The Ray Rice Effect |
Written by Rob Goldman |
Good morning! The emergence of the Ray Rice assault recording and other videos have had an effect on society that will surely change the importance, frequency and use of video going forward. More importantly, see how what we call The Ray Rice Effect could potentially impact the stock market on a large scale. In the near term, the key daily moving averages for the Russell 2000 Index are about to reach an important inflection point. See what that means for your stocks. SMALL CAPS SCREWED IN SEPTEMBERBatten down the hatches. Just this week alone, investors are at risk from a number of events. On Wednesday, the Fed policy meeting and the associated future QE comments, will either give investors comfort or completely freak them out, if indications are that the “easing party” is nearing its end. Separately, this is the start of portfolio reconfiguration week for institutional investors. That means the big dogs will begin to re-structure portfolios for Q4 and the early part of next year, creating seasonal volatility and exacerbating sector rotations. The potential outcome of the Scottish independence vote, scheduled for Thursday, has already begun to prompt a run on banks in the U.K. British newspaper reports suggest that investors pulled $27 billion (on a net outflow basis) from British banks in August, the highest level of withdrawals since the financial crisis a few years ago. Clearly, if the independence vote is ratified, problems could be magnified going forward which would serve to weigh on stocks on this side of the pond. As strong as August was for small caps, the cold weather spell thus far in September must also be affecting these stocks. After all, the Russell 2000 Index is down over 1% as we reach the mid-point of the month. And, if history is any measure, the near term future does not bode well either, despite the more muted declines in the major indices which have benefitted from the “Apple Effect” (NASDAQ—AAPL). If you are a chartist then you know that if the Russell 2000 starts off poorly, we are in store for some pain. As of Friday’s close, the small cap index is a mere 6 points above its 50-DMA and 9 points above the 200-DMA. If we break below these, we can see declines similar to the early part of last month with a quick drop of 3-4%, in the cards. ![]() On the plus side, thus far this month, we have been fortunate that companies have not issued negative preannouncements regarding Q3 results. We are optimistic that this situation will hold serve which is a modest positive for stocks in Q4, once we get through the quagmires that lie directly ahead. The Ray Rice EffectRecent events culminating in the Ray Rice news last week have left indelible marks that that will change how we process and react to information, address major issues/problems and could also impact how we approach stock market investing. For years, all I have heard from the tech world is that video will change how we communicate and use the Internet. With the exception of streaming video of TV shows, music, or movies, the most popular videos have tended to be short, funny clips, grainy inappropriate videos, and sports-related “OMG” videos. While entertaining, one would be hard pressed to prove that video has had an impact on all demographic segments of Internet users. (I know Snapchat is worth $10B but that is targeting a narrow demographic segment rather than a broad one.) Earlier this year, everyone was aware or at least heard about Ray Rice hitting his then-fiancé in an elevator and knocking her unconscious. We even saw part of a grainy video of the aftermath and could imagine in our own minds what it looked like when they argued. We were upset and disappointed. However, when video of the actual event was leaked, it sent shock waves throughout our society. It turned everything upside down. It was that impactful. We became angry and fierce with righteous indignation. Even former domestic violence offenders chimed in. If a picture is worth a thousand words, what is video worth? For years, we heard about atrocities by terrorist organizations like al-Qaeda which famously beheaded Wall Street Journal reporter Daniel Pearl in 2002. In recent weeks, we have been treated to news of ISIS genocide in the Middle East and were sickened but not moved. When beheadings of Westerners, notably Americans, became released recently on video, our blood boiled—culminating in directed anger at the perpetrators and our own leadership. Why did these videos have such a profound effect on our sense of being, humanity, and psyche? We live today in a country devoid of leadership that we trust—on all levels. Our confidence in leadership has been shaken and we are now angry and divided. These destructive characteristics represent a series of issues that could potentially play a role in how we deal with the stock market and economic adversity, particularly if there is another big drop. With the exception of urban areas of the Northeast and West Coast, confidence in our Commander-in-Chief is weak, at best. Videos that emerged of him on the golf course after the airing of the first beheading clip disgusted even his greatest supporters. On this day, the 200th anniversary of The Battle of Baltimore, when the Star Spangled Banner was written, we are divided on nearly every issue facing this great country. On the home front, we are divided among racial lines more than ever. We are deeply divided on immigration and vilify leaders on both sides of the debate. We disagree on our approach to foreign policy and defense and wish to attack dangerous enemies, but only just a little. The economy is chugging along but too many are out of work, instead living on the dole for years with no hope in sight. I guess someone forgot to tell the Prez that if you try to please everyone you please no one and accomplish nothing. After the Ferguson incident many Americans, especially minorities, no longer trust the police. Considering the way the justice system reacted to the Ray Rice situation it is no wonder. The endless cover-ups fare taking their toll. They range from the lost/destroyed IRS emails targeting conservative groups, to Benghazi, to the Obamacare failures, to the open door immigration policy that makes us vulnerable, to the NFL cover up of the Ray Rice saga, to the continuously bungled ISIS drama. The net result is a divided, very angry, bitter, society devoid of faith and confidence in our leaders, values, and our basic systems. Will the lack of faith in these areas eventually affect our economy or be directed at the capital markets again, even without another big market drop or a scandal? Will our current angry, distrusting state make matters worse if one of these occurs? It is not uncommon for these chips to fall during this type of environment. We need renewed confidence lest the bottom fall out. Truth be told, many of these problems were already here. But, it may have taken the emergence of videos to take our current sentiment and collectively amplify them. Today, that may not be a good thing, especially if it carries over to stocks, but eventually it will be a positive. In the long run, ubiquitous video is a good thing. For now, the latest videos may serve as a catalyst for change—-on many levels, some good and some bad. In any event, we will look back at history and point to these events as the time video changed our reality. Disclaimer This newsletter was prepared for informational purposes only. Goldman Small Cap Research, (a division of Two Triangle Consulting Group, LLC) produces non-sponsored and sponsored (paid) investment research. Goldman Small Cap Research is not affiliated in any way with Goldman Sachs & Co. The Firm’s non-sponsored research publications category, Select Research, reflects the Firm’s internally generated stock ideas, along with economic, industry and market outlooks. In virtually all cases, stocks mentioned in Select Research offerings are listed on the NYSE or the NASDAQ. Publications in this category include the weekly newsletter The Goldman Guide, daily Market Monitor blogs, Special Reports, and premium products such as The 30-30 Report. Goldman Small Cap Research analysts are neither long nor short stocks mentioned in this newsletter. Opportunity Research reports, , updates and Microcap Hot Topics articles reflect sponsored (paid) research but can also include non-sponsored micro cap research ideas that typically carry greater risks than those stocks covered in Select Research category. It is important to note that while we may track performance separately, we utilize many of the same coverage criteria in determining coverage of all stocks in both research formats. Please view the company’s individual disclosures for each engagement, which can be found in company-specific Opportunity Research reports, updates and articles. All information contained in this newsletter and in our reports were provided by the companies mentioned via news releases, filings, and their websites or generated from our own due diligence. Economic, market data and charts are provided by a variety of sources and are cited upon publication. Stock performance data is derived from Yahoo! Finance. Our analysts are responsible only to the public, and are paid in advance to eliminate pecuniary interests, retain editorial control, and ensure independence. The information used and statements of fact made have been obtained from sources considered reliable but we neither guarantee nor represent the completeness or accuracy. Goldman Small Cap Research did not make an independent investigation or inquiry as to the accuracy of any information provided by the Company, other firms, or other financial news outlets. Goldman Small Cap Research relied solely upon information provided by companies through filings, press releases, presentations, and through its own internal due diligence for accuracy and completeness. Such information and the opinions expressed are subject to change without notice. A Goldman Small Cap Research report, update, article, blog, note, or newsletter is not intended as an offering, recommendation, or a solicitation of an offer to buy or sell the securities mentioned or discussed. This newsletter does not take into account the investment objectives, financial situation, or particular needs of any particular person. This newsletter does not provide all information material to an investor’s decision about whether or not to make any investment. Any discussion of risks in this presentation is not a disclosure of all risks or a complete discussion of the risks mentioned. Neither Goldman Small Cap Research, nor its parent, is registered as a securities broker-dealer or an investment adviser with the FINRA or with any state securities regulatory authority. ALL INFORMATION IN THIS REPORT OR NEWSLETTER IS PROVIDED “AS IS” WITHOUT WARRANTIES, EXPRESSED OR IMPLIED, OR REPRESENTATIONS OF ANY KIND. TO THE FULLEST EXTENT PERMISSIBLE UNDER APPLICABLE LAW, TWO TRIANGLE CONSULTING GROUP, LLC WILL NOT BE LIABLE FOR THE QUALITY, ACCURACY, COMPLETENESS, RELIABILITY OR TIMELINESS OF THIS INFORMATION, OR FOR ANY DIRECT, INDIRECT, CONSEQUENTIAL, INCIDENTAL, SPECIAL OR PUNITIVE DAMAGES THAT MAY ARISE OUT OF THE USE OF THIS INFORMATION BY YOU OR ANYONE ELSE (INCLUDING, BUT NOT LIMITED TO, LOST PROFITS, LOSS OF OPPORTUNITIES, TRADING LOSSES, AND DAMAGES THAT MAY RESULT FROM ANY INACCURACY OR INCOMPLETENESS OF THIS INFORMATION). TO THE FULLEST EXTENT PERMITTED BY LAW, TWO TRIANGLE CONSULTING GROUP, LLC WILL NOT BE LIABLE TO YOU OR ANYONE ELSE UNDER ANY TORT, CONTRACT, NEGLIGENCE, STRICT LIABILITY, PRODUCTS LIABILITY, OR OTHER THEORY WITH RESPECT TO THIS PRESENTATION OF INFORMATION. For more information, visit our Disclaimer: www.goldmanresearch.com. |