Are You the Guy Who Does His Job… or the Other Guy?

On October 9 and 10, we held our 2020 Virtual Trading Conference, jam packed with some of the most interesting and insightful analysts and traders on Wall Street. We’ll share some of our favorite pieces of advice over the next month. If you like these lessons and want to secure your spot at the 2021 Trading Conference, early bird tickets are available.

“I’m the guy who does his job. You must be the other guy.” Mark Wahlberg hit that line out of the park in the Departed.

We heard a similar, less aggressive version of that line from Canaccord Genuity’s Chief Market Strategist, Tony Dwyer. Tony Dwyer was speaking about his job as a market strategist and perceptions of the Federal Reserve. It was such a quick remark that you could have missed it. But it stuck with us. Everyone on Wall Street has an opinion on the Fed—what they should be focused on, what they should be worried about, and what they should use to make decisions. All of that is noise, Dwyer implied.

In short, it’s not his job. Specifically, Dwyer said it wasn’t his job to decide whether the Fed should use the personal consumption expenditure (PCE) as its preferred measure of inflation. It was just his job to understand that they are using it, and then to figure out what it will do in order to predict what they will do.

This hit home. Sometimes as traders, we ignore what is happening and think about things as they should happen. We watch markets all day. We’re passionate about them. We clearly have a view.

But we can’t control what the Fed, the President, or other government or financial authorities do. We may “know” there’s not going to be a stimulus in the next week, but that doesn’t really matter. What matters is what the market does.

With the Fed, that becomes easy. They telegraph their moves:

“The Committee judges that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve’s statutory mandate.”

What does it matter if I think the PCE is bunk and the Fed should measure inflation via CPI? It doesn’t. Instead, my time and energy should be focused on projecting what the PCE deflator will do, and then how the Fed will respond.

This is a good reminder come earnings season. It’s not my job to have an opinion on how Wall Street analysts do their earnings forecasts. It’s my job to understand how they think about the market and then to react when the news is released.

That’s why we like looking at order flow and unusual option activity. We don’t need to have an opinion. We just let the market do what it is going to do… and then react with the odds in our favor.