Market Structure Map

Helping IROs understand short-term market structure to maintain long-term peace of mind.

Apr 13-17: Risk Resets Alas, and Not Real Investment

Now on to trading, and what it means as you ride the daily investor-relations roller coaster. Recurring lesson: wild intraday swings and knee-jerk market swoons and swells in tune with Tweats from the US Treasury do not a sound foundation for long-term buy-and-hold investing make. Four-percent intraday volatility does not typify GARP deployment (see link below on the first GARP ETF, launched in December, the 848th ETF now out). And this goofy schizophrenia is not another bull market in the making, but the expansion of trading in multiple asset classes, on many market centers simultaneously, in various global locales.

We don’t wish to be the Nouriel Roubini of IR perspectives, all dour and lugubrious. We watch the behavior of money and report to you its effects on price and volume. Money doesn’t guess or lie, it ebbs and flows. Right now, it’s ebbing and flowing like a seismograph. This is a fact, not a hunch.

What nuggets shall we glean from last week’s options expirations and this week’s trading? One key observation: where speculative trading had risen to unprecedented heights the week before, April 13-17 showed surging prime brokerage, which screamed to all traders that risk resets by large money sources were at work.

Why? Revamping risk profiles in portfolios cannot be executed efficiently in Reg NMS markets by electronic trading in fast fragments. It must be done through internalization at large sellside firms, which can then hit 20 or 30 different liquidity pools with algorithms to balance out excesses. This sort of trading soared last week. This week, big money again feels safeguarded and able to continue chasing minute, real-time yields through trading. Do not confuse this behavior with investing.

We’ll know when real investment returns, because traders will stop reacting to each other and investors will again respond to fundamentals. When will that be? When markets are allowed to flesh out value at the garage sale without filing a TARP application, asking permission to pay their employees, adapting to every ex post facto rule, and wondering just what sort of law, if any, applies in US markets, since government appears to have little regard for corporate by-laws, articles of incorporation, or the Constitution.

 

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Market Structure Map

Our weekly Market Structure Map provides unique insights — free — on trading markets, with an exclusive focus on helping investor-relations professionals keep cool in the IR chair.

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