Reprinted from Bulldog Reporter’s IRAlert www.iralert.com
Perceived and Posted By Jerry Schwartz
Amazingly, people still wonder why the stock market moves up and down. It's really nothing new—more buyers than sellers…or vice versa. Usually, the movements are in anticipation of future news and events, often looking out six months, more or less, often not fighting the Fed, commonly after insiders make their move, sometimes when short sellers cover positions, regularly too late when too many stories have already appeared in the press, always when P/E get too high or too low. Rarely surprises. There are bulls and bears debating over the market's direction just as there are Republicans and Democrats debating healthcare reform. In the same publication, one columnist says the rally's over while another writes about hidden values. One day the market is running out of steam and three up days later, it's headed into new territory. Everyone is always prognosticating because everyone wants to call the market and be right. Fortune tellers attract curiosity, while forecasters attract subscribers and advertising, or deals and investors.
But, what really moves the market and individual stock is consensus—most people believing Apple is overvalued, Microsoft is overlooked, Home Depot is under-appreciated and Amazon is just appreciated too much. Not everyone appreciates this. The latest game is forecasting revenues, not predicting profits. Companies cut costs like red herrings over the last eighteen months. Naturally, earnings went up. Cutting costs is easy, as stronger than expected earnings this spring and summer showed and fueled the market. Richard and Mimi Farina sang a song some 40 years ago about being down so long, can't tell when it's up. Or, up too much. Or, down too much. Does anyone really know?
Increasing revenues is another matter. Ask any venture capitalist, LBO king or takeover specialist trying to pay for an acquisition by slashing expenses. Only so much can be gained from inventory restocking before driving sales organically becomes vital. That's not the same as growing top line by acquisitions. The musical chairs of stripping and bailing is a common strategy. Banks' willingness to lend only prolongs the dance until the party's over and the deal goes bad.
“Rev Revenues” is my new buzz word for the economy, the 2010 version of 1978's “Whip Inflation Now,” a stupid lapel button promoted by an old Republican administration. If the fancy financial guys were the drunken sailors of the recent decade's losses, marketing executives are true captains of industry, the wind in sales, who were regularly thrown overboard. Yes, that includes public relations, advertising, sales promotion and others who don't understand flash trading, derivatives and currency swaps, but know how to catch fish. Typically, they're the first ones to go in a recession, because they are the spenders and, besides, old habits die hard. Not only does marketing generate revenue—in good times and bad—but it is leading the movement to social media, a true global change, exciting consumers and investors to search out new sources and reasons to buy goods and services…and stock like never before. The appeal is clear: all that stuff at their fingertips, a click away, including healthcare policies and proposals.
Yes, those people in the offices between the corners are mobilizing public opinion. They are using their creative juices to build loyalty and connect with consumers, investors and voters. Today, power and influence belong to those who have mastered the art of engagement, not the science of finance.
Yale economist, Robert Shiller, recently wrote about the phenomenon of publicity, referring to it as a huge feedback loop of stories and news. He said the market is unpredictable because stories change and the process is complex. More simply, he said, when stocks headed down last winter, there was a proliferation of negative stories. Duh! In his defense, he's only an economist, not a publicist.
Part of the problem is too much information, more than ever before from more sources than even before. Schiller was right when he called it “noise” and referred to the “modern mathematics of chaos theory.” But he failed to blame the sheer volume of stories hitting consumers and investors from so many traditional and, now, new media. Whom do you believe? What are the filters? Where is the truth? How else can you explain the market's decline when productivity is reported at its highest level in six years? Or, its rise when unemployment hits a 26-year high?
Never before have IR and PR been so important, if only to control and harness the flow of ideas and information. It's really not that different from needing lawyers to unscramble and interpret laws created, in the first place, by lawyers. Sometimes, this leads to new revenue and profit sources.
Investor relations is not widely loved. Uncertain times like these make it understandably hard to value. When the market is bad, management says nothing we do will help. Conversely, when times are good, why do they need IR? Sounds like a reasonable bet to me—spend a couple hundred thousand dollars to potentially impact hundreds of millions in market cap. Plus, management gets a hardworking, moderately compensated executive to deal with shareholders, the SEC and pesky reporters. The problem is probably mostly our own fault. At the exact moment IR was distancing itself professionally from PR, publicity was having a greater impact on stock prices. At the exact moment, good shareholder communications was the goal, flash trading took over. At the exact moment we were mourning the death of fancy printed annual reports, social media bursts on the scene changing the entire definition of timely disclosure. Dow Jones and Reuters are slower than a Tweet. Annual reports are history books in a world of future shock.
Really bright economists and analysts join really bright editors and reporters to simultaneously say the market's going up, going down or, worse, going sideways. Every era has its business trends. In the 1950s, it was the entrepreneur who built whole industries on the backs of two wars. The 1960s saw the rise of the MBA. The 1970s created conglomerateurs like Royal Little and Harold Geneen. The 1980s enjoyed a number of star CFOs such as Jerry York of IBM and Chrysler. And if the 1990s was a time for CIOs, why not CMOs and other marketing pros in the 2000s? See, sweet? Without marketing, there would be no revenues to finance big factories that employ workforces that require HR departments that all contribute to incomes that enable style purchases that rev revenues and finally move stock prices. We earn our keep.
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