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Perusing trading data last week had us recalling a story about two cowboys watching a herd of cattle stampeding by. One says to the other, "What do you make of them critters, Vern?" Vern says, "Appears we’re too late to stop them. Mayhap we should join them."
Translating, we saw some strange things last week. First were the news anchors on networks other than CNBC talking about options expirations, proof that expiring puts and calls on instruments ranging from US treasuries to S&P 500 indices have gained a toehold with mainstream editors sizing up market behavior. Second, desks that often help institutions avoid stampeding short-term exuberance were in the middle of the melee this time. Third, Goldman barely made the volume top ten, suggesting that its strategists either see or know something else. Fourth, all the volume leaders were alternative platforms and rebate traders (the firms making change in trading tills rather than taking actual positions).
What to conclude IR folks and execs? Recall that we’ve been unsurprised by momentum, noting before that big money surveyed the global smorgasbord of asset classes and picked the best bargain, cash equities. We also said last week that the run wasn’t over but would likely lose steam by quarter-end and ahead of April Fools Day. Does a weird display of fundamental money in the midst of expirations mean the rally is real and here to stay? Or is it instead that even patient money has been lured by the glint of faux value into the fray at the most inopportune of entry points?
We wish for the former but fear the latter. So don’t be surprised if at the very moment that someone significant announces that we’ve hit the bottom, traders exit stage left taking with them significant loot from the gullible, including pension and sovereign-wealth funds and no doubt retail investors too. We believe commodities, currencies and interest-rate derivatives are going to offer traders and investors some compelling alpha and beta (that is, volatility and divergence) lures in the next few months. So why would money remain in equities when business fundamentals don’t support them and the major measures have tacked on 1,000 points in less than three weeks?
Mm, yes. There’s the rub.
Meanwhile, for your entertainment we have Congress and the Daily Trashing of some codified constitutional principle, such as spending money only by specific appropriation through law, rather than, say, by writing some number with a long train of zeros in the asset column at the Federal Reserve Bank.
We’ve asked if we could apply this same approach to our revenues here at ModernIR but have been advised by counsel that it would constitute, to quote, "fraud."
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