Month: September 2012

People recall the beginning of the Iraq War in the Spring of 2003 in many ways but few at the time thought of it as the bullish sign post it turned out to be.

Essentially the SP500 doubled from the start of the war to the peak 5.5 years later.

That’s the way it is with the best buy signals. Almost no one thinks of them that way because public sentiment is skewed in such a way as to not allow for the interpretation of data constructively.

Remember – thinking and feeling are intertwined – call it confirmation bias or whatever but sentiment shapes how we construe.

At the time in fact, the majority was spinning the news of war much more bearishly and as one more negative in a world already drowning in negatives.

Last week, Fidelity reported that more than half of its 1.6 Trillion dollars in AUM was made up of bond and money market assets.

Reuters reported,

Bond and money market assets at Boston-based Fidelity now total $848.9 billion, more than half of the company’s $1.6 trillion in managed assets. Ford O’Neil, a top bond manager at Fidelity, underscored the milestone on Wednesday during a media presentation in Boston.

The rise of bond and money market funds, including institutional assets, is a remarkable turn of events for Fidelity. The company built an empire in the 1980s and 1990s on stock funds and star stockpickers like Peter Lynch. Fidelity’s stock mutual funds held $761 billion at the end of June.

Let’s think about this for a sec. The public hates the market so much that for the first time ever Fidelity has less of its AUM in equities than in bond and money market funds.

Furthermore, no one is talking about the epic level of dry powder this data point implies.

Despite 2012’s 15% $SPX rally, capital loss remains the primary emotional motivator of the investing public now.

I have been writing about this for months and the Fidelity data is the investors’ behavioral expression of the fear.

And it feels characterological too. What I mean by that is that “fear of loss” appears to be deeply embedded in the public’s personality and as such resistant to change.

But it is not resistant to situational changes.

If and when the $SPX makes new highs (and its less than 10% from ATH’s), the predominant fear will shift hard and fast from fear of losing to fear of missing out.

Then, this epic level of dry powder suggested by the Fidelity news will light up equities and fuel momentum.

 

My pal Eric Jackson wrote a sharp piece comparing Facebook & Twitter over @ Forbes.

Eric has been negative $FB since before it was in and right as Spring rain about it.

Most recently, Eric riffs on how Twitter is already bigger than $FB and he focuses on mobile ad revenue and Twitter being the more mobile native.

Go read the piece here.

Eric may be right, I’m not sure I buy it but still I love the smart provocation.

What I do know though, is that Instagram is bigger than Twitter.

Wait, what?

Check out the graphic from Ryan Tate’s excellent Wired piece entitled Instagram Use Is Exploding.

Tate also points out that Instagram is even more mobile native than Twitter and that it is growing absurdly fast.

As most of you know, $FB owns Instagram. When they bought ’em, I’m sure many believed $FB was overpaying big time and news later surfaced that Twitter was also in the fray bidding.

No wonder why.

Perhaps, Instagram is already worth more than either $FB or Twitter.

If we buy into both Jackson’s piece and the implications of The Wired piece the logic goes something like this…

Twitter is bigger than Facebook.

Instagram is bigger than Twitter.

Therefore. Instagram is bigger than Facebook.

 Just having a bit of fun y’all…. or am I?

 

Well, I can tell you unequivocally, a tulip bulb is worth whatever a buyer is willing to pay.

I bring it up this morning as I’ve tweaked the layout of this blog and added the tag line in the header:

8 Fat Swine, 12 Fat Sheep, 2 Hogsheads of wine…

This comes from a long list of items someone once paid for a single tulip bulb during the mania. Mackay published the full list in Extraordinary Popular Delusions and the Madness of Crowds, a book I highly recommend.

Mackay copied the full list from Munting, an industrious author living in 17th century Amsterdam and it always resonated with me.

I thought of it again recently as I happened across an academic paper written by Mark Hirschey entitled How Much Is a Tulip Worth?

Hirschey publishes the list but adds a column listing what each item is worth in 1998 US Dollars.

 

That’s 34k$ for a single bulb at the height of tulipmania. Nice.

I always loved the list because it was a vivid and poetic reminder to me of two things:

1. Value is relative.

2. Markets will remain, to widely varying degrees, irrational as long as humans are involved with them.

Now here’s a listing from Michigan Bulb dot com, one of hundreds of websites that sell them.

40 for 9.99$

That’s just less than a quarter a piece.

 

 

For years, I have been tracking sentiment volatility or reactivity.

I use the term reactivity because I am really just observing how extreme the emotional reaction is when the market corrects or changes trend.

If the market mood doesnt really change much when the market corrects, I call this low reactivity. When the mood changes quickly with an extreme swing that is exaggerated relative to the magnitude of the price correction, I call this high reactivity.

High reactivity indicates an underlying impairment in collective investor psychology. Instability. Neuroticism.

Think of the people you know and how they react to negative news. Some are even keel, while others overreact over small things. This second group is neurotic.

Reactivity remains high as I take note of how loud the bearish drumbeat has gotten on this 2% pull back from new YTD highs.

Europe matters again, QE infinity is a bust and we are heading back to 1257 and beyond…

This is just anecdotal based on my read of the media and the stream but I think it will be backed up by an AAII investor sentiment numbers tomorrow. Look for a big shift towards bearish that is skewed very negatively relative to the YTD and more recent performance of stocks.

 

I love $YHOO, the Mayer hire, am long the stock and believe they have a humongous opportunity right here right now to more efficiently monetize their properties, traffic and brand.

That said, I hope and am guessing that Marissa Mayer’s big blueprint presentation will include definitive comments around improving user experience.

These kinds of pop out ads (see image below) on the home page are endlessly annoying and, behaviorally, a punishment for navigating to the site.

This and everything like it must go.

 

Let be be finale of seem.

The only emperor is the emperor of ice cream

– Wallace Stevens

The “the Fed is panicking” meme is blossoming this AM off yesterday’s open ended QE announcement.

My sense is that those espousing and supporting the meme are, themselves, panicking and projecting such acute anxiety upon the threatening object.

Perhaps the Fed has learned something from the previous rounds of QE & Twist. My personal view is that they were not nearly aggressive or sustained enough to successfully defribrilate the economy.

Theyve either learned something from past errors or are acting politically. I think a little of both.

But I am no expert here.

What I do know is that every time I have expressed an optimistic view this year, I have been pounced by those who know much more about the macro than I do yet have been stubbornly avoiding the one and only objectively observable market reality that has ever existed – price behavior.

In December, I was bullish banks and got criticized and mocked.

In February, I suggested Greece didn’t matter and got flamed relentlessly.

Last week, I was quoted here saying:

Market particpants are deeply anxious and despondent after years of crisis, whipsaw and increased global macro complexity, but this is the stuff new bull markets are built upon.

…and people I respect called bullshit.

Smart people can criticize and rail against reality all day long everyday forever and do it nobly because leaders the world over HAVE made a giant mess of things. But such nobility is underperforming and you can see it in persistently punk hedge fund performance numbers.

Perhaps, the mess, after being hashed and rehashed, is in the market while price is sniffing out something more constructive.

Let the lamp affix its beam.

Indeed.