Equity AnalysisTestimonialsRequest a DemoEvents & ArticlesMarket Structure Map
Popping by the US Bureau of Labor Statistics, we see that the Consumer Price Index inflation rate for all items was 7.9% over the past year through June 2008. Energy inflation was 53.6%. Transportation, 22%. Food, 8.5%. Excluding food and energy from all items put inflation at 2.5%.
What’s this got to do with investor relations? Well, consider that the Dow Jones Industrial Average (including today’s 266-point gain) from January 2000 to July 2008 has risen exactly—oh wait. It’s dropped 1%. And there’s this: gasoline the week of January 2000 averaged $1.46/gallon in the US. This week, the average price nationwide is about $4.00/gallon. In other words, your investments pegged to the Dow are unchanged, while the real value of the denominating currency is at least 30% lower, and you’re paying 274% more for your fuel.
Oh, also, the US banks supplying capital for productive expansion have now written down some $400 billion of credit-related value, and estimates for these writedowns range from UBS AG’s $600 billion to the International Monetary Fund’s $1 trillion.
These economic data affect institutional investors trying to produce profits for clients. Is there any wonder that fundamental investment has declined? If you’re simply counting on returns based on capital appreciation over time, you’re in effect buying everything retail and selling your wares wholesale. This is not a tenable long-term route to returns.
Thus, you’re engaged in Sisyphean investor relations if you don’t adjust your thinking. It’s neither practical nor logical to conduct your investor-relations program in ignorance of economic and equity-markets realities.
All right, what’s the answer? Radically, execs and IR folks, you start managing your equity (and other balance sheet instruments) like currency. In other words, expanding and contracting your money supply, so to speak – your equity and traded debt – to meet conditions and changes in the marketplace. Money moves away from your sector or group? You use banks to shift supply out of the market and preserve a stable currency. Better for shareholders, better for cost of capital. Great for sellside relationships – and maybe even direct buyside relationships.
That’s ridiculous, you say. Well it’s that or be victimized along with everyone else by destructive governmental monetary policy (which is to exclude core inflation factors from calculations, pin losses for irresponsibility on the big banks and use your money to let citizens off the hook). Ideal? No. The ideal is minimal interference and maximum focus on the business. But taking that approach today as a public company is like living in the bottom of a ravine and ignoring flashflood season.
Let’s at least collectively begin to take some control back by paying better attention to when we report news and earnings, understanding our market structure and gearing outreach appropriately (a value price doesn’t mean you’re a value investment from an equity perspective), and how we’re bought and sold in quantitative vehicles so we can fit fundamental outreach appropriately with it and produce the best opportunities for shareholders. That’s ultimately what it’s all about.
Go to Market Structure Map index
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.
Subscribe via email | 
RSS feed | See the archive >>
RSS feed