Posts filed under “Contrary Indicators”

The Bubble in Bubbles

barrons bubble
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 QE  bubble. We had an Apple bubble, we had a fraud bubble, we had a derivatives bubble and a subprime bubble. Silicon Valley is having a start up bubble, and parts of south Florida and Manhattan are having mini real estate bubbles. The gold and oil bubble came and went. The cover of Barron’s this weekend was literally a bubble – the second such bubble cover in two years.

We have had so many bubbles that, as I first addressed in 2011, we are having a “bubble in bubbles.”

What say we step back and put this into a bit of context?

First off, there have been several legitimate bubbles the past decade or so. In the late 1990s, we had a full-on dot.com bubble. In every sense of the word, these stocks rose to bubbly heights, unsupported by anything more than wishful thinking and greed. The Nasdaq plummeted about 80 percent peak to trough; it is still more than 20 percent below its all-time highs.

In the 2000s, what most people describe as the housing bubble, was actually more of a credit bubble. Subprime mortgages and refis went to anyone who could fog a mirror, prompting a spending spree that focused on housing but also included flat panel TVs and cars and home re-modelings. That ended with a national real estate crash of 35 percent. Not unprecedented, as was frequently misreported — the Great Depression was far worse — but very significant.

Its worth noting that as a sector, both home builders and banks lost about 80 percent of their value.

I hesitate to call the 2000s commodity boom a bubble. Commodities are priced in dollars, and the U.S. dollar lost 41 percent of its value from 2001 to 2008. Naturally, anything priced in dollars was going to rally, and once the euro and yen decided to join the race to the bottom, commodities would be at risk. Regardless of bubble status, oil and gold are both off their highs by 35 percent or so.

Which leads me to the point of today’s discussion: In any historical asset bubble, we do not get bubble magazine covers in major news media at the height of the bubble. If anything, it’s the precise opposite. A positive story on gold on the cover on New York Times Magazine in 2011 — and GLD passing SPY as the biggest ETF — marked the top. Perhaps the most infamous was the June 2005 Time Magazine cover on “Why We Love Housing.”

Mainstream coverage of bubble-like events such as panics and manias results from the natural tendency to be part of the exuberant crowd, to contribute to the animal spirits of a bubble in real time.

I am hard-pressed to recall when any sort of bubble was accurately identified in real time on the cover of a major media publication. If anything, the opposite is true.

All of the skeptical bubble talk — and there has been lots — seems to be a contrarian indicator that this long-in-the-tooth, overpriced market might still have a ways to go.

 

Previously:

The Bubble in Bubbles (Reflexive Version); May 30th, 2011

Checklist: How to Spot a Bubble in Real Time; June 9th, 2011

Time Magazine Covers & the Stock Market; Jan. 17th, 2011

Category: Contrary Indicators, Psychology

Not Quite Bubblicious Yet

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

Category: Contrary Indicators, Investing, Psychology

Generational Lows: 1942, 1974 & 2009

  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

Category: Contrary Indicators, Investing, Markets, Sentiment, Think Tank

Sell Side Indicator: Wall St’s Improving Optimism

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

Category: Contrary Indicators, Sentiment, Technical Analysis

Japan versus Gold?

Charts like this make me want to Sell Japan and Buy Gold — at least for a quarter or so.   click for larger chart Source: Josh Brown

Category: Contrary Indicators, Technical Analysis, Trading

Polling the Public About Investing Is Loads of Fun!

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

Category: Cognitive Foibles, Contrary Indicators, Investing, Really, really bad calls

The Smartest Man in Europe

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

Category: Contrary Indicators, Investing

World's Biggest ETF/Contrarian Indicator: GLD > SPY

GLD was briefly the world’s biggest exchange-traded fund. In August 2011, GLD had assets of more than $77 billion, surpassing SPY (SPDR S&P 500 ETF) for a short time. The SPDR Gold Trust’s market capitalization rose to $76.7 billion  — gold briefly topped $1,880/ounce. At the same time, SPY’s “capitalization” was ~$74.4 billion. I missed…Read More

Category: Contrary Indicators, ETFs, Gold & Precious Metals, Technical Analysis

World’s Biggest ETF/Contrarian Indicator: GLD > SPY

GLD was briefly the world’s biggest exchange-traded fund. In August 2011, GLD had assets of more than $77 billion, surpassing SPY (SPDR S&P 500 ETF) for a short time. The SPDR Gold Trust’s market capitalization rose to $76.7 billion  — gold briefly topped $1,880/ounce. At the same time, SPY’s “capitalization” was ~$74.4 billion. I missed…Read More

Category: Contrary Indicators, ETFs, Gold & Precious Metals, Technical Analysis

Putting Investor Bearish Sentiment into Context

Individual Investors Are Not Buying It Click to enlarge   Lots of people have been discussing how negative investor sentiment is, showing the chart above. It shows markets making new all time highs as expectations that markets will be higher six months hence is at a mere 19% of AAII respondents. (See Individual Investors Are An…Read More

Category: Contrary Indicators, Investing, Quantitative, Sentiment