Tagged: S&P 500

Big ModernIR News

Some would argue I should’ve hit him.

Only kidding! But let me tell you a story.  I was driving yesterday and saw approaching from the left at a good clip on a skateboard some lout on the sidewalk in backward cap and shorts, head down over his phone and ear buds in. There was a stop sign on his side not on mine but he never looked up and didn’t see me until he clattered into the street, where I’d stopped despite an opposite urge.  He didn’t say thanks or whew or anything, just skittered off, nose in phone. He wasn’t a kid either, probably in his 20s.

This to me is a metaphor for the markets. It’s easy to get discouraged about the future.  More on that in a bit. And that’s not the big news.  This is:

New website.  We’ve been testing our contemporary new internet home, gathering feedback, and have gotten high marks in the soft rollout. So voila! Visit modernir.com, mobile-ready and refreshed by our good advertising friends at Brand Iron here in Denver, who handle lots of things for us. Tell us what you think.

Updated logo. Brand Iron also persuaded us to touch up our image. We think it’s good work, though one observer said, “I hope the market doesn’t move inversely with your squiggle.”

New offices. Third is our new headquarters location on fashionable South Pearl Street in Denver, across from our town’s world-renowned Sushi Den and adjacent to diverse dining opportunities in both directions. Perfect for your next visit!  Stop in and see us at 1490 South Pearl Street, Ste 100, here in Denver.

New Director, Client Services. Finally, we’re proud to announce that Greg Yates has joined our client services team. Greg started with us in June and we haven’t driven him away, thankfully.  A University of Arizona graduate with a CFA, Greg began his capital markets career as a trader in fixed income for PIMCO in 1997, and moved on to trading equities at Banc of America, then to the buyside as an asset manager for a variety of firms including Mellon. Clients, you’ll find Greg a knowledgeable and apt supporter in your efforts to run the coolest and most effective IR programs in our profession. He’ll work under our Vice President of Client Services, Brian Leite. (more…)

Understanding Markets

You’ve heard that bit of cowboy wisdom on how to double your money? Fold it over and put it back in your pocket.

I hear folks wanting cowboy wisdom on market structure. What do I need to grasp? In that sense, this could be the most important Market Structure Map I’ve ever written.

If you’re at home, get a glass of wine. We won’t belabor the story, but it’s not a simple one. In the beginning, in 1792, when 24 brokers clustered under a New York buttonwood tree and agreed to give each other preference and charge a minimum commission, trading securities was simple. That became the New York Stock Exchange. Most trades were for investing, some few for speculating. People have been gambling since the Garden of Eden, obviously.

Step forward. In the 1860s ticker tape by Morse code sped markets up but didn’t change structure. In the 1930s, the Securities Act formed the SEC and imposed a regulatory framework. Structure remained similar, if more process-driven.

Take another step. When Benjamin Graham wrote “The Intelligent Investor” in 1949 (Warren Buffett called it the best book about investing ever written), he said to first distinguish investing from speculating. Seek safety for principal and an adequate return, through research in business-like fashion to find good businesses at a discount to intrinsic value. Own them for the long term. Graham separated this “active” investment from cautious and generalized passive investment. (more…)

Lulled by Markets

Palo Alto is a great town.

While there sponsoring IR Magazine’s West Coast Think Tank last week we feasted at Evvia and Fuki Sushi. Denver’s got fine sushi. Our Sushi Den on South Pearl Street flat demoralizes Bryant Park’s Koi. Proprietors Toshi and Yasu Kizaki each day fly in hand-picked selections from the Tokyo fish market. You gotta get up pretty early to beat our fish. Fuki Sushi apparently rises at dawn. We ate to dullness.

Speaking of lulled, exchanges began introducing new SEC-approved Limit-Up/Limit-Down (LULD) single-stock circuit breakers Monday, smartly easing the program into effect. More will be added until the largest 2,000 are covered by late May and the rest of the market through August.

“It sounds simple, but for firms managing thousands of customer orders, you have to program how you’ll manage them, how you’ll deal with quotes and trades across 50 destinations, routing decisions and execution quality,” Chris Concannon, partner at high-frequency trading firm Virtu Financial, told Bloomberg reporter Nina Mehta.

Under LULD, stocks won’t be permitted to trade more than a certain percentage from their rolling five-minute average prices. The SEC mandated these changes after the Flash Crash of May 6, 2010, sent the S&P 500 plunging over a hundred points and the Dow Industrials a thousand points, before both rebounded, all in roughly twenty minutes. (more…)

Relativity and Dollars

How do you prove relativity?

When Einstein proffered the preposterous suggestion that all motion is relative including time, people clearly had not yet seen Usain Bolt. Or what happens to stocks after options-expirations when the spread between the dollar and equity indexes is at a relative post-crisis zenith.

Let me rephrase that.

As you know if you get analytics from us, we warned more than a week ago that a reset loomed in equities. Forget the pillars on which we lean – Behavior and Sentiment. Yes, Sentiment was vastly neutral. Behavior showed weak investment and declining speculation –signs of dying demand – all the way back in mid-August.

Let’s talk about the dollar – as I’m wont to do.

There is a prevailing sense in markets that stocks are down because earnings are bad. No doubt that contributes. But it’s like saying your car stopped moving because the engine died, when a glance earlier at the fuel gauge on empty would have offered a transcendent and predictive indicator.

Stocks are down because money long ago looked a data abounding around us. From Europe clinging together through printed Euros, to steadily falling GDP indicators in the US and China, to the workforce-participation line in US employment data nose-down like it is when economies are contracting not recovering, there were signs, much the way a piercing shriek follows when you accidentally press the panic button on your car’s key fob, that stuff didn’t look great.

We know institutional money didn’t wake up yesterday, rub its eyes, and go, “Shazzam! Earnings are going to be bad!” (more…)

Big Tick Talk

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. (more…)

The Theory of Value Relativity

There’s an old stock market joke. Every time one person sells, another buys, and they both think they’re smart.

Value is relative. And yet. Anybody in the IR chair pencils valuations for his or her shares. Isn’t this the battle – measuring value? Karen and I on a recent trip sat with a sharp IR pro who explained how the team had an internal valuation model for company stock.

Many consider historical price-to-earnings ratios of the S&P 500 (about 16 over 130 years but ranging from below 9 in 1933 and 1983, to 40-plus in 2000, the record). Some like the S&P earnings yield versus 10-year Treasurys (7% to 2%). On that basis, markets would seem to be a whopping good buy.

And yet the Dow was down 500 points in five days through Tuesday.

There are three immutable valuation meters. You’ve got future value of cash flows. For instance, somebody at Facebook determined that Instagram’s future cash flows discounted to present value are worth $1 billion rather than the current figure of zero.

There’s net worth. When Microsoft bought AOL patents this week for $1 billion, the market added the cash to AOL’s net worth and shares shot up about 20%. (more…)

High Correlation in Stocks

While Irene splashed Wall Street, we Coloradans reveled in the ridden glory of the USA Pro Cycling Challenge. The 500-mile route hosted 130 of the world’s top cyclists including Tour de France winner Cadel Evans and both runners-up, Luxembourgers Andy and Frank Schleck.

We were there, clanging bells and hooting our hearts out. Here is winner Levi Leipheimer readying for the time trial that put him in yellow. The peloton left Avon here for Steamboat, and Levi is visible midway in yellow. At the finish, some 250,000 jammed downtown Denver for the epic, lapping conclusion. We are proud of American cycling and our state’s awesome organizational effort.

Speaking of peloton, Wall Street Journal reporter John Jannarone wrote Monday in the Heard column called “Traders Seek Salvation from Correlation” about how stocks race in formation. It’s among the best pieces we’ve seen on modern trading. Jannarone says that S&P 500 stocks show 80% correlation in the past month, meaning eight in ten move synchronously.

This is a source of distress for IR folks trying to distinguish a strong company story from the herd. We’d argue that rather than slamming the collective IR noggin into the burgeoning brick wall of macro-focus investing that you instead track program trading and establish what level is acceptable – and use it as an IR success measure. We wrote about this last week, so we won’t retrace the trodden path.

Why a mirror image across so much of the market? One driver Jannarone posits is Exchange-Traded Fund investing. According to Credit Suisse, these drive some 30% of daily stock volume. Jannarone also notes that trading in S&P 500 E-mini futures contracts is more than four times the combined daily volume of the two biggest S&P 500 ETFs, the SPDR, and iShares S&P 500 Index ETF. (more…)

VZZB Is a Sign of the Times

Your shares compete for attention with a dizzying array of choices in securities markets. Money chases what the market gives today. VZZB is the sort of example you can’t make up.

It’s the trading symbol for the iPath Long Enhanced S&P 500 VIX Mid-Term Futures ETN. We saw the circular from Direct Edge, where it began trading today. It’s not some cheese ball confection lofted by off-shore subsidiaries of Boca Raton broker-dealers. It was created by Standard & Poor’s. It’s underwritten by Barclays.

VZZB is an exchange-traded note (ETN), an uncollateralized debt obligation backed by Barclays that trades like a stock, leverages returns, depends on volatility and consists of futures contracts that mimic the supposed future volatility of an index. For gains.

Why should you care, sitting there in the IR chair? Eight of ten days, your stock is moving because somebodies speculated on the divergence of this versus that, or some other bodies tweaked their risk-management schemes to offset increasing implied volatility. Or whatever. It’s all interrelated. If you want to know why your stock behaves the way it does, you must see it in context of how markets work and what behaviors drive supply or demand in your shares. (more…)

Three Days of the Iron Condor

We’re back after a refreshing one-week break! Here in Denver we packed the house with visitors, the kitchen with delicacies, the slopes with our skis, and our bellies with generally excessive consumption. Good thing reality returns with a bite soon!

Remember that Redford flick from the 1970s, Three Days of the Condor? It’s a thriller about high-level conspiracy. In volatility trading, an Iron Condor is not conspiratorial, just an income trade. You sell two puts and buy two calls, with the spread between both always giving you an initial credit in your account (your highest possible return). If the underlying issue, say an individual stock or the S&P 500 Index, the SPX, trades between your puts and calls, your options expire and you keep one or both credit spreads. It’s a popular thing to do in sideways markets.

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