Tuesday, April 17, 2007

Indexes, ETF's and Global Warming

A few weeks ago Mark Gongloff had a post at the WSJ.com's EnergyRoundup with the cautionary title "Alternative Energy’s “Cover” Moment?". He ended the post with this humble line "And that could be one reason why the alternative-energy boom might continue for a while after all. Or at least, there’s a 50/50 chance of it."

Of all the "Cover Moments" the most infamous is the Aug. 13, '79 BusinessWeek "The Death of Equities" with the DJIA around 875. Paul Kedrosky has a great chart at Infectious Greed. If you note that date, it was three years before the Big Bull started, with the Dow closing at 776.92 (I think; That day was a lifetime ago) on Aug. 12, 1982. My personal favorite cover moment was the Oct. 4 1999 BusinessWeek "The Internet Age". Both of these pale before Prof Irving Fisher's timing of his Sep. 4, 1929 statement "There may be a recession in stock prices, but not anything in the nature of a crash." (the DJIA had peaked the day before at 381, it would bottom at 41 in 1932), or his more famous Oct. '29 "...permanently high plateau".

All this history came welling up (from an admitedly strange mind) because of a line--"Cleantech: The New Biotech" that Richard Kang used a few months ago in a posting to Seeking Alpha: "Tree Huggers Unite! A Survey of Cleantech ETFs".
The Amex rolled out the BTK biotech index in October 1991 and a very astute trader told me that was a top, get flat or short of the biotechs. Good call-see chart. The biowrecks fell 50+% over the next three years.

So what does this all mean? I agree with Mr. Gongloff, I think we've got a ways to go before a top in clean-tech and alt-energy. Why isn't the "Cover Moment" or BTK experience operative this time, even though we have another half dozen indices and ETF's since Kang did his piece?

No, it's not because "It's different this time"! It's because the Wall Street marketers are faster to recognize a fad and can create product faster than ever before. The covers and funds and indices hit the market earlier in the cycle. So look for something like this: "INTERNET.COM'S ISDEX, THE INTERNET STOCK INDEX, BREAKS 1,000, A GAIN OF 1000% IN LESS THAN FOUR YEARS"
That tout was dated March 10, 2000. The Nasdaq closed that day at 5048.62, it's all-time closing high.