Tagged: economy

Dalhart vs Artifice

Texas is booming. We road-tripped it June 28-July 6, giving y’all a break from market structure.

We rolled the I35 corridor from frenzied Frisco north of Dallas, to Austin, now home to 950,000 people, to San Antonio, the fastest-growing Texas city last year, pushing 1.5 million.

From there on July 5 following fireworks the night before in three directions from Hotel Emma, our favorite in the country, we were up in Amarillo by evening (an oblique musical reference back past George Strait to Chris LeDoux, God rest him), and in Denver the next day.

You’d suppose Texas would be taking it in the nose on low oil prices. Yet bergs like Dalhart on the reaches of the Llano Estacado (yaw-no esta-kahdo), the vast plain staked over north Texas, bustle on Main Street and prosper on the boulevards.  If the world blows up, hunker between Texline and Masterson on Highway 87.

What’s Texas tell us about investor-relations, the stock market, investing, the Federal Reserve, the economy?  The farther you get into the heartland the less the things the people in charge think matter, matter.  Life goes on.

Of course, all of us gathered right here at this moment are rooted deep in the market, the Fed, the economy – even those of you in the heartland. We don’t have the – what’s the way to put it?  Convenience.  Of slipping off into the quiet purple of the fruited plain.

Looking from Dalhart, this strikes me:

The stock market.  Passive Investment depending on average prices is carrying the market beyond fundamentals, producing superior outcomes. Can average breed superior, sustainably? Malcolm Gladwell and reality both say no. So prepare for mean-reversion between fundamentals and prices.

When? Nobody knows.  It’ll come with no VIX signal, maybe as the Fed sells assets and spikes the dollar (The Fed trades bonds for dollars, so fewer dollars means higher dollar-value). It’s not that I’m pessimistic. I’m opposed to artifice in the economy, the market. I don’t think Dalhart would accept it. We don’t like it in people, politicians. Right?

Speaking of artifice, our estimable central bankers at the Federal Reserve have determined that after eight years of mediocre output we are ready to rock – though curiously weak inflation, they call it, vexes.

Say Sammy Hagar contended there were several ways to rock. We’d laugh. If I hear one more time that inflation is good, I’m heading to Dalhart.

Inflation is rising prices, which trims both buying power and productivity, the pillars of prosperity. The Fed might be underwhelmed by the increase but we’re paying more. For the same stuff. And calling it growth.

That’s artifice. A treadmill offering the illusion of forward progress, like confusing volume and liquidity (we’ll return to market structure next week so stay tuned).

The Fed should never have institutionalized economic mediocrity with eight years of training wheels. The Tour de France is underway coincidentally, drama on wheels turned by superlatives. You don’t reach the Tour on training wheels. You don’t become an economic tour de force by moseying.

Yet we can’t have an economic adult riding on training wheels. It just looks bad. So we’ll soon have the financial equivalent of a biker barreling into the shrubbery head over handlebars. Dalhart. Life goes on. We’d be better off without Fed artifice. Period.

Same with the stock market. The pursuit of average has become superior there, thanks to big training wheels (a good name for a rock band) from central bankers. Yet we value companies the same, engage in the same IR work. Why do we accept artifice?

Now pedaling toward the economic sludge, the training wheels are coming off the market. Central bankers believe they need only make a pronouncement that all is well and we’ll skim the muck.

The mistake we make is legitimizing it. But there’s reason for good cheer!  The quicker these things mash in a big dustup (and they will), the sooner we get back to Dalhart, and a prosperous global boulevard free of artifice where what’s real matters.

We’ll have to cross the Llano first. Put’er on cruise control, and keep driving.

Happy Thanksgiving from Austin, TX!  Many of you are out too, seeing family for the holiday. Looking back at 2014, this Market Structure Map from Aug 27 was one of the year’s most widely read. Curiously, some of the same economic data points including the FHFA house-price index and the Case-Schiller Home Price Index were out this week again. 

If we know how many mortgage applications were filed last week, public companies should know what set their stock prices last week too. Every public company deserves good information about the equity market, and it’s not cooler to “just run the business and ignore the stock.” That would be like “just drive the car and ignore the fuel gauge.” Catch you after Thanksgiving!  -TQ

 

Aug 27: Beyond Curiosity

 

Let’s talk about houses.

Let me explain. Twice yesterday I encountered an issue, not a new one though. We were discussing it on a conference call too, preparing for a market-structure session Sept 9 at the NIRI Southwest Regional Conference here in Denver – which if you care about market structure is not to be missed. A highlight, Rajeev Ranjan, central banker with the Chicago Federal Reserve and former algo trader, will explain why the Fed cares whether high-speed traders are gaming equities and derivatives.

Anyway, what issue am I talking about?  I continue to hear executives and investor-relations officers say, “I don’t see why short-term trading matters when we’re focused on long-term investors.”

I hear some of you groaning.  “Quast,” you moan. “We don’t want to keep hearing the same stuff.”  I get that. If you already know the answer, you can cut out of the Market Structure Map early today.  Catch you next week.

The rest of you, if you’ve got a tickling there in the back of your head like a sneeze forming in the nose that you really don’t want the CFO to ask you why market structure matters, then let’s talk about houses.

Big money tracks residential real estate – houses. Just this week we had or will have reports on new home sales, the Federal Home Financing Administration’s housing index, the Case-Shiller Home Price Index, mortgage applications, and pending home sales. Decisions about construction, banking, credit-extension and more depend on these data.  They’re part of certain GDP components. (more…)

What Would a Bookie Do?

We have good news and bad news.

The good news is that investors have put more funds to work in equities during January. We track behaviors – investment, speculation, the crowd following trends and managing risk. We’ve seen increased investment behavior in the past twenty trading days for clients. That’s good, even if your stock or sector wasn’t on the receiving end. It means more competition for shares, and that generally is a boon to stock prices.

What’s the bad news? We see wide disparity between prices investors think are correct for shares, and the prices the market sets. We’ve developed measures for looking at how trades execute in context of others to separate what we might call intermediation from where the orders that attracted intermediaries were priced when they entered the market.

Aren’t these prices one and the same, what with the efficient market and all? Au Contraire. That would be too simple. (more…)