After a couple of green days, markets started off deep in the red. The EuroZone is preparing for a possible split with Greece. Talks are ongoing and will determine the fallout for our market. By the end of the day, things were calmer, and our markets gained back much of the loss for the day. The S&P and NASDAQ indices actually turned green by close. We are still going to be at the mercy of Europe for some time, as their rocky situation gets ironed out. It's times like these that make me regret ever hearing the term "globalization!"

In the meantime, the US economy continues to gain steam. Housing permits are higher. Foreclosure rates are lower, and today we received news that sales in new homes are better than expected. While many had long given housing its last rites, it was slowly healing. Could this be the mechanism for more widespread growth in the economy?

Good news for graduates... MBAs are getting hired at better rates than the last few years. I hear the same news from my undergraduate students. Slowly but surely, jobs are being added. Here in the good ole US of A, we're doing our part! Now, if we can just get Europe on track...

following the money

Stock indicies are down! The S&P 500 is a whopping 6% off its highs this year (NB: Up 26% off its lows of last year)! Everyone reckons the world must be ending.

Or do they?

Watching where the money is flowing is always important. Some money flows are automatic - if you sell a stock and don't immediately reinvest the proceeds, your money flows into a money market account, or a bunch of high quality short term debt investments, or a FDIC insured savings account - where you are fairly certain nothing bad will happen to it. Some people shift their money from one asset to another on purpose - if they are scared out of stocks, they may turn to gold, or other hard assets. If they are scared out of gold, they turn to US Treasuries (sometimes ironically).

Where is the money flowing now? Are people rushing out of the stock market and parking money in Gold, Treasuries and canned beans?

Not exactly. Some notable inflows have been to the junk bond and bank loan funds. These are very economically sensitive debt instruments, so if one was worried about the long term health of the economy, they would dump these just as fast (if not faster than) equities. It is easier to hang onto a high quality stock than a low quality bond or leveraged loan when things get tough.

The well known junk bond fund ETF has seen an interesting play lately. It appears that an institutional investor has spent the past few weeks acquiring about $800 Million of the fund, only to redeem it for the underlying bonds. Getting the bonds will allow them to have a more selective view, and they are no doubt dropping some from their portfolio, but it is also a more long term view. You don't hold large amounts of individual bonds for the liquidity - they would be very hard to get rid of if things got tight.

A newer fund, BKLN (Bank Loan, not Brooklyn) holds bank loans of highly leveraged companies. It saw $100 Million worth of shares created last week. This is not a massive vote of confidence based on the size of the market, but it is huge considering that was fully 25% of the fund at the time. This is a newer fund, and it is tracking a very illiquid sector. Again, this would be tough to dump if things went south.

People buy Gold and canned beans when they are scared. People by Treasuries when they don't have any ideas. People buy junk bonds and bank loans when they think that everyone else is more nervous than they should be. These two etfs are down only a blip compared to the money flowing out of equities.

about that vote

Citi's shareholders have spoken.

So-called "say on pay" votes, a requirement of the Dodd-Frank financial reforms give shareholders a vote on company executive compensation packages. These packages have long been disclosed in proxy materials each company sends to shareholders annually, but now everyone gets a say. The vote is a non-binding approval, disapproval or abstention on the whole package. Last year, most shareholders got to vote on how often they would hold this vote (a vote on a vote! how meta!) either one two or three years.

In Citi's annual meeting, shareholders voted 55% against the executive pay package - their CEO made $15 Million last year, while the owners didn't get an expected raise in the form of increased dividend.

This is the first example I can think of where such a prominent company's shareholders have clearly disagreed with executive compensation. It makes sense that you wouldn't often see rejection like this, people invest in a company partly because of faith in the management. It is still a good thing that people do exercise their vote, it is one of those reminders to the board that they are accountable to somebody else.