In the footrace to the first snow of the season, we here at ModernIR’s Sierra Nevada redoubt trounced most comers last week by racking up two inches of pretty powder that clung to the pines and the cold shadows for nearly a day and a half.
A cold portent of things to come? Who knows. But speaking of clinging, footraces, and powder, what’s it all mean here lately, the wild swings and crazy things, investor relations officers, as you try to do your jobs?
While there’s no point in remonstration, as it’s de facto, government intervention is no friend of public equities, no matter what you hear in financial media. It will devalue currencies, which harms buying power, which destroys growth and employment.
So with that as a given, what to do? Let’s address the impact on the three forms of money that set equity values at any given time: rational thought, risk-management and speculation:
Currency devaluation will lower overall market capitalization. And rational investors – let’s call them Clingers, as they hang tight like fresh snow on pine needles – are going to be both cautious and diminished in number. Thank God for em, though. There will be better chances to stand out from the crowd, as we noted last week. But set management expectations for valuation low and long. Money won’t be flowing freely and effectively for awhile.
Second, with governments dampening risk of failure to the detriment of value, the layer of, let's call it "powder" softening blows – risk-management – is going to be thinner. Risk management methodologies involving baskets of securities are going to undergo change, because government intervention isn’t a force neatly defined by performance metrics and correlations between risk and assets.
Case in point: the Great Columbus Day Rally was risk-management’s counterpoint to Little Black Monday – we’re now hitting the next set of options expirations this week, folks. Money moved from derivatives back to assets for risk purposes, not investment theses. But we may see less of these actions ahead, which will keep the water level lower overall in equity markets. Worse, rational thought and risk-management may be at contretemps more often.
Finally, the footracers – the traders. Footracers can employ trading systems capable of using real-time information to trade instruments in multiple asset categories and market centers. These systems continue to grow globally, while the opportunities for rational investment and risk-management will decline. And we’ve seen breath-taking growth in volumes on these platforms, folks. Net story: they will be big.
So to be relevant IR folks, you’ll need to separate the wheat from the chaff. Consider this simply a core IR competency now.
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."
RSS feed
