We're going higher.
From Barron's Up and Down Wall Street column:
The New York Times belatedly notices asset inflation just as pros warn that it may be near a peak.
They don't ring a bell, goes the old saying on Wall Street. But sometimes, it does show up on the front page of major newspapers.In a curiously timed lead story, Tuesday's New York Times declared, "From Stocks to Farmland, All's Booming, or Bubbling: Prices for Nearly All Assets Around World Are High, Bringing Economic Risks."And like clockwork, the Dow Jones Industrial Average Tuesday shed over 100 points, while the Nasdaq Composite took twice as big a hit in percentage terms. Moreover, some so-called momentum stocks, which had come roaring back from their spring swoons, got clocked for 7% or more.Beyond the stock market, the Times cited the soaring values of an array of assets, from Spanish sovereign debt, Manhattan office buildings, farmland and junk bonds. Unlike in previous bubble periods—as in the dot-com mania of the 1990s or the house-price boom of the last decade—where overvaluation was concentrated in a single sector, virtually all asset classes are inflated. The reason, the Times reveals, is unprecedented central-bank monetary stimulation that has driven interest rates to record lows.That this would now appear on the front page of the putative newspaper of record, more than five years after the Federal Reserve pinned its main policy rate at near zero and has quintupled the size of its balance sheet, is a bit of a head-scratcher. That central-bank liquidity expansion has boosted asset prices is perhaps the single most-discussed aspect of the current bull market. So, why now?Paul Macrae Montgomery, who pens the Universal Economics newsletter out of Newport News, Va., has made a decades-long study of the implications of the media's coverage of markets. Most famously, he developed the so-called Time Magazine indicator. When an economic or financial story gets played as a cover story of a general-interest periodical, the trend almost invariably is about to reverse in a matter of weeks.
These magazines' editors, who have to pick covers on topics ranging from politics to popular culture, tend to feature a market trend at its later stages when, by definition, it is largely discounted by asset prices. So, it's not too surprising if those trends would turn in a matter of weeks.But when a market trend makes the front page of general-interest daily newspaper, Montgomery finds it often presages a near-term trend change, perhaps within just 48 hours after the story runs. There are relatively few examples to go on, he adds, unlike his study of Time covers, which stretches back to the 1920s.
What's more revealing, he continues, is when a market story appears in an unaccustomed place. "It's as if they can't stand not talking about it," Montgomery says of nonfinancial newspapers giving prominent play to a market story.Clearly, the Times has put stocks and financial markets on page one many times when it was news. Montgomery thinks it's even more telling when local papers, which typically give short shrift to market coverage, put it on the front page. Those stories often mark turning points, he says.For instance, he recalls the Richmond Times-Dispatch putting the post-9/11 stock drop on page one, which was a few weeks before the market rebounded. And in the most famous nonfinancial paper stock-market headline, "Wall Street Lays an Egg" in Variety following the 1929 crash, stocks would go on to recover 50% of that plunge in about six months.When I pointed out to him in a phone interview that Newsday on Long Island trumpeted Dow 17,000 with a beaming Big Board trader on its front page last Friday, Montgomery opined that type of story in a local paper could be more of a tell for the market.What's also ironic of the Grey Lady belatedly taking note of central-bank inflated asset values is that it comes while a number of well-known (and predominantly bullish) market strategists warn that the bull might be getting ahead of itself or even long in the tooth.Prominent among them was Ed Yardeni, the eponymous head of Yardeni Research and one of Barrons.com's Best Minds, who told clients Tuesday the bull could be moving into the fourth and final melt-up stage.
Reflecting that, the Market Semiotics advisory, published by Woody Dorsey in Castleton, Vt., recorded a euphoric 97% bullish sentiment at the end of the second quarter and going into the July 4th holiday. That could portend the Standard & Poor's 500 entering "a corrective zone" around July 13-16 and could turn into something "scary" in August, Dorsey writes in his weekly client note.While tempting for those of an ursine inclination to point to the juxtaposition of the Times leader and the hit to the most inflated momentum stocks Tuesday, it's not worthwhile to read too much into a single session's moves. To be sure, Twitter (ticker: TWTR ) plunged over 7%, but the social-media darling had been up by nearly one-third since colleague Andrew Bary called a bottom on Barrons.com on May 7. Lots of other high-flyers favored by the fast-money crowd have seen similar moves, so it's not surprising that these players would cash in some of their winnings as the momentum seemed to wane....MORE
