The speech gets released before the man says a word.
The exact words sitting in the teleprompter get shot out fractions of a second before he opens his mouth.
Bloomberg charges about a million dollars a year for algorithmic access to that feed.
So when Kevin Warsh stepped up at Jackson Hole yesterday, the market had his speech before anybody in the room heard the first sentence.
Which is why I did not watch it. Let me show you what happens in those thousandths of a second.
There is a small number of machines that read the text and interpret it. They fire trades based on what they think it means.
Then there is a much larger group of machines that do not read anything at all. They watch the first group and react to what those machines just did.
The second group is far more plentiful, and it is the one that moves the market.
You end up with a chain. Words hit the wire, a handful of machines decide what they mean, thousands more trade off what those did, and somewhere at the end of it a human being is listening to a live feed and forming an opinion.
By then it is all over but the crying.
Which means watching the speech gives you nothing at all. The one advantage available in that moment costs seven figures a year and expires in about a second.
What you can do is watch the reaction, because the reaction is the only part that lasts.
The S&P went from 7740 to 7760 inside about a minute, a twenty handle move, and it came out of the financials first. The advance decline line barely budged the whole time, which told you it was a rotation and not a broad move.
Then it gave the whole thing back and finished the session lower.
Anybody watching the tape instead of the television saw all of that as it happened.
As for the content, he recommitted to the 2% PCE target and called it a firm, fixed target. PCE ran 3.7% in July and CPI is at 3.4%. He pointed out that 54% of the components inside PCE have run above 3% annualized over the last twelve months.
His line was that none of these measures are perfect, but they all tell a similar story, and inflation is running above target.
He also said short-term interest rates are the predominant tool to achieve the mandate, which is about as close as a Fed chair gets to telling you he is thinking about raising them.
Every one of these events works the same way. Fed speeches, CPI prints, jobs numbers, earnings calls.
The information reaches the machines before it reaches you, and it is fully priced before you have processed the first sentence.
You were never trading the news. You were trading what everybody else already did with it thirty seconds earlier.
So stop trying to be first, because you cannot be, and start reading what the reaction tells you about who is in control.
I expect September to be a bumpy road for some traders. However, there is a way to shield yourself from the volatility and more importantly profit from it.
To your success,
Don Kaufman
