January 6, 2016


Happy New Year!  There comes a time in life when, to quote a friend most adept at wordsmithing, “One hallmark of a great vacation is lying face-down in salt water, with snorkel and face mask, watching the peaceful, sparkling life of the reef.”

We love it any time and December took us to St Martin and a catamaran and a pleasant journey around Anguilla and down to St Barts, the sea waves a solace for body and soul.  If you’ve not yet been where the tradewinds are constant friends, go. It’ll remind you to appreciate life, and time.

As the Chambers Brothers would say, the time has come today (taking eleven minutes to make that musical argument in 1968, the year after my birth) to think about what’s ahead. I wrote a CNBC oped yesterday describing the risk in ETFs that your executives should understand as 2016 unfolds. A goodly portion of the nearly $600 billion of 2015 inflows to passive investment giants Vanguard and Blackrock went to these instruments, portions of which are likely laying claim to the same assets owned by active investors and the indexes ETFs track.

That’s no threat when more money is arriving than leaving, but as Warren Buffett once observed, you only find out who’s been swimming naked when the tide goes out (or something near that).

I don’t know if 2016 will be the Year of Swimming Naked.  Looking back, in Dec 2014 we wrote you readers who are clients: “There is risk that a strong dollar could unexpectedly reduce corporate earnings in Q414 or Q115, stunning equities.  The dollar too is behaving as it did in 2010 when a major currency was in crisis (the Euro, with Greece failing).  Is the Japanese yen next?  The globalization era means no nation is an island, including the USA.”

Money kept flowing but 2015 wobbled the orbits of multiple currencies. Switzerland dropped its euro peg, the euro dropped to decade lows versus the dollar (which hit 2001 highs), the yen became Japan’s last desperate infantryman for growth, and the Chinese yuan repeatedly rocked markets, most recently Monday.

These factors matter to the investor-relations profession.  Picture a teeter-totter.  Once, money was a stationary fulcrum upon which commercial supply and demand around the globe moved up and down.  Today, central banks continuously slide the fulcrum to keep the teeter-totter level. Into the markets denominating the shares of the companies behind commerce pours money following models: indexes and ETFs.

This is our world, IR folks. Fundamentals cannot trump passive investment or the perpetual motion of the money fulcrum. So we must adapt.  Our most important job is to deliver value to management in the market as it is, not as it was. Running a close second is to achieve the IR goal: To the degree we can influence the outcome, aim to maintain a fairly valued stock and a well-informed market – which decidedly doesn’t mean a rising stock.

Both what you can control and whether your stock is fairly valued in a dynamic market where price-setting is more quantitative than qualitative are measurable. But not with valuation models from when the preponderance of money setting prices was taking 10Ks home at night to find the best stocks.  IR must be data-driven in the 21st century.

As 2016 begins, are tides in or out? Our sentiment measures suggest a harsh January. The cost of transferring risk through derivatives is rising. The appreciation of stock-prices necessary to sustain the value of derivatives dependent on them is stalling. And currencies – the fulcrum for prices – show worrisome seismological instability.

Now maybe both January and the year will be awesome, and let’s hope so!  Whatever comes, great IR professionals stand out against a changing backdrop by providing management data points about the stock and the market that deliver calm confidence.

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