It was a rock tied with a leather strand to a wooden stand. The instructions said: “If rock is wet, it’s raining. If rock is dry and hot, it’s sunny. If rock is cold and covered with fluffy white layer, it’s snowing.”

Similarly, I saw this in a recent Bloomberg article: “The best way to keep pace with the S&P last year would have been a strategy that rotated between sectors based on the macro headlines,” said David Spika, fund manager at Westwood Holdings in Dallas.

That sounds a lot like “if rock is wet, it’s raining.” The elegance of simplicity notwithstanding, how do you distinguish the IR chair and your company’s shares in a market moving on whether the rock is wet or not?

One argument says you change your focus. Deemphasize the capital markets and instead get baptized in Dodd-Frank, proxy evolution, say-on-pay and myriad others rules and regulations oozing like molasses through public capital markets. Become a compliance concierge. Well and good. But you’ll be competing with internal and external legal counsel for thought leadership, and I find that the advantage lawyers have is they have law degrees.

Or you could change the world. Sure, that sounds hard and complying seems easy. But come on, who wants to just mark time on the IR hamster wheel?

Try this bold strategy. Ask your CFO to add three things to your job description: A responsibility to become the internal expert on trading markets. Point person for monitoring your exchange and the SEC for rules affecting how your stock trades. And “Chief Economist” for your company’s currency – your traded shares.

Which one sounds like more fun? Complying or changing the world?

You can’t change the world in eleven seconds. Only Tim Tebow can do that. But you can spend time each week educating yourself on how trading markets work. You can read rules your listing exchange proposes and advise management on whether to comment on ones harmful to your investors’ interests. One reason why markets are great for 5-second investment and lousy for 5-year investment is that those making the rules love 5-second investment.

And if you do those, and add in knowledge of macro factors, you’ll be an effective Chief Economist. A step at a time, instead of an 80-yard pass play to the end zone, you can help restore sanity and vitality to our profession. That’s good news, rewarding, and fun to boot.

And, go Broncos!

And with good reason. The lovely KQ and I winged southward with fellow wayfarers for time over the keel on the cayes and reefs of Belize. At Queens Cayes east off Placencia past the wildlife preserve at Laughing Bird Caye, we found what one friend called “your own Corona commercial.” As the sun faded toward dusk there, we caught this grand view of our boats on Dec 11. Our companions below the surface included this delightful fellow, a spotted eagle ray. The Eagle Ray Club is a good name for a rock band.

Inland on the far side of our trip we trekked the jungle and climbed this spectacular Mayan temple at Lamanai in the Orange Walk district. Lamanai, with some 32,000 structures hidden by the jungle, once was home to 60,000 Mayans. If the world ends next December (this comic strip offers an alternative view), we’ve redeemed the time between the best we could.

Speaking of speaking, the SEC in latter December told the Nasdaq no-way on its Market Quality Program proposal that would have authorized the exchange to charge small-cap stocks an additional $50,000-$100,000 annually to incentivize broker dealers to make markets. Read the proposal here (we say “read” loosely, as it’s composed in “marketstructureeze,” intelligible if you have a decryption tool akin to what the Allies in World War II used to debunk the German cipher machines called Enigmas).

The Nasdaq, NYSE, BATS and Direct Edge (as well as other exchange operators) file many rule-making proposals each year. These rules affect how your stock trades and often incentivize the very things making markets loathsome to real investors: statistical arbitrage and high-frequency trading. Why? These behaviors are essential to exchange profits. Thus, in 2011 alone, the Nasdaq, curator of the most codicil constipation, filed at least 171 rule proposals. The NYSE made 73 proposals, and BATS and Direct Edge 51 and 42, respectively.

SEC regulations require comment periods for each proposal. We weigh in when a rule strikes us as unhelpful to public companies. We cannot recall ever reading a single comment letter from a public company on any rule filing. Why? Good question. Public companies should be a key voice in the markets where their shares trade. Instead, listed companies have seemingly handed the hen house to the coyotes.

How about a New Year’s Resolution, IR pros? Resolve this year (this week?) to involve your General Counsel in watching the rule filings from your listing exchange.

Heck, do it yourself. Fast-trading is a by-product of exchange trading incentives. Nobody drives these more than statistical arbitragers and high-frequency traders from both sellside and buyside. As in any loyalty program, exchanges give their best customers the most attractive trading rates. But their best customers are often your worst enemies – in terms of setting real, natural prices.

It continues because thou protesteth too little. Read and comment on rule proposals from the NYSE, Nasdaq and BATS at the links below. You can view other comment letters to see the best way to opine, but it’s straightforward. Write a letter explaining your objection, emphasizing your standing as a publicly traded company listed by the exchange:

http://www.sec.gov/rules/sro/nasdaq.shtml

http://www.sec.gov/rules/sro/nyse.shtml

Exchanges’ sites:

http://www.nyse.com/nysenotices/nyse/rule-filings/list?year=2011

http://nasdaq.cchwallstreet.com/filings/

Let’s make 2012 The Year That Public Companies Spoke Up.

After breaking for a week as an act of giving thanks, we’re back. Karen and I joined 88,622 others in Aggieland at Kyle Field in College Station for the A&M football game last Thursday versus the Texas Longhorns. Disappointing outcome, great Thanksgiving.

There’s something special about Texas. People passing you on the street say hi and the kids say yes ma’am and yes sir. There’s a lot of what Kenny Chesney calls “the good stuff.” What may be the world’s greatest college bar, the Dixie Chicken, sits on the main College Station drag like an Old West saloon. Batwing doors, even.

Speaking of swinging doors, gyrations in markets make it awfully hard to use your stock price to measure investor sentiment (wasn’t that the idea behind exchanges?). In fact, there’s inherent contradiction between the way markets behave now and how the IR profession cultivates holders.

IR folks typically seek buy-and-hold money that does not trade. Yet executives frequently ask about the stock price. The news rushing at us round the clock tries to explain market behavior in rational terms. Yet stock prices are set by the latest fleeting bid or offer. Nine of ten times, those prices are not rational.

We advise clients to track Rational Price – our measure for the level at which thoughtful investment behavior jostles through the batwing doors of the market to compete with the din in there and stamp a price on your stock. It doesn’t happen often, frankly. About half the client base has had no new Rational Price since about Nov 4. The time between has mostly been about fear and greed vacillating around the euro.

One lesson: If you want rational money setting price, target investors with shorter horizons who’ll shoulder the batwing doors more frequently. If you’d like to hear more about rationally quantifying market behavior, send me an email and ask for our white paper on Measuring IR in Modern Markets.

Speaking of markets, we’ll wrap with a word on them. We warned clients that investors were shifting from equities to derivatives with options expirations Nov 16-18. We saw the biggest use of VIX S&P 500 volatility futures since August. The cause? The euro.

You remember a year ago we were talking about the potential demise of the euro? In a Wall Street Journal article Monday, ICAP Corporates, the biggest “wholesale counterparty” broker helping investors swap this for that globally, said it’s running tests for the return of the Greek drachma and maybe other national currencies.

The implication for IR? Trading is global. We track its impact on clients large and small. A euro-zone fracture would bring into question valuation mechanisms for entire global markets. Right now, it’s all relative. In 1999-2000, the euro’s creation coincided with a significant devaluation of the dollar and a huge bubble in stocks.

Because ETFs are miraculous.

The biblical story of creation is that something came from nothing. Same with the Christian concept of redemption – being bought for a price without rendering equal worth in kind.

Today, we’ll share with occupants of the IR chair the divine story of how ETFs work.

Before ETFs were closed-end mutual funds. Closed end funds (CEFs) are publicly traded securities that IPO to raise capital and pursue a business objective (like any business), in this case an investment thesis. Traded units have a price, and the net asset value rises and falls on the success of managers in achieving objectives. The rub with CEFs is that share value can depart from net asset value – just like stocks often separate from intrinsic business worth.

The investment industry, with support from regulators, devised ETFs to magically remedy through Creation and Redemption this fault of nature. ETF kingpin iShares, owned by Blackrock, illustrates here, with a clever floral analogy (thank you Joe Saluzzi at Themis Trading who alerted us to it). You don’t have to buy individual flowers and face market risks because iShares puts them in a bouquet for you. Great idea.

Now suppose instead of one bouquet you want a thousand? In the market, what happens if someone suddenly wants not a hundred but ten million shares of your stock? Supposing such a trade were even possible today, the impact on your market would be extraordinary. But what if you could instantly issue ten million shares – poof, out of thin air? Your stock price would stay the same, because supply would swell to absorb demand.

That’s what ETFs do. They create shares. They must specify the methodology in their prospectuses. For instance, the iShares Telecom ETF “IYZ” says “Creation Units” are blocks of 50,000 ETF shares that it will issue to certain “authorized participants.” Some are brokers, some institutional investors. In turn, these participants supply the ETF sponsor with the designated set of assets – the mix representing the ETF’s constitution. In the case of IYZ, it approximates the Dow Jones US Telecom Index.

Redemption is the reverse. The ETF sponsor “redeems” shares by taking back units and returning constituent shares. The elemental concepts of supply and demand are neutralized. Prices of components miraculously stay the same even as tens of billions of dollars flow to ETFs. It’s almost…perverse.

The ETF sponsor as God and creator of the ETF charges authorized participants a licensing fee and buyers of ETF shares a management fee. This seems a good business – charging fees both directions while you work your ETFs like bellows.

But there’s more. ETFs can only be created and redeemed in blocks – 50,000 shares in the instance we cited above. Beyond the obvious inclination for brokers and institutions to “manufacture” units of ETFs from discretionary liquidity as a way to offset portfolio risk without paying for it, the arbitrage opportunities around assembling and disassembling Creation Units stagger the imagination.

You can short ETFs. You can buy, sell and short options and futures on the underlying indexes. Buy, sell and short the components of indexes, and of ETFs, and the options on components. You can buy, sell and short ETF options. You could buy, sell and short closely related ETFs and all their components and related derivatives. You can swap them all, spread-trade them, buy, sell and short the volatility among them.

And how about trading ETFs long or short in small increments and then creating or redeeming units inversely in large chunks if you’re an authorized participant? Institutions and brokers are doing this with highly sophisticated algorithms. Software providers like Tethys Technology abound for maximizing outcomes.

The key to this kingdom, this arbitrage nirvana, is that one entity, through creation and redemption, is stable, while all the others vary.

No wonder ETFs are responsible for some 35-40% of daily market volume. No wonder everything is massively correlated. If ETFs drive demand for components, and ETF units expand and contract to stabilize prices, then price movements of individual securities become volatile intraday, yet major measures come rapidly back into correlation.

The problem is apparent: If the medium of exchange adjusts to fit supply and demand, how do you buy value, or growth? Prices revert to the mean, irrespective of value or growth prospects.

Yet value and growth are the pillars of capital-formation.

What’s more, ETFs are one-day life cycles for industries, sectors and groups. They are only truly effective as investment vehicles for a day. What existed yesterday has been redeemed and what will be tomorrow has not yet been created. From air ye came and to air ye shall return.

EDITOR’S NOTE: The same concept backs the “maker-taker” trading model, in which exchanges pay high-frequency traders to swell and fade around supply and demand fluctuations. Create and redeem liquidity to stabilize prices. It’s behind global central banks too: create and redeem currencies to stabilize prices. Eradicate market forces from outcomes. It’s…unnatural. No wonder everybody is looking for a miracle.

Speaking of scary, for those keeping record we note more currency-driven events to explain to your executives. First, the European Central Bank last week threw down the red carpet for Greek lenders, so the dollar dived and stocks soared on changes to perceived risk and anticipated further global currency-printing. On Halloween, Japan intervened to weaken the yen by buying other currencies, so the dollar strengthened (less supply, same demand) and markets plunged. On Nov 1, fear of setbacks on the Greece deal drove risk managers back to the dollar, pushing it up and stocks down more.

US markets should be proxies for fundamental value and forward multiples of collective corporate cash flows. Not meters for currency fluctuations. Happy Halloween.

Speaking of meters, there is Tom Peterffy, immigrant, billionaire, and architect of automated trading. Peterffy ranked 236th on Forbes’ list of the 400 richest in 2009, fruits of long labor revolutionizing how stocks trade. Peterffy, founder of Timber Hill and Interactive Brokers, pioneers in automated multi-asset-class electronic trading, believes automated trading goes too far.

Peterffy told Wall Street Journal reporter Scott Patterson in an October 20 story that automated trading has made markets less efficient and less safe. That’s akin to the inventor of a major heart medication pronouncing the compound dangerous to one’s heart.

Peterffy led the charge a decade ago to bring mathematics and machines to the process of matching trades. If investors needed to buy and sell shares, computers that picked and plucked from all over to fill orders for spreads at fractions of the old levels meant something was always on the other side of the trade. Liquid markets.

But they’re not liquid. They just have lots of volume. Liquidity suggests substance. And there’s the problem for the IR chair. Each market day now is a microcosm, an entire trading universe, the whole life cycle of industries boiled down to a single day’s activity. You make investments, hedge them, leverage them and trade the ramifications for currencies and bonds of growth and contraction. For a day. Start fresh the next day.

In this world, companies should hold four conference calls daily to update investors. Well, that’s absurd. It’s confusing busy with productive, exactly what low-spread markets do. The essence of human commercial interaction should not come down by regulatory edict to the spread on a trade.

See you Thursday at the NYSE for the IR Magazine Think Tank! Catch me at a table and we’ll kick this idea of one-day markets around.

A woman becomes convinced her house is haunted. In case you’ve not seen it, I’ll save the twist, but it’s the twist that matters. Things are not as they seem.

Crack WSJ markets writer Tom Lauricella asked in a page one article Oct 18 if markets are cracked. Traders he surveyed said building positions in stocks is getting harder. Liquidity is thin. Spreads are rising. Getting trades done – completing an order to buy or sell shares within projected price ranges – is challenging now in the most liquid names.

In the movie The Others, the problem is perspective. The answer to what’s going on depends on how you look at it. Since we’re limited by the camera and the perspective of the central characters, the reality of the problem doesn’t manifest itself till near the end.

In markets, it seems like liquidity is the problem. But what if it’s a matter of perspective? Classically, liquidity is capital. Today it’s somebody on the other side of the trade. Are they the same? No. What’s on the other side of most trades? A machine. Why is it there? Incentives. It’s not there because it’s committing capital. It’s there because it’s paid to be there.

Don’t believe me? Look up exchange fee schedules and see the difference between rebates for adding liquidity and fees for consuming it. You can Google it.

About ten years ago when The Others came out, regulators decided brokers had too much power. Markets were decimalized and automated to marginalize brokers. The idea was good: Middle men were driving up the cost of investing so get rid of the middle men.

But referees shouldn’t determine outcomes. It’s like the problem in all time-travel movies: The moment you interact with someone, you alter every future outcome. Brokers own most of the dark pools and exchanges. There are TEN TIMES as many middle men now in the form of speculative traders changing prices daily. But exchanges don’t commit capital. Speculators don’t commit capital.

Do you wonder why there’s no liquidity? There is no liquidity because rules and regulations discourage committing capital to match up buyers and sellers, because there’s no profit except in 100-share increments. Add the value uncertainty that flourishes when 100-share trades resulting from incentives set prices for the whole market, and you soon won’t see block trades in AAPL.

Which brings us to the cost on the corporate balance sheet. Calculate your average intraday volatility. You can do it by going to any repository of your historical quotes. Subtract the daily low price from the daily high price. Divide that result by the closing price. The result is your intraday volatility percentage. Do that over 20 days. Average it.

Across our client base, average intraday volatility is over 4%. If you substitute intraday volatility into a common calculation of the equity cost of capital in place of beta, you will arrive at something very near the REAL cost of your equity, based on implied volatility.

You will be stunned.

A top-twenty US public company’s treasury department and we both found real cost of capital between 13-14%. That’s cheap compared to many, where the cost of equity capital is between 20-30%.

What it means in effect is that your stock price is materially lower than it should be because markets today consist not of liquidity – capital – but trading fragments for immediate profit.

In The Hours, the question is who is haunting and who is haunted. The same one exists in equity markets. By driving brokers from markets in the name of lower spreads – thinking that somehow low spreads equal liquidity – we have exploded the cost of equity capital. We have haunted our own markets.

The parties robbed by these rules are investors and public companies. The two most silent participants in capital markets.

How to solve this problem? If your stock doesn’t reflect multiples of cash flows and can’t seem to break out of repeating ranges and loops, it’s not you. It’s the structure. Maybe it’s time to speak up.

The hours tick.

“Let me tell you a wonderful old joke from communist times. A guy was sent from East Germany to work in Siberia. He knew his mail would be read by censors. So he told his friends: Let’s establish a code. If the letter you get from me is written in blue ink, it is true what I said. If it is written in red ink, it is false. After a month his friends get a first letter. Everything is in blue. It says, this letter: everything is wonderful here. Stores are full of good food. Movie theaters show good films from the West. Apartments are large and luxurious. The only thing you cannot buy is red ink.”

Great joke. No doubt scrutinizing your trading data to make sense of it is like something written in red, the code for which is blue.

Speaking of which, chances are, your earnings date is approaching. Your intraday volatility (spreads between high and low prices) is perhaps 4%. Across our client base, it’s now over 4% on average. To help you make sense of your stock price, the exchanges and designated market makers and surveillance firms are giving you columns of data on trading by different brokers and sector or economic news. They tell you so-and-so upgraded the sector, causing a strong rally.

You’re not sure. In your gut you think the euro has got a lot to do with it. Maybe the dollar. It would be nice to know. And it would help if you could assess how money will react to the news you announce next week or the week after.

There’s a lot you can know (don’t miss the Nov 3 IR Magazine Think Tank where we’ll discuss it). As much as we rant about the Swiss-cheese state of data for issuers in a gold-bar kind of world for speculators, your trading data in context of market rules is like an electrocardiogram. You can identify what generates the pulse and what’s driving fear and greed in the corpus of your equity market.

It’s a math problem (oh boy). I randomly sampled ten market structure reports for clients. In the past five trading days, Rational share of volume ranged from 10% to 16%, with an average of 12%. Speculative trading averaged 34%; Programs reflecting passive behavior were 29%. Another 24% went to risk-hedging and other things that don’t fit these buckets.

So if you are going to beat your active investors’ expectations on the call, and they consequently value your shares 5% higher, but programs for funds and models – asset managers – set your value 3% lower because of balance-sheet issues, what might happen to your stock?

It’s math. Programs are 29% of your market, so their pricing weight is twice the factor of rational investment. And if speculators have multi-leg straddles that pay off in cash if your shares move down, we can run a calculation that projects what will happen.

We are almost always within 1%. So we must be doing something right. If your stock were trading at $36 ahead of your call, we’d project a close at $34.81, with these expectations applied to outcomes.

How can this be? Markets are a maze of varying purposes and horizons following prescribed rules and order-types to match up as buyers and sellers. This mathematical maze can be sorted through a model.

Since rational investment is about 12% of the market, using data analytics to understand your trading – the same things the folks do who trade it to begin – is a good idea for the IR chair today. You know the 12%. You talk to them all the time. It’s the rest you need to get a grip on, so you can equip management with rational expectations.

We are willing to bet the sum total of wages for a large Wall Street demonstration that no surveillance firm or exchange can equip you with these answers.

In fiction writing, authors will create portent by ending a chapter with something like: “She could never have imagined the consequences of her decision.” You can’t wait to turn the page to find out what she couldn’t imagine. The writer has subtly influenced your behavior.

The Fed is always trying to influence our behavior. Market performance October 4 (today) was mostly about Fed influence. Affirming commitment as lender of last resort – which sounds good but means “we will print endless piles of cash” – is the same as devaluing the dollar. So the dollar plunged in the last hour of trading, and stocks soared. (We all want stocks to rise but think about a teeter-totter. That’s stocks and dollars.)

In trading markets, exchanges continuously toy with behaviors by changing the spreads between fees for taking shares away and credits for bringing them to sell (this is the root cause of high-frequency trading). Exchanges are influencing behaviors.

Why does it matter? IR is about influencing behavior. In the past, we did it mostly with operating results, investment thesis and investor-targeting. Today, it must go further. Do you consider the impact of Fed policy and adapt your institutional outreach to match your investment thesis to impending changes in behavior? You should. If programs stall, don’t keep talking to growth money; shift to high-turn, deep-value money.

What about tracking your trading activity for action items? “Speculative behavior is up more than 30% in the past two weeks. That’s going to erode passive investment. We need to increase information flow and target money that can compete with speculators. Time to call on our best hedge-fund relationships.”

The IR program cannot live by story alone but by every evolving dynamic. Your equity marketplace – no matter your volume – is a particle accelerator slinging rational investment, speculation and risk-management. Trades are driven as much by other competing behaviors as by multiples of cash flow. You can’t reason with algorithms but you can alter their orbits.

It’s a chess game where you think three or four moves out. Say your stock has declined on big changes to strategy and financial returns. Your buy-and-hold folks are gone. How do you get back to GARP (growth and a reasonable price)? Execution is always a must, but you can’t simply target GARP money. You’re not a GARP investment. You’re a speculative high-turnover investment.

Fine. Don’t fight the tape. Target that money aggressively. Think about how that money behaves, and how it will change other behaviors in your market. If it buys, speculators will show up.

Who follows speculators? Right, momentum growth money. You’re thinking, “What do I say to high-growth money?” The facts. “We’re not a growth story now, but we know as we progress with our strategic plan that our stock will offer growth characteristics periodically. We want you to understand our story.”

Next, you’re moving on to the first wave of more conventional money: former value holders. At some point, the seeds you’ve planted will produce a pullback, and you want this wave ready to take up slack. Chess game.

Now some will say, “Nope, I do IR the old-fashioned way. I only target buy-and-hold money.” The old-fashioned way of fighting was to stand opposite each other in gentlemanly pose and fire volleys. Today we have satellite imagery and drones. Suit yourself.

But there’s no need to do IR the old-fashioned way in markets that don’t resemble yesterday’s any more than muskets and jets. For better or worse, this is the modern IR age. Make it your friend, IR pros (and join us Nov 3 at the IR Magazine Think Tank  in NYC to discuss crazy IR reality).

Burstream, apparently. The firm claims it can serve up actionable, meaningful trading data, no matter what market mayhem, in 600 nanoseconds. That’s 600 billionths of a second. The catch? You have to trade at the Nasdaq.

Burstream’s system is being installed at the Nasdaq OMX market center in New Jersey so the exchange’s important proprietary-trading customers will have a split-second – taken to the extreme – advantage. Customers wanting to use these superfast capabilities will be able to load their algorithms onto Burstream servers parked next to boxes housing the Nasdaq’s trade-matching engines.

Burstream systems will go near the Chicago Mercantile Exchange too. The idea is to unify data streams on stocks, commodities and derivatives so decisions about trading on divergence can be made faster than ever before possible. This is, of course, arbitrage.

Burstream says at its website: “Enable your high frequency trading algorithms to hit liquidity when it is revealed. Trade through market bursts while competitors exit the market. Sustained nanosecond speeds, even during message bursts will give your latency-sensitive algorithms a performance advantage.”

What makes Burstream special is its use of field-programmable gate-array chips (FPGAs) that can perform multiple calculations simultaneously, thus delivering a speed advantage over conventional hardware-processing techniques.

We have clients in the FPGA design and manufacturing businesses whose shares are publicly traded on the Nasdaq. IR pros may appreciate the irony. Companies who use the public markets to raise capital and build growth enterprises are being arbitraged via nanosecond data at the exchange that lists their shares.

We don’t fault the exchange per se. Exchanges are for-profit businesses today. They earn money by capturing a share of the quote and trade data on the consolidated tape. The amount is determined by how often securities at their market centers (most have more than one) quote or trade close to the National Best Bid or Offer. Thus, liquidity providers like Merrill Lynch, Instinet and Morgan Stanley are paid to quote at the Nasdaq. Payments come in the form of trading rebates for posting shares at the Nasdaq that offset against fees for removing them.

If the Nasdaq can speed up trading and arbitrage, more data are generated, more trades and quotes. It’s a virtuous circle: pay liquidity providers like Merrrill and Morgan to make sure liquidity exists. Encourage arbitrage with the fastest data systems to hit it. Capture more quotes and trades. Monetize consolidated-tape data. Repeat.

This is how exchanges generally work today. While rational investment is one behavior, it’s small today (and it does not re-price shares in nanoseconds). For obvious reasons. If you think about it.

Speaking of thunderous roar, I attended the jam-packed NIRI Rocky Mountain Chapter’s kickoff session today. Nasdaq chief economist Frank Hatheway offered a thoughtful and statistical look at the market. He joked that when he first prepared slides two weeks ago, the trends were improving but he’d had to change his comments to reflect reality.

Dr. Hatheway launched his talk by comparing stock indices with VIX volatility, Treasury yields, oil prices and gold. He observed that investor-relations professionals today need to develop a level of understanding of these “macro factors” – benchmarks of group behavior across asset classes (clients, we include a Macro Factors segment on page two of your Market Structure Report).

It was a chunky nugget I wanted to share. Get to know macro factors. Use these events to shape tactical outreach. If a macro factor like VIX volatility is deteriorating ahead of VIX futures expirations, it’s going to affect both risk hedges for major institutional holders and speculative trading by those chasing mathematical calculations of divergence. Call your deep-value holders ahead of time. If you’re on their minds, maybe they buy the dip.

Plus, the IR chair is in some ways today like the chief economist for each company. You’ve got to have your hands on data, trends. Why? It’s how markets work. If you want to know the outlook for your economy – the market for your shares – you need to understand what behaviors and trends drive it. As Dr. Hatheway noted, discounted cash flows still form the basis for asset value. But macro factors create the discount rate, in a sense, which can change quite dramatically how your shares are assessed in diversified portfolios or as liquidity in speculative models. Both are legitimate activities in your economy – your equity market. But you should know what role they play.

Often, rational money is out of step with market realities too. Today I reviewed data for a large real estate company and noted how rational money bought ahead of options expirations in August, just as trend traders and risk managers cashed out and shifted to derivatives. If IR professionals can avoid being caught flat-footed like that poor investment manager, well, you look smarter, cooler and better in the IR chair.

And that’s good job security in an economy that Dr. Hatheway thinks will grow about 1% next year.

Two quick reminders: Options expire, including VIX futures, Sept 14-16. And we’re sponsoring IR Magazine’s Think Tank session Nov 3 on tracking trading in the IR chair. Join us!