July 18, 2012

Machinating Your News

For what struck me as a giant one-day life metaphor, I joined 2,500 other clinically insane individuals Sunday on Colorado’s hallowed cycling Triple Bypass (motto: “For Those Who Dare”).

Coursing from Avon to Evergreen over 123 miles and a triune set of towering climbs totaling more than 11,000 feet of elevation gain, the ride seared lungs and legs, testing the flesh with sweeping escarpments and breath-taking descents. Life’s highs and lows, triumphs and travails, rolled up and thrown aboard a road bike. I’ve crossed it off the list. Whew.

And daily deep in the bowels of Gigabit Ethernet connections, machines are performing triple bypass rides through your stock, feasting on economic data en route.

Taking but one example, the Nasdaq announced – fittingly on Friday the 13th – a machine-readable news service called Event-Driven Analytics. Created by RapiData, a firm the Nasdaq acquired this year, news is formatted so “latency-sensitive” traders can process it with algorithms that decide what and when to buy or sell.

Latency is a trading term that describes the pursuit of seamless and blistering speed. Those sensitive to it are like cyclists in a peloton, wheel to wheel at break-neck pace, who can be harmed by the slightest fluctuation. I saw that happen ahead of me Sunday as we raced over Dillon Dam near the Keystone ski resort at nearly 26mph. One rider made the slightest hesitation and the two trailing him collided and were down skidding over the pavement in a fraction of a second. They were okay but skinned, bloody and bruised.

The Nasdaq’s Event-Driven Analytics will format and spray out for all colocation customers on the biggest circuits (10G-40G) data about Treasury auction results, jobs statistics, inflation metrics and other key economic bits and bytes that churn out of government departments and bureaus and central banks at a relentless rate. The Nasdaq plans to add “corporate data” – your news and results – and macroeconomic figures from European governments.

No wonder stocks stray from fundamentals. Mind you, we’re not blaming the Nasdaq. This is reality. The exchange is a for-profit business monetizing data and using it to drive transactional and services revenue. And markets now move far less on cash-flow multiples and far more on macro data consumed and acted on in microstructure.

Before you utter epithets on the wind about traders, it’s not their fault either. Machine-readable news depends on a vast network of rules. Electronically linked markets, mandatory automated quotes, obligatory spreads, maximum market moves. Math derived from contrived behavior. Try running an algorithm on a beehive.

And where once machine-readable news served only fast participants it’s now used by all manner of money in the markets. It’s going mainstream.

What to do, IR folks? I’d encourage our profession to be less predictable. We still act like the parties reading our news care about fundamentals. That’s true only some of the time.

Of course, the best thing would be to band together and advocate market change. If the rules forcing small spreads and automated quotes didn’t exist, neither would the math that runs algorithms turning your shares into latency exercises.

Then it’s just a gal or a guy, and a bike. Will and determination. Belief and tenacity. Perseverance. Results.

That seems fair to me.

Share this article:

More posts

dreamstime m 99921172
April 10, 2024

You wonder what’s going to happen next. I mean, look around.  The South Carolina women ran ruthlessly through everyone, capping a 38-0 season with the...

dreamstime l 27136185
April 3, 2024

Is impending volatility predictable?  Sherlock Holmes would not tell Watson it’s elementary, that’s for sure.  But there is a tale behind the tape. Permit me...

dreamstime m 105967603
March 27, 2024

Vanguard founder Jack Bogle said to own the averages. Index funds.  That seed germinated into a tree that filled the investment world. Look at Blackrock....

dreamstime m 6563143
March 20, 2024

I was walking up Steamboat Springs’s Emerald Mountain with my friend Charlie last week and he said, “Trading volatility is like trading air.”  Charlie was...

dreamstime m 5149030
March 13, 2024

My wife Karen is reading Peter Attia’s book, Outlive, which is like reading it myself. I get the benefit of Karen as filter for tidbits...

dreamstime m 66699772
March 6, 2024

What the…? Everything was awesome. Monday. Then yesterday, stocks toppled like a thawed corpse in Nederland (inside joke, there). No obvious reason. Some said it was...