May 9, 2012

Macro Factors and IR

Congratulations, IR profession! It’s happened.

One of our ranks stepped up to the stock-exchange rule-filing plate, planted, and cracked that fastball out of the park. Thank you, Katie Keita, for commenting on the Nasdaq’s proposal for ETF sponsors to pay market-makers.

I hope it’s a trend. Your stocks underpin everything else. These are your markets.

More on that later. But speaking of trends, yesterday the dollar rose and stocks fell. When the greenback gains on other major currencies, things valued in dollars often decline. Stocks are stores of value, and value ebbs or flows according to the measuring tape – currencies. The dollar fell in April (after an early buck spike garroted equities), so stocks rose proportionally. Then as April ended, the dollar strengthened on mounting global worries (especially from Europe). Stocks shrank. It’s a macro effect that trumps stories.

How should you view macro factors from the IR chair? “Macro factors” is jargon for “how appraisers view the global neighborhood.” There was a good article on the Big Picture (page R9, “How the Big Picture Affects Stock Picks”) in the Wall Street Journal Monday May 7. Writer Suzanne McGee says macro factors shouldn’t make investors reflexive but can’t be ignored either.

You’re not investing, of course. But you’re selling to investors. If your target market is influenced by macro factors, and you’re not, you may be striking discordant notes.

Here’s an analogy. You’re the real estate agent. In the IR chair, you’re marketing a house in a neighborhood. If the subdivision looks to buyers like the spectral resurrection of mortgage-backed securities, good luck getting a conventional buyer at the seller’s price.

But you might attract an all-cash offer from deep pockets. And if deep pockets step in, they may draw others. Next thing you know, the neighborhood is booming. That’s how you should see the spectrum of institutional investors today. All-cash, deep pockets – that’s hedge funds. They are a bridge to less flexible money. From deep-value high-turnover, to growth-at-a-reasonable price, to value, to growth, target buyers suited to the neighborhood and to the state of the subdivision. It’s dynamic, ever-changing.

If you’re not keeping up with dynamics of markets, you’re probably not maximizing shareholder value.

Which brings us back to rules in your markets. The number of public companies keeps falling. It seems like three names go private for each new IPO. But ETFs, indexes, swaps, derivatives, pairs-trades, structured products – it all keeps increasing. We’ve got the equity version of 2008 around us. In a sense, indexes and ETFs have become like mortgage-backed securities, tranches of derivatives sliced and sold as safe and secure even as the cash stream for every tranche begins at the same wellspring and shows signs of drying up. A market built on derivatives is not a safe place.

If we want safe markets, we should demand them. The companies whose shares form the market bedrock. How? For one, we can confront market rules that foster more trading in derivatives.

IR pros, what an opportunity! You – all of us – can steer a new course that changes the neighborhood. That’s awfully darned important (Joe Biden could phrase it better).

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