolerated at all — evaporates during times of market stress when increased liquidity is needed the most.

Floor trader Scott Shellady takes a more conciliatory line, though he doesn’t necessarily disagree. And Fox Business News’ Deirdre Bolton agrees completely, noting that small investors routinely get “ripped off.”

Facebook (FB)

Moving on, Stuart wants to know what we think of Facebook (FB[4]) stock after its recent multibillion-dollar acquisition of virtual reality hardware maker Oculus VR. This follows Facebook’s high-profile acquisition of WhatsApp[5] for $19 billion.

My take? Mark Zuckerberg knows that Facebook’s stock price is unsustainably high, and so he’s doing what any good trader would do. He’s “selling high” while he can by using Facebook’s pricey stock as currency to make acquisitions.

But while Zuckerberg’s moves make sense in this context, this doesn’t mean the stock is attractive. Even after its recent share price slump, Facebook trades for nearly 100 times earnings. And this for a company that has likely already seen its best days in terms user growth and time spent on the site per user.

Charles Payne disagrees, noting that while he doesn’t personally own the stock, he wouldn’t discourage anyone from buying it at current prices.

Disney (DIS)

Next on the agenda, Stuart asks if Nicole Petallides has seen Disney’s (DIS[6]) Frozen, the highest-grossing animated movie in history. Nicole jokes that, as the mother of boys, she has not seen Frozen but notes that the movie has been a major success for Disney as one of the top 10 highest-grossing movies, animated or live action, of all time. Stuart countered that his grandsons, unlike Nicole’s boys, were “enthralled” by Frozen.

I would add that my 4-year-old son enjoyed the movie for one solid weekend before discovering the Lion King, another Disney animated classic. I would argue that the baby bust of 2008-13 will create a modest lull in demand for Disney, at least in is domestic American market, for the next several years. But I would be a buyer of Disney on any sharp selloffs.

Tech Tourney

Finally, we come to Varney’s Tech Tourney. We’re now down to the Final Four: Google (GOOG[7]) vs. IBM (IBM[8]) and Apple (AAPL[9]) vs. (AMZN[10]).

Charles Payne takes the lead and cast his vote for IBM. While I agree that IBM is the better long-term pick at current prices, I argue that Google is the better short-term bet. Both Charles and I pick Apple over Amazon, however. I note that Amazon is an expensive stock in a low-margin business, whereas Apple is cheap and wildly profitable.

Scott Shellady picks Google and Apple, calling both companies “innovators.”

Charles Lewis Sizemore, CFA, is the editor of Macro Trend Investor[11] and chief investment officer of the investment firm Sizemore Capital Management. As of this writing, he did not hold a position in any of the aforementioned securities. Click here[12] to receive his FREE weekly e-letter covering top market insights, trends, and the best stocks and ETFs to profit from today’s best global value plays.

  2. Halftime Report:
  3. Liar’s Poker:
  4. FB:
  5. acquisition of WhatsApp:
  6. DIS:
  7. GOOG:
  8. IBM:
  9. AAPL:
  10. AMZN:
  11. Macro Trend Investor:
  12. Click here:

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