We all love soaring markets. When were you last dead sure what drove your stock up?
Today, a German court will decide if German taxpayers must back last week’s European Central Bank plan to buy Eurozone debt, which powered US equities to multi-year highs Sept 6. Stocks have moved higher since, with the dollar at May lows. What that court says may prompt stocks to swoop or swoon.
Thursday the 13th, Ben Bernanke speaks after the Federal Reserve’s monthly Open Market Committee meeting. That may boost stocks too, or disappoint them.
By the way, Friday I speak (having zero macro impact) to the IR council for MAPI, the manufacturer’s alliance, on “what lies beneath” market structure today. See you at the Intercontinental in Chicago.
Next week is huge. Options expire, quarterly rebalances to S&P indexes take place, and important European bond auctions go off – all between Sept 19-21. Correlation between the US dollar index and the S&P 500 is nearly symmetrical to late April’s when we warned clients of an imminent market retreat. Stocks then declined a thousand points over several weeks until the dollar in July began its longest slide since the Flash Crash. Beware risks.
In the data, evidence abounds. We’ve seen stocks curiously leap ex-dividend, whole peer groups shoot up 15%, and random shares move double digits up or down in two days without regard to the market or the peer group. Global statistical arbitrage – using math to calculate trading spreads globally – is rampant in behaviors, including the normally “rational” slice. As high as we’ve ever seen.
Against that backdrop, did you hear about the Issuer Bill of Rights that Dave Weild introduced at NIRI National in June? It says public companies are due:
1. Equal Standing (Issuers must have equal input to the trade execution community on market structure)
2. Representation (A standing issuer advisory council to the SEC made up of issuers and issuer advocates)
3. Transparency, Timeliness & Completeness (Issuers deserve real-time trading and ownership data – All Long and Short activity)
4. Choice in Market Structure (No more one-size-fits all market structure)
5. Market Structures that Encourage Fundamental Investment Strategies Over Trading Strategies
Word broke Monday in Traders Magazine (traders heard, but not issuers – a lot like changing homeowners’ association rules without alerting the homeowners) that the SEC plans a summit in coming months to discuss tick sizes of more than a penny for small-cap and mid-cap stocks. Good idea? You bet. Random tick sizes are higher risk for arbitragers and wide spreads benefit buy-and-hold money and discourage trading horizons of a day or less (which now dominate).
If we don’t care to be bystanders in markets dominated by high-frequency trading and global statistical arbitrage, we should get central banks out of managing fiscal policy.
We probably can’t do that yet.
So let’s make sure we’re at this big talk on tick sizes. We’ll update you shortly (stay tuned) on the Issuer Data Initiative page, long dormant because nobody seems to care.
We won’t give up. Better data are possible – and maybe this will juice efforts anew. We’ll hope it’s more substantive than what’s happening in markets.