Party Like 1999?
With the prospect of another round number surpassed in the venerable Dow Jones Industrial Average, Erin Burnett had her party hat on before the opening. Mark Haines refused to wear his, but he did not have one of his "crash helmets." The savvy Art Cashin not only explained the dynamics of the market, but picked up Erin’s hat when she dropped it.
Art is the insider’s insider on the floor. We always listen to Art ("Art’s on!", the cry goes up, and we unmute the TV) since he knows what those on the floor think is important. If you are trading, you had better be listening. Art’s daily comments (sign up with your UBS representative to get them) are a delight. He always starts with some historical fact. Today it was how America got named that instead of "Columbia" or something. He then has a hilarious and knowingly lame segue to current market conditions. Today he explained about program trading, futures, and ETF’s. You can see John Bogle’s Business Week article for the data he reviews. Art advises a focus on the numbers, not the conclusion. We agree. Finally, Art gives a few little algebra and trivia problems, just to keep you on your toes.
We have two observations for those who are risking the call of a market top here.
- Market valuation, as measured by a comparison of earnings rates to interest rates is completely unlike that of the "bubble era." At "A Dash" we have alerted investors to this with our Fed model series. While many do not endorse this particular approach, it is a good starting point for individual investors worried about whether they are buying a market top. Traders can also use this for their overall market attitude and positioning, even though their time frame is different.
- The individual investor is still missing in action. Managers like us who work with these clients know this from conversations. They have been frightened by recession warnings and the cycle of negativity. They will start to participate more aggressively, attracted by the Dow headlines. For those who act quickly, we believe there is still plenty of time to realize big gains.
One test of a market top is our CNBC advertising indicator. (We should have applied for a patent on this one!) Through the magic of TIVO we tracked the ads on Kudlow’s show tonight. Here is the summary:
AARP can sell me some health insurance
There’s a big investment manager that will work closely with
me — them and us!
I can buy a good SUV for under 25K.
Medical problems – and the law. I might be able to sue someone.
I need to watch Cramer to learn the key stocks to make Mad Money.
Another airline wants me to use their credit card.
A stylized cartoon guy on a treadmill is musing about retirement – a
caption suggests a guy named Chuck.
A big software company sells a product that is just right
for my small business.
Pre-packaged meals will help you lose weight – showing
before and after women (results not typical, according to the fine print).
Morgan Stanley is World Wise – they go behind the scenes to
ING has a person on a bench that attracts a cat by opening a
can of tuna when scores of others are scrambling around in futile efforts.
A clown isn’t a good substitute for a surgeon – so the CBOE
is the real deal.
A medical center tells me they are really good.
A local jeweler is the place to go for engagement rings.
A distinguished professor and a big, successful hedge fund manager explain to me how
to buy the right kind of ETF.
A brokerage firm explains how my costs from them would be
the lower on options as well as stocks.
A travel site is trying to get me to use them for hotels.
A big bank is encouraging me to take out a home equity loan.
A big firm ran some scenarios to show that a client could
retire early and did not need to relocate, as his company wanted.
A big company, noted for grain, shows how nice they are by explaining how they
help little people.
A credit card company cuts the hassle.
Compare to 1999
This is a case of a "dog not barking" as Sherlock would say.
We see no ads describing performance. It is all "touchy feely." No one cites performance. This is mostly because fund managers do not focus on a narrow price-weighted index like the Dow, (one of the marketing coups of all time). Even though pros do not focus on the Dow, customers do. Meanwhile, the NASDAQ stocks make up part of anyone’s diversified portfolio, but they have seriously lagged.
There are none of the 1999-style ads. What happened to the "tough guys who finished first", the cab driver buying an island, or the greatest of all, Stuart and Mr. P (click on the link to see the YouTube blast from the past).
This sentiment indicator is difficult to quantify (and regular readers know that we love quantification) but it should not be ignored.
Until individual investors (and maybe foreign equity investors) are once again committed to buying U.S. stocks, we have not seen the top.