I say let's all go to Hollywood. No, I mean Hollywood, FL, site of this year's NIRI National conference.
At risk of discouraging you from going, I'm moderating a panel there called "How the Buyside and Sellside Trade Your Stock Today." Themis Trading's Joe Saluzzi, whom we quoted in last week's email, is joining us, as are experts from Rosenblatt Securities, an agency trading technology leader; and Direct Edge, the alternative market routinely trading a billion shares daily. The aim is to learn what happens behind price and volume now, from the view of firms engaged daily in doing it. It'll be fun and eye-opening. See the link at bottom for conference details.
To equities, there's been a remarkable surge in speculative trading. We've never seen such a large swing in so short a time. The losers are the big Prime brokers. This may in part explain why Goldman Sachs has resumed its hedge-fund tactics, essentially leveraging free money from the government to drive principal-trading profits from fixed-income, currency and commodity instruments.
There's a lot of that behavior in equity trading too. We're reminded of the children's tale called "The Emperor's Clothes," where two tailors arrived at the court to make gorgeous garments for the king. They set up a loom and took measurements, and seemed to work furiously, occasionally asking the king to attend fittings. Except there were no garments. No one would admit it, however, until a small boy said, "What's everybody looking at? The king is naked."
The markets are like that. There is no substance to April appreciation. It's traders reacting to each other's behavior, with no one yet willing to acknowledge The Emperor's Clothes. We don't say this to discourage you, but to help you keep a realistic perspective and retain that air of coolness in the IR chair. At some point, this house of cards will again come apart. Markets cannot for long stay firm upon things with no value.
One other note: We've lately seen growth on European structured-products desks like Calyon, Newedge, Societe General and SG Americas. These are essentially the same facilities, since Calyon and Newedge are joint-venture platforms between French banks Credit Agricole and Societe General.
What's behind it? They've clearly won business formerly held by American firms. SG is a potent purveyor of products designed to help big investors like sovereign wealth funds move money nimbly across global markets at minimal risk, using mathematics. On occasion, the data go wacky and structured products get shellacked; but right now, they're working. So we think aggressive European, Asian and Mideast money has chased equity momentum through these facilities.
We've also said that money will leave equities, and we frankly expected it already. This departure may now be underway ahead of options expirations Wed-Fri 4/15-17. It's an ideal time to hide institutional footprints amidst the musical chairs of risk-management resets.
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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