Tagged: Ben Bernanke

The Flood

The word of the week was “flood.”

Here in Colorado, Denver had a coup d’état by weather patterns from Portland, Oregon for a week but our streets never ran in torrents. Where the Rocky Mountain watershed empties to the flood plain from the Mesozoic Era, occupied by present-day Boulder, Loveland and Greeley and small towns like Evans and Lyons hugging the banks of normally docile tributaries, the week past reshaped history and landscape. It will take months to recover.

In the markets too there was and remains a flood that surfaces with rising intensity from its subterranean aquifers to toss debris into market machinery. It’s the spreading vastness of complex market data.

SIDEBAR: If you’re in St. Louis Friday, join us at the NIRI luncheon Sept 20 for a rollicking session on the equity market – how it works and why it fails at times.

Data is the fuel powering market activity. Globally, trading in multiple asset classes turns on computerized models that depend on uninterrupted streams of reliable data. This gargantuan global data cross-pollination affects trading in your shares. After all, there are two million global indexes, as the WSJ’s Jason Zweig noted in a poignant view last weekend on modern equities. (more…)

Banks BARE All

Where have I been?

Somehow, I missed the fun happening in SEC filings for large banks like Morgan Stanley, Goldman Sachs, JP Morgan, Credit Suisse and Deutsche Bank.

If you already know what BARES are – Buffered Accelerated Return Equity Securities, of course – goody for you, and you should’ve said something.

What first got my attention were big quarterly earnings this period for the banks. Strip out the Financials sector and S&P 500 earnings are measly. But banking is booming. Morgan Stanley reported a 66% jump in year-over-year quarterly net income “as the investment bank bounced back from a slump in trading revenue a year earlier,” said a Wall Street Journal story.

Wait a minute. Interest rates even after upticks since May 22 when Ben Bernanke offered an impression that the Infinite Money Theorem may in fact have a terminus are so low that inflation-protected notes guarantee buyers a loss even now. If banks rely on interest…well, you don’t expect big numbers, right?

Hang on now. Morgan Stanley said these results reflect trading gains. So I checked statistics at the Securities Industry and Financial Markets Association (SIFMA, where former Republican congressman Judd Gregg has just taken the helm). (more…)

A Movable Feast

Bonjour! Ca va?

We’re back from touring Provence aboard cycling saddles, weighing heavier on the pedals after warmly embracing regional food and drink. Lavender air, stone-walled villages perched over vineyards, crisp mornings and warm days, endless twilight, chilled Viogniers from small-lot Luberon wineries. If these things appeal, go.

In Avignon we feasted at Moutardier in the shadow of the Palais du Papes, the palace of the Roman Catholic popes in the 14th century. From tiny hilltop Oppede-le-Vieux with roots to earliest AD written in moldering stone and worn cobble we surveyed the region’s agricultural riches. After a long climb up, we saw why Gordes is where the rich and famous from Paris and Monte Carlo go to relax. And on Day 5 I scratched off the master life list riding fabled Mont Ventoux, which will host the Tour de France on Bastille Day, July 14. What a trip.

Meanwhile back at the equity-market ranch, things got wobbly. We warned before departing that options-expirations June 19-21 held high risk because markets had consumed arbitrage upside and new swaps rules would make the process of re-risking unusually testy. Markets tumbled.

The Fed? Sure, Ben Bernanke’s comments unnerved markets. But if we could see it in the data before the downdraft occurred, then there’s something else besides the reactions of traders and investors at work. (more…)

NIRI Seattle-Style

If you like your NIRI National Conference crisp, Seattle delivers.

Gray days in the 50s gave those from the south a welcome break from drenching June humidity. Yesterday morning, the sun at last teased us as we savored our westward view of Puget Sound one more time from the Grand Hyatt before winging east to Denver.

One thing stood out this year to me. By my ground-floor observation walking and talking, paneling, chatting with clients and friends, Market Structure finally moved off the back row at NIRI.

It was like the markets yesterday roaring back nearly 300 points. People are starting to grasp that things like that aren’t fundamental. The Eurogloom didn’t miraculously give way to golden shafts of heavenly light. Spain and Italy didn’t wake suddenly to healed capital access. Economic readings weren’t swept skyward overnight on the economic equivalent of a giant stalk from a magical bean. Nothing changed.

So why did markets jump? Because policy makers said so. Federal Reserve officials were talking the dollar down in force – something we noted in your Market Structure Report macro sections, clients. And European officials huddled over strongly worded statements about the exigency of remedies.

Markets reacted like oil prices anticipating surging OPEC output. Ben Bernanke observed in a 2002 speech before he was Fed chairman that the act of credibly threatening an increase to the supply of money can have the same effect as if the supply has actually grown. He likened it to rumors of an alchemist claiming a way to conjure unlimited supplies of gold – and what the mere rumor would do to gold prices.

We saw this Emperor’s Clothes effect in sentiment. Last week sentiment was neutral, investment weak, the dollar marching relentlessly up. But right away Monday the dollar weakened, program trading picked up, and the occasional positive sentiment peeked out from data apathy. We’ve been telling clients since then in the “What’s Ahead” section of trading summaries to expect temporary improvement (that’s what it is).

In effect, we have the same thing in our equity market. Markets don’t behave the way most think they do – or how they should – and we’ve thus far been bystanders. A NIRI board member who stopped by our booth to gauge our views of the show said, “Market Structure has got to get higher priority. People are talking about it. It’s going to move up on the radar screen.”

Why is it so critical? Because lots of CEOs and CFOs don’t know how markets work. And when they ask us how they work, we IR pros often don’t know either, right?

If IROs don’t shoulder the educational challenge of crafting a clear picture, who will? Nobody. And if nobody does, our job security declines just like our ranks, which have thinned by an average of 270 companies each year for the past 14 years (no typo). That means we’ve lost a minimum of 3,780 IRO roles since 1998.

One grand bright spot on getting that clear picture shone during the panel on which I sat (if you’re a NIRI member, downloadslides or listen to a replay). Panelist David Weild, head of capital markets for Grant Thornton and chairman and CEO of the Capital Markets Advisory Group, proposed an Issuer’s Bill of Rights. Would you favor these five things? Would your executives?

1. Equal Standing for Public Companies. 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 and completeness in trading and ownership data.

4. Choice in Market Structure. An end to the one-size-fits-all marketplace.

5. Centrality of Investment. A market structure that encourages fundamental investment strategies over trading tactics.

A client and good friend came up as we were dismantling the booth and said, “If we’re serious about this Bill of Rights, I’m willing to burn some political capital on it. We need to get organized.”

If these five rights make sense to you, kick them around with your CFO and CEO – and tell NIRI. Change rarely occurs from the top down, but from the bottom up.

Maybe we can at last rally as an industry and save ourselves. Seattle gave us hope.

What You Should Know About Program Trading

Jan 19-22: What You Should Know About Program Trading

A word on last week’s panels in KC (see Dick Johnson’s write-up at his superb blog) and NYC about modern trading: Had a great time in KC and felt we effectively explained how different time horizons and purposes, combined with lots of passive market-making, affect stock prices today. In NYC, it was a bit frustrating. We started in the middle and never got out of the maze. Sometimes the magic works, sometimes it doesn’t. (more…)

How Do You Know What’s Real?

We’ve gone and done it.

We’re moving the Market Structure Map to a blog, to invite comments (so please comment!). Don’t worry, we’re not about to start tweeting. But I do like the interactivity at the blog. We’ll dual track with the email awhile, then move to alerts about the weekly post.

In the Michael Jackson movie “Just Do It,” the legend is backed by a cadre of dancers in one scene, who, through “green screen” technology are replicated so that it appears to viewers to be a vast dancing army.

Vast Dancing Army would be a good name for a rock band. And Green Screen might be at work in the equity markets. Is trading real, or replications that create an illusion meant to mimic reality?

(more…)