October 12, 2022

Decline and Fall

We’re just back from Rome, where the empire is no more but its imprint enthralls. 

And yes, that’s like the stock market.  We’ll get to it.

Do the Scavi tour under St Peter’s Basilica.  It’s breathtaking and not just because it’s underground.  It’s an archaeological marvel establishing that Christian traditions about the burial of the Apostle Peter have merit.

As with the stock market, there are no absolutes, just high probabilities. But it’s powerful to see the origin, replete with excavated walls and crypts and stairs and mosaics and plaques, of the largest church in the world.

At the Colosseum in Rome (photo courtesy Tim and Karen Quast) Oct 2022.

And at the colosseum (see us at right) there was merchandise, and seating sections, and concessions, and sophistication rivaling anything we’ve got today in the NFL.  Moving Nero’s statue, which the builders did after draining Nero’s private lake, would challenge our modern machinery. They did it with 24 elephants.

In the Pantheon you walk the same multi-colored marble floor that Marcus Agrippa did, a convex design with subtle drains that wick away rain falling through the open oculus. How many floors exist after 2,000 years open to the air? This one’s perfect still.

Rome was built to last but didn’t. 

The stock market that used to be on the corner of Broad and Wall streets in New York is now on servers in Mahwah, NJ, connected to the Nasdaq’s servers in Carteret, and CBOE and IEX and other servers in Secaucus.

That alone should be telling. The market isn’t in the city that talks about it.

The broadcasting about the stock market – endless chatter about Sellside upgrades and downgrades and whether a stock trading at ten times earnings is a good buy – continues apace from downtown New York.

But the stock market is on fiberoptic cable in New Jersey.

Speaking of disconnects, analysts decided this week that expectations for Ford and GM should be cut.  After the stocks are down 46%.  How is that helpful?

And it’s the essence of the disconnect. The market’s anachronistic trappings are way behind the times. The empire of the Buyside and Sellside long ago became hunks of broken marble strewn amid a remnant of pillars along The Forum.

So to speak.

Patterns show Active and Passive money left Ford and GM back in February.  What continued were the machines, and derivatives. And nine months later, the Sellside cuts ratings and price targets.

Hm.

One cannot help but think of the Federal Reserve.  We’ve had two quarters of declining GDP but there’s no recession.  Way behind. Living in the past.

Rome dissolved into its excesses.  So did the Buyside and Sellside, leaving the looting to the Goths, Visigoths and Vandals.  The Fast Traders (no offense, computerized market machinery).

Declines and falls are products of losing touch with reality. 

The stock market isn’t motivated by the Buyside and Sellside. It’s motivated by spreads and models.  And the machines making the money are happy that we all just continue watching the hand.

The trappings, the marketing materials, the talking heads, the lavish show, haven’t kept up.  Like Rome.

I relished modern-day Rome.  It’s full of delightful people who will patiently help you say things like dopo di te (after you, per favore), and a presto (see you soon!).  The pastas are addictive (cacio a pepe, amatriciana, and up north in Tuscany, pici). The cobbled streets are a storybook. The Lazio wine from Habemus is delectable.

Leaving, I felt an ache.  It’s just so…fabulous. 

And there’s your upshot, investors and public companies. The stock market today is a riveting confabulation of marvelous machinery. It’s just not what it was.

Like yesterday. Future were down steeply before the open.  I told users of our decision-support platform EDGE that you can’t believe the futures. They’re not market reality.

The DJIA at one point was up nearly 400 points.  It finished flat because most of the market didn’t keep pace, and the computerized machinery in New Jersey that really is the stock market knew the money pegging average prices would have to be a lot lower.

And so the market gave up its gains. It was a whole Roman Empire in a day, rising, flourishing, declining, falling.

So, what are we supposed to do?  First, enjoy the stories and traditions but don’t confuse them with reality. We need to be alert and informed members of the equity-market community, not a bunch of tourists.

We can’t succeed as investors, traders and public companies without a solid grounding in reality. Know how the darned thing works.

Now if you’ll excuse me, I need to go eat some salad.  For a change.

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