September 13, 2011

IR Pros Must Know Macro Factors

We were sitting on the porch in the shadow of the American flag Sunday September 11 when fighter jets streaked and thundered so low that all of Denver shook. We caught glimpses of pairs of F-15s and F-16s, afterburners hot. Later, we read that warplanes from Denver escorted two flights with suspicious passengers aboard. But the ten-year memorial passed in peace.

Speaking of thunderous roar, I attended the jam-packed NIRI Rocky Mountain Chapter’s kickoff session today. Nasdaq chief economist Frank Hatheway offered a thoughtful and statistical look at the market. He joked that when he first prepared slides two weeks ago, the trends were improving but he’d had to change his comments to reflect reality.

Dr. Hatheway launched his talk by comparing stock indices with VIX volatility, Treasury yields, oil prices and gold. He observed that investor-relations professionals today need to develop a level of understanding of these “macro factors” – benchmarks of group behavior across asset classes (clients, we include a Macro Factors segment on page two of your Market Structure Report).

It was a chunky nugget I wanted to share. Get to know macro factors. Use these events to shape tactical outreach. If a macro factor like VIX volatility is deteriorating ahead of VIX futures expirations, it’s going to affect both risk hedges for major institutional holders and speculative trading by those chasing mathematical calculations of divergence. Call your deep-value holders ahead of time. If you’re on their minds, maybe they buy the dip.

Plus, the IR chair is in some ways today like the chief economist for each company. You’ve got to have your hands on data, trends. Why? It’s how markets work. If you want to know the outlook for your economy – the market for your shares – you need to understand what behaviors and trends drive it. As Dr. Hatheway noted, discounted cash flows still form the basis for asset value. But macro factors create the discount rate, in a sense, which can change quite dramatically how your shares are assessed in diversified portfolios or as liquidity in speculative models. Both are legitimate activities in your economy – your equity market. But you should know what role they play.

Often, rational money is out of step with market realities too. Today I reviewed data for a large real estate company and noted how rational money bought ahead of options expirations in August, just as trend traders and risk managers cashed out and shifted to derivatives. If IR professionals can avoid being caught flat-footed like that poor investment manager, well, you look smarter, cooler and better in the IR chair.

And that’s good job security in an economy that Dr. Hatheway thinks will grow about 1% next year.

Two quick reminders: Options expire, including VIX futures, Sept 14-16. And we’re sponsoring IR Magazine’s Think Tank session Nov 3 on tracking trading in the IR chair. Join us!

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