Tagged: shares

Supply and Demand

Happy Bastille Day!  Also, Goldman Sachs made $15 per share, 50% over expectations. The stock declined.

JP Morgan earned $12 billion on revenue of $31 billion, doubling views. Shares fell.

Why are banks making 36% margins when you can’t earn a dime of interest?

I digress.

Illustration 98288171 / Goldman Sachs © Alexey Novikov | Dreamstime.com

I told the Benzinga Premarket Prep show July 12 on Market Structure Monday (which we sponsor) that falling demand and rising supply in the shares of JPM and GS predicted the stocks would probably perform poorly despite widespread views both would batter consensus like Shohei Ohtani on both sides of the plate (baseball humor for you).

Sure, you could say everybody already knew so they sold the news. This is the kind of copout we get from people who want to tell us stocks are always expectations of future outcomes while simultaneously telling us “they were down because growth wasn’t quite good enough to get past the whisper number.”

That is BS.  Plain and simple. 

ModernIR can measure supply and demand in JPM and GS and observe that demand is falling and supply is rising.  Even amid the farcical characteristics of the modern stock market, that means prices will fall.

We can meter these conditions in your stock too, by the way.

The best thing about the stock market today is how well it reflects supply and demand.  Currency markets don’t. The Federal Reserve continuously jacks with currency supplies in such manipulative ways that almost no economic measure, from growth to inflation, can be believed.

But in the stock market, the math is so sacrosanct that it’s impervious to the ubiquitous interference by Congress and regulators with the mechanisms of a free, fair and open market. No matter how bureaucrats assail the battlements, nothing disguises the stark supply/demand fluctuations apparent in the data.

Wow, mouthful there, Quast.

I know it. I’m not kidding.

Look, regulators REQUIRE brokers to buy and sell stocks even when there are no buyers and sellers.  That’s called a “continuous auction market.”  That’s what the US stock market is.

Contrast that with an art auction.

Stay with me. I have a point.

The first requirement of an art auction is actual ART.  Even if its pedigree is suspicious, like Nonfungible Tokens (NFT).  There’s still art for sale, and an audience of bidders pre-qualified to buy it.  No shill bidders allowed.

Nothing so provincial impairs the stock market. While you can make stuff up such as always having 100 shares of everything to buy or sell, even if it doesn’t actually exist, you STILL HAVE TO REPORT THE MATH.

Think I’m joking about shares that don’t exist?  Educate yourself on the market-maker exemption to Reg SHO Rule 203(b)(2). Or just ask me. 

Anyway, everything is measurable. Thanks to rules dictating how trades must be executed. In GS trading the day before results, Short Volume (supply) was rising, Market Structure Sentiment (demand) was falling.

Unless stock-pickers become 300% greater as a price-setter than they’ve been in the trailing 200 days – a probability approaching zero – the stock will decline.

I don’t care how good your story is.  Story doesn’t change supply or demand. Only ACTIONS – to buy or sell or short or leverage – do.

This math should be the principal consideration for every public company. Were we all in the widget business, selling widgets, we wouldn’t say, “I hope the CEO’s speech will juice widget sales.”

Now maybe it will!  But that’s not how you run a widget business.  You look at the demand for widgets and your capacity to supply widgets to meet demand. That determines financial performance. Period.

The stock market is the same.  There is demand. There is supply. Both are measurable. Both change constantly because the motivation of consumers differs. Some want to own it for years, some want to own it for 2 milliseconds, or roughly 0.05% of the time it takes to blink your eyes.

Both forms of demand set price, but one is there a whole lot more than the other. If the only behavior you consider is the one wanting to own for years, you’re not only a buffoon in the midst of courtiers. You’re wrong.  And ill-informed.

Thankfully, we can solve that social foible. And sort the data for you.

The stock market is about supply and demand. Earnings season is upon us again.  The market will once more tell us not about the economy or earnings, but supply and demand.

Ask us, and we’ll show you what your data say comes next.

The World Rocks and Markets Roll

Memo on a 70-point swing: Saturday we hiked the red rocks at the Denver Front Range’s Roxborough Park. It was 62 degrees Fahrenheit. This morning it was ten below zero.

Last Friday I was in Dallas (seventy-five degrees warm) for a trading panel discussion at the NIRI Dallas-Fort Worth chapter. Also Friday, the Market Structure Map from last week on artificial liquidity ran courtesy of Joe Saluzzi at the Themis Trading blog, and at Welling@Weeden, Kate Welling’s respected letter at Weeden & Co. (many thanks to both generous hosts). Today against a rocking backdrop of geopolitical unrest, rising global inflation, commodity uncertainty and cold winter weather, US equities are rolling.

Talk about wild temperature swings. Higher prices are nice. We loved them in home values too five years ago. There is no better way to be cool in the IR chair than riding a hot stock. And most times, your executives think your share price is undervalued.

But don’t you wonder, just a teensy bit, how come the prospect of the Suez Canal disappearing into a dark pool isn’t mildly sobering? We had four clients up 5-7% today, five down a little, and the vast bulk up equal or better than the market. Really? (more…)

Money Loves Darkness

Happy New Year! Good to be back after a two-week break from The Map. Karen and I spent Christmas in Texas, where there remains a general lack of fear of federal government.

I’m glad when winter solstice passes, that shortest and gloomiest of days. After that, we’ve rounded the corner from darkness toward light no matter what winter yet holds.

But in trading markets, darkness thrives. Monday in the Wall Street Journal, Jacob Bunge, who covers the exchanges, wrote that 34% of trades in December matched up off the exchanges in “dark pools,” doubling from last year. Why is money streaming off exchanges in search of darkness, and does it mean your shares aren’t priced right?

Let’s clarify “dark pools.” There are trading facilities like Liquidnet, Pipeline, ITG Posit and Aqua that offer twists on paths to more share-supply. They’re like the Millionaire Matchmakers of trading, finding liquidity love for willing parties. But these independent platforms and their broker-dealer counterparts at Credit Suisse (Crossfinder), Goldman Sachs (Sigma X) and Barclays (LX) command about 12% share. (more…)

Quant Trading at the Hudson

Spring finally tossed its verdant cape over the Denver Front Range. We saw it firsthand on our bikes from Sedalia to Palmer Lake last weekend, our first 40-plus miler of the year. It’s been too cold! We know you Californians among us are already past the early and midseason allergens.

Meanwhile in Manhattan, down on Old Slip between Water and South streets there hums and whizzes a sharp shop of folks whose cares are far removed from the seasons. And apparently geography too, for Hudson River Trading sits just off the East River. (more…)