Using the Wall Street Journal to Gauge Investor Sentiment 17 comments
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I thought it’d be fun to peruse the Wall Street Journal to see if we could glean some insights into current investor sentiment. Mainstream business publications are famous for (unintentionally) signaling tops and bottoms in markets – but is this really the case, or more of an old wives tale than truth?
I couldn’t think of a better publication to test out than the Wall Street Journal. Those who believe they’re getting an inside scoop by reading the WSJ are amusingly naïve about their “inside source,” which is read by millions of other investors each morning. Even pre-Murdoch, the Journal wasn’t hiding any investment secrets. These days, it has the added bonus of catering to the masses – combined with its wide reach and coverage, what a perfect match!
So please join me, as I flip through the pages (web pages, of course) in this week’s Journal, in an effort to gain an edge – by taking the other side of the trade!
Further Evidence the Dollar Has Bottomed
From the front page of Saturday’s Online Edition, we see a story entitled:
Small Investors, Big Bets on Currencies.
Oh my. The piece begins:
The dollar is zigzagging, falling below the 90 yen mark Friday and testing the depths it plumbed against the euro a year ago. That kind of action is music to the ears of investors such as Ray Firetag.
As most of America slept on a recent Monday night, Mr. Firetag was in front of his computer in Elk Grove, Calif., wagering on the Australian dollar.
For those of you not familiar with Elk Grove, please allow me to fill you in. It’s a (somewhat lower) middle class suburb about 15 minutes south of Sacramento. From 2002 until about 2006, it was regarded as an “up and coming” neighborhood, where many first-time home buyers in the Sacamento flocked to buy homes that were relatively cheap.
Three years or so after the top of the housing bubble, an astounding number of homes in the town sit empty – either officially foreclosed, or unofficially abandoned – while prices languish 40-50% off their highs.
You should always “short” Elk Grove – always. When their residents are buying homes, you should be selling. When they are trading the Australian dollar in their pajamas, you should probably be backing up the truck to go short!
When small investors are on the front page of the Wall Street Journal trading currencies, you’ve gotta think we’re probably in for a massive rally in the buck.
And Gold is Topping Out
Gold was down this week, settling once again below the $1,000. Thus my search for Gold related stories was initially disappointing, until I came across this great headline:
India’s ETF Investors Make Up for Missing Gold Buyers
MUMBAI -- Record prices have forced many of India's traditional gold-jewelry buyers out of the market in recent months, but a new source of demand is on the rise -- investors looking for the safety and convenience of exchange-traded funds backed by gold.
While India continues to be a price-sensitive market, with every rally hitting demand, the rising popularity of ETFs indicates that the Indian market could ...
I can’t read beyond the “…” because I let my WSJ subscription expire a few weeks ago – but that’s OK, it’s really not necessary.
It seems like we’re hearing that India, which traditionally bought gold hand over fist this time of year to, surprising, actually use as jewelry. Now they can no longer afford to buy it – at least for its traditional use.
So they’re speculating on the price instead – and best of all, via ETF’s that take long-only positions!
This is classic stuff! I’m downright giddy right now – I thought of this WSJ concept for a column on my drive to the coffee shop, with no idea that we’d be able to find such fantastic sources.
OK well we can’t just end with two. We need one more to close out strong. We had three wishes…thus far, we’ve used two…we know the dollar is set to rally, and gold is in some trouble.
What’s one more topic we can ask the Swami WSJ to look into its crystal ball and forecast? I got it…
Emerging Markets are Toast
Alright, I am typing “recession” into the search box…let’s see what comes up…OK here we go! Another nice short candidate:
“Emerging” Stock Markets Are Looking Better
The first paragraph says it all:
On the heels of one of the worst years in stock-market history, some experts say investors should shift more money into a surprising area: emerging markets.
Good to know that if you do shift more money into emerging markets, you’ll probably be one of the last investors to the party! This article should sweep in the 11th hour bulls just in time for the rally to die.
On the heels of 50-100% gains in many emerging markets, I can’t see how this could end well for longs. Fortunately we’ve got the WSJ ringing the bell for us here at the top!
When the global markets turn down again, emerging markets are likely to get slaughtered. What great short candidates!
Three Solid Trade Ideas
Well kids, here’s what we’ve learned from reading the Journal this week:
- Bet on the buck
- Short gold – or at least stay away from it
- Short the heck out of emerging markets
We’ll check on these trades in a few months to see how they worked out. In the meantime, can the last dollar bull out the door please turn out the lights!
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This article has 17 comments:
No my friend - short the US. By buying gold you are. Gold will correct till Oct 1,7, or 13 then rock like it always does this time of year.
If you have a desire to short - short the S&P you'll be better off
Now that the elites have sold all their shares and your markets are crashing.
Shouldn't that be, "with every rally hitting supply"?
It is my opinion that the US government is beyond corrupt and on a spending spree that dwarfs anything imaginable. Combine that with minimal taxable income, the situation is exacerbated. We have passed that invisible line into irresponsible uncontrolled spending on a debt that, literally, we can never ever pay it back. Wait until japans and or China do not buy our Bonds/Bills and the rates go up, the dollar will fall harder and inflation will come overnight. That day will come before the year ends, and that is my call. When the government is supposed to be by the people for the people and are acting contrary to what the people want by passing bills that people as a whole do not want to be passed, sentiment will fall, unrest is inevitable in a country founded on strong democratic principles and the currency will go down further. I am long physical metals especially and their associated equities/ETF's, specifically silver as I think silver has MUCH more upside-especially in the medical field (hint: READ about it) and I think the price will go through the roof within a decade, my call would be $70 an ounce within 10 years. The WSJ is a day late and a dollar short, I see that as a trader but then again so is every other printed material as a trading tool, but for long term investors it is quite valuable. As for investor sentiment, go with quantifiable metrics and that is the market as an indicator overall more directional in observational aspects. My prognosis is the market is WY ahead of itself with in the words of Greenspan, irrational exuberance with thinking the government can print its way to stimulating the economy by directing money to the largest contributors of PAC's (Political Action Contributions) and hence into the politician's pockets. I am so done with the US dollar and the amount of people America has pissed off has grown exponentially and people will Dollar Vote and switch to another monetary instrument and the logical choice is silver/gold. Short at your own peril and the more it drops, the more I buy. I honestly do not think the USA will be around for the next century and the paper will be worthless.
Till you can afford WSJ subscription, try this: make a google search for the title of the article and click the link. Presto you get the entire article free. Same with Barrons.
Meanwhile here's your missing article on gold.
online.wsj.com/article...
Uppai Mappla
Also based on kind commenter feedback, we are now accepting donations from readers - so that I can save up for a WSJ subscription - please donate generously as we pass the collection plate around :)
By the way I have the following arguments against your view:
1. From what I know it is not business journals but popular magazines that give clear indication of a market shift rather than WSJ or FT. But you could be right. WSJ might be becoming populist to keep subscription from falling. That could be proved only by an in depth historical study. Hunt and peck approach will not do. Yes, the market is ripe for a correction. I myself am sitting on a 190% profit and have already started selling. But it would not be quite logical link such correction to random articles in WSJ unless backed by valid research.
2. Regarding your bullish view on USD too I must disagree. 2008 rally of dollar began because most international debts were dollar denominated and had to be settled in dollar. That was a fundamental reason and it was mostly satisfied by the end of 2008, whereupon the dollar started falling and rightly so. But by that time the investors, traders and the public had designated dollar as "safe haven" and what we saw in February was a mindless "running to mommy." That phase is over. However, as of now most countries of the world have much of their forex in dollar, which may need some time to be reduced. Euro is a sick old man; remnibi and rupee are still many years away from becoming global currencies. So my take is that dollar will stay, but won't rally. Instead it may correct.
I also predict that the coming fundamental correction in equity markets is likely to cause only a mild, half-hearted rally in dollar, driven by fear. And if do have a second down leg in equities, dollar, after a brief panic rally, should revert to its rightful status as paper (along with other paper currencies) and the dollar’s current maternal status will be taken over by commodities and precious metals which will be even more disastrous (I earnestly hope that doesn’t happen because the developed world—even parts of developing world—won’t be able to recover from that.) I am more bullish on platinum rather than gold since it is a precious metal AND an industrial metal. I wouldn’t be surprised to see pt breaching its 2008 high very quickly.
3. Emerging markets: Indian economy (which I am familiar with) was hardly touched by the global meltdown, yet Indian stock market fell like ninepins due to foreign investors dumping Indian shares to pay their dollar debts. Apart from some companies like Tata Motors that had gone in for mega expansion on borrowed money, and one Satyam caught starkers, nothing serious happened. Indian banks, both govt and private, actually made more profit in 2008 than in 2007, with negligible NPAs. (I picked up Indian Overseas Bank for 40 rupees, when it was being offloaded by a bankrupt British children’s fund and within weeks pocketed a dividend of 4.50, now it is trading at above 100, its historical average, as if nothing happened. It may correct, yes, to 80, but not to 40. Decoupling will happen. So let us not write off emerging markets quite yet. Use the coming correction to get into emerging markets not run away from them.
Re: #1 - Yes I'd like to develop this into a little bit more of a methodology. This weekend's article was a maiden voyage into this type of analysis. Biased sample set? Of course. But hopefully entertaining at the least.
www.time.com/time/maga...
On the other hand, we all know how the respected BusinessWeek’s March 2000 ultra bullish cover story “The Boom” set off the dot com crash.
By December 2000, BusinessWeek had become so frightened of technology that they gave an unintended buy signal for Google by wondering how on earth Google was going to make any money.
www.businessweek.com/b...
As for me, it was a bullish March 2009 first week article in Barrons online, published at the depths of all gloom, that prompted me to tuck into Indian equities (against dire warnings from my friends). Barrons article confirmed what I was observing around my neigbourhood for weeks. My friend who sells anti-pollution equipment reported more enquiries (not orders) in Jan and Feb. My local computer vendor said there were more footfalls in his showroom. A local businessman was quietly buying his listed shares back in small lots so as not to attract attention. A search of India’s NSE “corporate information” showed that many insiders had been buying in Jan and Feb 2009. Then came the announcement from Mark Mobius that bear market had ended and bull market had started. He sounded unbelievably audacious at that time. But how right he was, even if this turns out only to be a huge bear market rally!!
So calling the markets from magazine stories alone is a tricky matter. Perhaps as you say, it will be the respected WSJ or FT that gives the next big sell signal! But let that be one of the many indicators.