Tagged: politics

What’s In It

We rode the Colorado National Monument this week with our good friends from Sun Valley. There’s a lesson in it about life and stocks both.

We would’ve been riding bikes in Puglia with them now, if not for this pandemic.  Oh, and part of the lesson learned is in Telluride.

Stay with me.  I’ll explain.

So we learned Sun Valley is comprised of four towns.  Sun Valley, Ketchum, Hailey and Bellevue. Each has its own mayor, own government.  It could be one united town, but no.

There’s a point.  While you ponder that, let me give you some background.

Karen and I wandered from Denver to Glenwood Springs (rode bikes, ate great food, soaked in hot springs, at this energetic little burg favored by Wyatt Earp and Doc Holliday), and on to Grand Junction (pedaled the Monument and bunked at the lovely Hotel Maverick on the campus of Colorado Mesa University).

We then migrated to Moab and hiked Canyonlands and cycled the Potash Highway where evidence remains of a civilization once living in paradise on the Colorado River (if your etched recreations of yourselves in sandstone reflect jewelry and wildly stylish hair, you’re well up the actualization hierarchy from basic sustenance).

We next traversed the remote stretch from there to Telluride, a dramatic geological shift. The little city in a box canyon lighted by Nikola Tesla and robbed by Butch Cassidy is a swanky spot at the end of the road.  Wow.  I get it.  Oprah. Tom Cruise. Ralph Lauren. It looks like their town.

Or towns, rather.  Because here too as in Idaho there are cities a couple miles apart with two mayors, two governments. There’s Telluride, CO, in the valley. There’s Mountain Village, CO, up above (where no expense has been spared – you cannot find a tool shed that’s a shack).

And that’s the lesson. People talk about coming together.  Sun Valley can’t.  Telluride can’t.  Could it be humans are motivated by their own interests?

And how about money behind stocks?

More on that in a moment.

NIRI, the association for investor-relations professionals, has a 50-year history.  I’m on the national board representing service providers.  We were blindsided by the SEC this summer, which abruptly proposed changing the threshold for so-called 13Fs, named for the section of the Securities Act creating them.

Our profession depends on those filings to understand shareholdings.

The SEC said funds with less than $5 billion of assets would no longer have to file.  There goes insight into 90% of funds. The SEC never asked us.

You’re thinking, “There’s a hammer here, and a nail. Perhaps I’ll just pound it through my hand rather than continue reading.”

Don’t quit! You’re getting close.

Tip O’Neill and Ronald Reagan made deals. You youngsters, look it up.  There were “pork barrel politics,” a pejorative way to describe a quid pro quo.  Wait, is that a double negative?

Let me rephrase. Politicians used to do deals.  Give me something, I’ll give you something.  You can decry it but it’s human nature.  We don’t “come together” without a reason.

Sun Valley. Telluride. They haven’t yet found a reason to unite.

NIRI could learn. We can talk for ten years about why we deserve better data. There’s nothing in it for the other side. I bet if we said to the bulge bracket, the Goldman Sachses, the Morgan Stanleys, “You lose your corporate access until you help us get better data.”

Now both have skin in the game. Stuff gets done.

Most of us outside Jesus Christ, Mother Theresa, Martin Luther King, Jr and Mahatma Gandhi are motivated by what benefits us.

Shift to stocks.  Money with different purposes and time-horizons drives them.  The motivation for each is self-interest, not headlines or negotiations between Nancy Pelosi and Steven Mnuchin.

Let’s call it, “What’s In It for Me?” All the money is motivated by that.  Humans are similarly animated.  For most of the money in the market, what’s in it is a short-term return.

If you want to understand what motivates the money, you must understand self-interest.  You can learn it in Sun Valley or Telluride.  You can learn it watching politics. And it applies to stocks. Money wants returns. When that opportunity wanes, it leaves.

That’s it. No more complex. And ModernIR measures that motivation.  Ask us, and we’ll show you what’s in it for the money behind your shares.  Too bad we can’t figure it out in politics. It’s not that hard.

Political Sentiment

There’s one left.

This week brings the last pre-election monthly options-expirations cycle. It’s the final time to take or manage risk with options that expire after votes are cast. It might be instructive about trading bets. Options expire Thu-Fri this week, and through Oct 21.

In Oct 2016, Market Structure Sentiment peaked the 3rd at 6.6/10.0.  The market was over 49% short. Sentiment leaked down to 4.0 (you longtime readers know the market trades between 4.0 on the low end and 6.0 on the high end most times, and coloring outside those lines often signals temporary bottoms and tops) by Oct 21.

But demand was weak. Sentiment is a supply/demand gauge. It must stay above 5.0 to rise, more demand than supply (above 5.0, stocks rise, and below 5.0, they fall, a mathematically consistent truth, subject to periodic variance). In 2016, Halloween was the top, a tepid 5.0, a bare mean reversion.

It’s the market equivalent of trying to jump the bridge in a Yugo (a humorous blast from the past for all you too young to know it).

Stocks began Nov 2016 with a feeble wheeze and rolled over into the election.  We thought the bull market might end.  Stocks were trading lower than in June 2015.  Sentiment double-dipped down to 3.6 Nov 9, the day after the election.

And then, boom!  Sentiment hit 7.7 Nov 25, the best read since July 2016 after Brexit shocked stocks and juiced them like a pro-cycling blood-doper. Short volume dropped below 45%.

Brexit is an apt comparative too, an unexpected outcome. Market Structure Sentiment bottomed June 23, 2016, the date of the vote, at 4.2 (it rose to 8.2 by July 20).

So, what’s it mean?  Market bottoms signal gains ahead.  Did investors secretly think Brexit would happen and Trump would win?  Both events brought party times for equities, undeniably.

Or is it the opposite?  Investors were so dour about Brexit and the 2016 election – purely in terms of market outcomes – that the nadir for quantitative reads on supply and demand fell exactly in step with both events.

I don’t know.

But I’d argue from vast seas of data spanning 15 years that enthusiasm leaks.  It’s like an ambush (admittedly a dubious analogy but follow me here) where those lying in wait are so gleeful about holding what they call in poker the nuts – the winning hand – that somebody amped on adrenaline accidentally squeezes off a round and spoils the surprise.

Frankly we see it all the time in deal situations and Activism.  Somebody just can’t help herself and takes out a long swap or something. It’s not illegal to bet on information others don’t have.  It’s only illegal to sell it.  The point is, we often catch clues about ebullience in the unmistakable humanity of front-running.

With that yardstick, the absence of any giddy bursts of early gunfire, you’d conclude investors thought Brexit would catch a toe and plunge into the pond. And a Clinton administration would land with a thud on The Street.

So.

What do the data say now?  We’ve written repeatedly – especially in our private Market Desk notes (if you want those, subscribe to our analytics and become part of the Market Structure club) – that there’s another Big One coming.  A sprawling splat for stocks. The data say so.

There was one coming in Oct 2016 too, that the apparent benighted election of Donald Trump cast in glorious light – extending the bull market all the way to Covid.

And right now, the signals say the Big One most don’t see coming is after the election. On that loose read, you could say the market is betting on a Biden regime (because it would arguably be less business-friendly than the current one, regardless of one’s sociological persuasions around candidacy).

However, shorting is very low – below 43% marketwide.  The stumbling, bumbling, weaving pattern predicting a splat for stocks into Tue Nov 8, 2016 already happened.  Between Sep 9-Oct 1, 2020, Market Structure Sentiment peaked, then fell near 4.0, crawled back to 4.9, rolled back down the hill, Sisyphean, to 3.4 about Oct 1.

And then delivered the best gains for stocks since the week ended June 5, 2020.

Right now, it’s 7.3, steamy, nearing a top.  That kind of verve tends not to precede demolition to shareholder value. I’d bet stocks will decline to a bottom by roughly Oct 22 and rebound into Election Day.

I’m not saying that’ll happen.  And humans were wrong about Brexit, wrong about 2016.  And they could as well be wrong again here.  But that data would suggest an expectation the election won’t be bad news for stocks.

That might be bad news in other ways. And the data haven’t come in yet. We’re speculating. And we’ll keep you posted in Market Desk notes, clients (send us a note and become a client and you too can read the quantitative tea leaves!).

Now, back to the political-ad beatings.