I was at the Newsroom earlier today to talk about data for our algorithmic products. I took these quick snaps of the newsroom. It really is a cool place, as newsrooms go; much quieter than most of the trading floors I've been on. All I can say is nice job to the designers.
Enjoy!
Today Dow Jones [WE] released a new Economic Sentiment Indicator, affectionately known around here as DESI (now we need a LUCY). The indicator makes use of search strings, word pairings and other qualitative measures while pouring through major newspapers to quantify economic sentiment. The indicator is measured on a scale on 0 - 100. Today's number, for the month of April, came in at 27.6 up from 26.3 in March and off the lows of 22.2 in November of 2008. I've included a chart below that shows the indicator since 1990.
As Die Hard's John McClane would say "Welcome to the party pal" ;-) You can get more information at http://solutions.dowjones.com/esi
I spent yesterday at the TradeTech Conference in NYC, Dow Jones is a sponsor. TradeTech is a mix of technologists and traders from many buy side and sell side institutions. The mood and tenor of yesterday's conversations were tempered by the downside swing in most indices, so keep that in mind with some of the comments. Overall, trading is alive and difficult in this environment as head traders search for the best ways to execute for their portfolio managers.
The first topic of conversation yesterday was dark pools, those often misunderstood liquidity providers that have become more commonplace for breaking up large orders via algorithmic models. The key feature of dark pools is the anonymity and confidentiality that they provide institutions in masking the intentions on orders. For the most part buy side firms really don't know how many dark pools their sell side brokers may be connected to. It is a concern for the buy side, but the attraction to execution, anonymity, and liquidity out weighs concerns, at this point. About 2 billion trades or 25% of US equity market trades in dark pools everyday.
When the talk turned to the trading environment and volatility, most traders stressed the challenges of externalities. Before March 17th 2008 [the Bear Stearns announcement] trading was still based on company news and overall macro. Once the crisis got into full swing and the government inserted themselves into the market, the shift in trading turned to any little piece of negative news. Most of the impact news is from economic releases and administration officials. Company news, if positive, has little effect. Negative news on the other hand is driving head traders motives on execution. The impact of ETFs is also being felt as traders need to watch the ETF show in the last hours of the day to understand the full move on their positions. With larger positions, he who can wait or hold cash balances longer, seems to be better off, especially when working with a portfolio manager that has a stated view of the market.
When it comes to information flow, the list just grows. Email, TV financial news, broker reports, news feeds, instant messaging, etc. In this information deluge traders see the advantages of research liasions, smart research-sales and sales-traders. These professionals that know their client accounts and can provide a constant "human touch' filter are becoming more valuable. As one trader described it,
"I have to cover so many names, that a good sales/trader, at a broker, can alert me to company calls or to the right news items I may have missed."
Clearly there is an opportunity in this market to have technology amplify and empower human coverage and surveillance in some ways. In all my conversations with traders, remember this is a trading technology conference, I am struck by how much institutional traders value high touch relationships and service.
Lastly when it comes to choices on sell side brokers, portfolio managers and analysts are driving the selections based on research coverage. Traders in contrast are fighting to pay the brokers that they execute through. In most firms the portfolio manager [& analysts] drives 70% percent of the decision input, trading gets about 30%. The ability of the broker's analyst to influence decisions at a buy side shop is a factor of the limited sell side coverage these days. Limited coverage, especially as it relates to Mid Cap stocks. In order to handle the volume of analysts used, each buy side firm is tracking analysts by using internal voting systems to pay brokers for transactions based on rewarding analysts. This is being done outside of Institutional Investor's normal survey -- II just doesn't mean as much to the buy side as it use to. With the seat changes in sell side, the proliferation of payments to 3rd parties for research and execution, will continue to rise.
All great stuff on day one. Today my buddy David Leinweber, of the Berkeley Haas CIFT is speaking on the Great Financial Mess of '08. Should be fun.
My buddy Alan Slomowitz (also from Dow Jones) and I will be hosting a series of buy side panels today at TradeTech in NYC. Here are the topics we will be discussing with a group of buy side participants.
I should be able to twitter some of it. I will also try to get a summary post on the event up this evening. Stay tuned.
OK -- I listened to Bloomberg's Pimm Fox and I got some bad mojo. I should have read the IHT first:
A banker in China recently forwarded this quote to me: "Owners of capital will stimulate the working class to buy more and more expensive goods, houses and technology, pushing them to take more and more expensive credits, until their debt becomes unbearable. The unpaid debt will lead to bankruptcy of banks, which will have to be nationalized, and the State will have to take the road which will eventually lead to communism. (Das Kapital, 1867)"
"How prescient Karl Marx was," my friend marveled.
The problem is, Marx never said it - it's a bogus quote that has
made its way to Beijing from Wall Street. But the fact that people
would look to the father of communism at this time of financial
upheaval offers an interesting insight on the state of minds today.
---
Whether Marx said it or not, is not muy importante. The fact that it is being relayed at all through a news organization can tell you much about the state of the world and the behavior of market participants. It is constructive of the current state of the market's psychology and mood. As someone who looks at and appreciates the qualitative side of data -- the words, frequency and meaning -- I find this all fascinating and luckily, it is something I get to work on regularly. Numbers are important(understatement of the century for financials, etc.) but in most cases for finance they are backward looking. Language I believe is becoming very important and can be forward looking and in a growing number of cases predictive.
So if we begin with pseudo-Marx, let's end with some Friedrich von Hayek - from a Meets the Press Interview in 1975
"Dr. von Hayek, capitalism and particularly American capitalism would seem to have a good record at giving people a rising standard of living. Why are so many intellectuals, and particularly so many economists, skeptical about and even hostile to capitalism?"
"Well, I've been puzzling about it for a long time, particularly about the economists who ought to understand better. It's very difficult to know why they don't. I think it's the intellectual attraction of a system you can deliberately control, which is fascinating to the intellectual."
Think on the language of that for a while. Hopefully it starts to make some rounds...