Posts filed under “Contrary Indicators”
One of the more infamous and misunderstood market signals is the magazine-cover indicator. Created by Paul Macrae Montgomery, this contrary indicator essentially tells us when some investment theme or fad has reached a crescendo. The thinking goes that by the time the editors of Time find out about some hot investing trend, it is all over but the crying.
As Montgomery described it, there are three primary rules for the classic magazine-cover indicator. First, it must be a mainstream — not business — publication that put a specific object on its cover. Second, we are looking for a well-understood concept that is reaching a climax. And third, there must have been significant asset-price gains leading up to the cover.
As an example, consider the past 30 years of Time magazine covers as they relate to the stock market. When Time named Amazon.com chief Jeff Bezos as Person of the Year in December 1999 it marked the near top of the dot-com bubble. Nor did it do Mark Zuckerberg — or Facebook shareholders — any favors either by bestowing the same honorific on him in 2010. Back in 2005, Time gave top billing to housing. We know what followed.
And, it isn’t just Time magazine, but any non-business publication. The thinking is that by the time editors at general news publications notice that an asset class has become hot, there are few suckers left to come in to drive prices higher. Consider this New York Times Magazine cover on gold in 2011 as yet another example.
Last week, I came across the following headline: “As music sales fall, sax player Kenny G turns to stockpicking.” My immediate reaction: Uh oh. The last thing any bull market needs is for celebrities to be featured in the financial press. As soon as that starts, it means the bull market must be near a…Read More
Amid a wealth of potential problems, markets are now close to record highs. Military conflicts in Syria, Iraq, Gaza and Ukraine are an unending source of concern. Domestically, economic growth remains below potential. The civil strife in Ferguson, Missouri, reveals the U.S. to be a nation even more divided than previously thought by many. At…Read More
Source: Barron’s If you have been paying any kind of attention to the mainstream media the past few years, you may have noticed quite a bit of bubble chatter. We have a tech IPO bubble and a stock bubble and of course a bond bubble. This is caused by a global central bank…Read More
Source: BlackRock It seems that everywhere I go over the past few weeks, I bump into some form of bubble chatter. Mom and pop are returning to equities means it’s a bubble, all the new stock and bond issuance is a bubble and, of course, the Twitter initial public offering indicates we are deeply…Read More
Click for ginormous chart Source: Merrill Lynch I love the giant chart above using the overlay of the S&P 500 off the 1942, 1974, and 2009 generational lows as a guide. Its beautiful in its simplicity, and has a little something for everyone. The bulls get a chart that is bullish longer-term, the…Read More
Click to enlarge Source: Merrill Lynch/BoA This is an interesting chart: Improving Wall Street sentiment is still no where near the levels associated with excessive sentiment. Despite the ongoing rally — or perhaps because of it — we are now all the back to the levels enjoyed at the lows in March 2009. Merrill notes…Read More
Back in August of 2011, Gallup decided to do what they do best — which is poll the American public for their thoughts. In this instance, it was their thoughts on investing. The questions asked was simply: What do you think is the best long term investment? Their answers were very instructive: 34% of Americans said…Read More
I have been reading this (for lack of a better word) series from Byron Wien for many years. I remain unsure if The Smartest Man in Europe actually exists or if it is a clever ruse that allows Wien to say things at arm’s length that perhaps he would not be able to if he…Read More