Thursday, May 24, 2012

Cover Moment: "‘The death of equities’… again?"

The writer nails an often misreported part of the story, more after the jump,
From FT Alphaville:
Thursday’s FT declares “the end of a six-decade passion for equities”. Quite a claim.
Institutional investors, from pension funds to mutual funds sold directly to the public, have slashed holdings in the past decade. Stocks have not been so far out of favour for half a century. Many declare the “cult of the equity” dead.
The story may evoke a feeling of déjà vu for some. Especially those who read the August 13, 1979 edition of BusinessWeek, which famously also announced ‘the death of equities’.
Admittedly, it took another couple of years for the bear market to end, but what followed was one of the biggest bull markets in history....MORE
It's that last line that so many commenters miss. The Big Bull (18%/yr. for 18 years) started three years to the day after the BusinessWeek cover:
The market bottomed at 776.92 on Thursday August 12th, 1982 and started moving fast:

Aug. 13 788.05
Aug. 16 792.43
Aug. 17 831.24
Aug. 18 829.43
Aug. 19 838.57
Aug. 20 869.29
Aug. 23 891.17

Just like that, 14.70% in seven trading days.It is also reminiscent of the current run off the Monday March 9, 2009 bottom of 6,547.05.
Four consecutive up days ending at 7,223.98 for a 10.33% pop.
Back in April '07 I wrote:
A few weeks ago Mark Gongloff had a post at the'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.
While in 2009 it was:
Happy Anniversary Baby: Nine Years Ago Today, The Nasdaq Closed at 5048.62
That was it's all-time high. It was recently trading at 1339.92, up 71.
So nine years later we are still down 73.45%.
Any thoughts on how old an analyst, who was 25 in 2000, will be when the Nas regains it's old high.
(hint: the rule of 72 says another 14 years at 10%/yr.)

Here's a press release that has to rank with the Death of Equities cover as a contrary indicator:


(New York, NY-March 10, 2000) Corporation's (Nasdaq: INTM) ISDEX(r), the Internet Stock Index (, rose above 1,000 for the first time last week. Since its inception in 1996, ISDEX has posted a 1,012% gain, outpacing the Dow and S&P 500, which have only increased 104% and 120%, respectively, during the same period. The ISDEX has also outpaced these indices for this year, with the ISDEX up 29% and both the Dow and S&P down 13% and 5%, respectively. "With a gain of more than 29% since January 1 alone, it is clear that Internet stocks continue as one of the overall economy's strongest sectors," said Alan M. Meckler, chairman and CEO of Corporation....
Sometimes they do ring a bell but I don't think the FT story is it.