Do you feel like singing a song by The Who?
I’ll tip my hat to the new ConstitutionTake a bow for the new revolutionSmile and grin at the change all aroundPick up my guitar and playJust like yesterdayThen I’ll get on my knees and prayWe don’t get fooled again
Illustration 134913890 © Adonis1969 | Dreamstime.com
I mean it two ways. There’s the stock market and banks. Boom! Dow Industrials up over 600 points in the two days of new options for April expiration.
They traded Monday, and banks yesterday squared books on those and the ones that lapsed last week (Thu-Fri). Voila, bull run!
(EDITORIAL NOTE: Speaking of markets, the ModernIR team is hosting a webinar on messaging to machines, a key skill for public companies, Mar 28, 1p ET. Register here.)
And people said, “Troubled banks who?”
I wrote last week about what the Fed knew. The central bank’s interest expense exploded 1,700%. Bond prices move inversely with rates. Banks hold bonds as “safe” capital.
And all that capital has devalued like real estate in 2008. Yet the Federal Reserve probably lifts rates 25 basis points today because “higher rates combat inflation.”
Higher rates mean more interest expense.
The Federal Reserve was not monetizing government debt when Paul Volcker hiked rates to 20% in June 1981. Oh, and it wiped out the Savings & Loan industry.
Inflation back then was rooted in cutting loose from the gold standard. The dollar plunged, purchasing power imploded, prices soared. High rates prompted people to take dollars out of circulation by saving them.
Inflation results from currency-devaluation.
We’ve been fooled. The Fed devalued our currency in the Pandemic, despite history’s lessons. Lifting rates to take bucks out of circulation won’t work this time because the Fed creates money and the banking system doesn’t depend on deposits anymore.
In fact, deposits are a liability for banks.
Think about it.
Fed lifts rates. People deposit money. The bonds banks carry to back those deposits devalue because rates move inversely. Banks paying people to take money out of circulation go broke. And the government creates more money to backstop the deposits.
Only Weezer could write a song about it.
I digress. Let’s stick with The Who.
We should probably get down on our knees and pray.
Which brings us back to the stock market. We need a new investor-relations revolution because stocks are now products, not stories.
(One more editorial note: Fast Traders account for over half of market volume. How can IR teams effectively interact with Fast Traders? Attend the ModernIR webinar Mar 28, 1p ET.)
Do we understand what the money is doing? I’ve been looking hard at the data. Facts:
-95% of market cap is in the Russell 1000, 5% is in the Russell 2000.
-1,800 microcaps are less than 0.5% of market cap. Who’s telling them to go public? Statistically, 99% will fail to grow out of the category.
-$500 billion leaves active portfolios for passive portfolios annually (since 2008).
-Morningstar says 70% of all stock-pickers – 98% among large caps – don’t beat the benchmark over a decade. So they don’t raise funds. They’re sellers, not buyers.
-The Wilshire 5000 total market index is 3,525 stocks, less than half what it was two decades ago, and of those, just 800 are most of total market cap.
Conclusions? Telling the story doesn’t change outcomes. How are we adjusting?
And there’s inflation in the stock market. Too much money chases too few goods. But it drives shareholder value. Money is a product, a commodity. It flows into stocks that are products, commodities.
I was on a call yesterday with an IR guy proud that his company has 31 analysts following it. That’s good!
But those analysts don’t drive shareholder value. The 70% of the money behind his price that’s either indexing or closet-indexing (because it’s one of those 800) is doing it.
The IR guy is an ex-sellsider. If analysts covering stocks are becoming IR people, it’s obsolescence.
Big stocks get bigger because they became a bigger share of a shrinking pie of public companies. Small stocks are left out. They’re 5% of assets.
What to do? Well, not what we’ve always done! Data must become 30% of the IR job. If you want to know more, reach out and ask us. We’ve got that data.
And if you’re a large-cap value or growth stock, you’re a product, not a story. Stop wasting time and money. Ninety-eight percent of stock-pickers in the category lag.
We should smile and grin at the change all around. And we should understand it. Let’s not be fooled again. Let’s know our market.
And what will the market do next? Today, Jay Powell will say or do something, maybe both. VIX options reflecting volatility as an asset class will expire.
In the market, over 51% of all volume is short, borrowed. Demand on a 10-point scale is 3.3, bottomed. Could go either way. But the bets are short.
I might pick up my guitar and play.
