On this Inaugural Day in the United States, we're reminded of a favored passage from the address occasioning Thomas Jefferson's second term, delivered March 4, 1805:
"The suppression of unnecessary offices, of useless establishments and expenses, enabled us to discontinue our internal taxes. These, covering our land with officers and opening our doors to their intrusions, had already begun that process of domiciliary vexation which once entered is scarcely to be restrained from reaching successively every article of property and produce."
Our mission is fostering lean, clean IR departments free of domiciliary vexation and rich with unrestrained property and produce. How do we propose to help you discontinue internally taxing wastes? By showing you how money behaves in your equity market so you can streamline your IR activities and measure outcomes differently and more affordably than in the past. Get rid of those outrageously expensive old conventions. Reducing expenses while doing more with less effort is cool, even if Keynesians don't admit it.
Speaking of reductions, we observed that something intruded on the goodwill of institutional money buoying the beginning of 2009. By 1/13, program trading was dropping precipitously. Is it that continuous-contribution vehicles ranging from 401ks to institutional asset-allocation mandates were being suspended or redirected? Or was it the approach of options expirations that made institutions wary about pricing models? A mixture we think, and as we said in December, we look for still worse equity conditions shortly ahead.
Getting more specific, here's what happened: investors and program traders ended December with a commitment to increase exposure to equities, but by Jan 6 speculators were beating them to supply, and by Jan 13 program traders threw in the towel. So should speculators be branded killers of the January rally? No, they only highlight inequities. Stock values, low they may seem, are insufficient to support the demands placed on them right now, and speculators know it.
Similarly, speculators highlighted fundamental problems with the dollar during the 1960s, when its value began to flicker outside the price-pegged range of $35-per-ounce-of-gold. To combat it, banks would sell caches of dollars to flood the market and restore order, then buy the excess to reset price stability. It didn't work because speculators bet against these actions. Speculators were simply signaling the belief of global markets that the demands on the US economy were greater than its capacity to supply.
Back then, we conceded and devalued the dollar and then released it from the gold standard. Result: in 1971, gold was $44/ounce, in 1972 $70/ounce and today $813/ounce, which is really a reflection of the inverse value of the dollar.
Lessons of history.
Margaret E. Wyrwas - Knight Capital Group, Inc. (Nasdaq: NITE)
Senior Managing Director, Corporate Communications & Investor Relations
Equity Analysis™ subscriber since March 2007
"In global markets driven by automation, changing market structure regulation and dynamic investment objectives, today's investor relations professionals require new data points in order to remain relevant and add value in their company's quest to reduce its cost of capital."
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