Board-Ansicht
Mix-Ansicht- Ich werd noch Bild-abonent.. oder 'Media Can Be Market Indicator' - YIHI, 01.04.2001, 16:36
Ich werd noch Bild-abonent.. oder 'Media Can Be Market Indicator'
Stocks View: Media Can Be Market Indicator
By Pierre Belec
NEW YORK (Reuters) - Want a nearly consistent signal the end of the bear market is in sight? Try the Magazine Cover Indicator.
When the media jumps in like lemmings, repeating the same tune about the bloodletting on Wall Street and how bad investors feel about losing big chunks of their retirement money, it may be time to jump back.
``When the media gets IT, then it means the market trend is over because they tend to get it wrong,'' says Phil Orlando, chief investment officer of Value Line's Asset Management.
Indeed, judging by the flurry of news magazine covers devoted to the tough times on the Street, the market may just stop going down and even start to head higher.
``If everyone is running bear market stories that means we're at a market bottom,' Orlando says ``Just a year ago, they were running these fabulous bull market stories about everyone should be invested in dot-com companies and of course the media got that wrong too.''
In March 2000, the technology-bloated Nasdaq Composite index was cruising at a record 5,048. A year later, it has suffered a fearsome drop of more than 60 percent from its peak.
``The reason is that the media tends to be a lagging indicator, looking at what has happened six to nine months in the past while investors try to guess what might happen six to nine months in the future,'' Orlando says. ``So, if people are looking for tangible signs of key transition points, then it's not a bad idea to use the media's focus.''
Bearish markets in 1974, 1982 and 1990 ended when the media, with its herd-like tendencies, was talking about stocks going to hell in a handbasket.
The trouble is that the media is more often too late in seeing the REAL story.
ARE YOU SCARED...YET?
For the last couple of weeks, snarling bears have adorned covers of TIME and US News & World Report. BusinessWeek and Newsweek have carried scary headlines, such as ``How bad will it get,'' and ``The market's wild confidence is shaky, What you can do now?.''
The Economist asked the $64,000 question: ``Could the world be heading for its first global recession?''
``Historically, when we have had very negative news coverage or positive coverage on a financial subject, the market will go in the direction indicated by the articles for a couple of weeks,'' says Paul Macrae Montgomery, market analyst for Legg Mason Wood Walker Inc. ``But a year later, the financial markets have been opposite to what the media had been reporting.''
BEST CONTRARY INDICATOR MONEY CAN BUY
Montgomery says the odds that the ``Magazine Cover Indicator'' will hit the target are staggering.
``Such a confluence of media sentiment implies a better than 85 percent probability that a lasting (market) bottom is imminent,'' he says.
``Once such a cover hits the newsstands, the negative behavior has tended to persist for a few weeks before the contrary implications of the bearish cover have begun to kick in,'' he says.
In 1994, Newsweek was the only mainstream magazine that dressed up its cover with a wild Wall Street bear. What followed was a moonshot ride for stocks. The buying frenzy lasted until 1998 when bulls appeared on magazines' front pages.
By April 1998, Newsweek carried a cover with a docile bull sporting a fashionable ring in its nose. The headline read, ``Like it or not, you're married to the market'' as millions of Americans invested in the market. Months later, stocks went into a headlong dive on the Russia debt fiasco and Asian economic crisis.
Then came the 'Crash' cover in Newsweek in 1999, which set the stage for a spectacular market comeback as the Nasdaq composite index soared 87 percent, the biggest 12-month gain for any U.S. stock market.
``Those types of articles are generated because the information is sufficiently negative,'' says Ned G. Riley, chief investment strategist for State Street Global Advisors.
``The horror stories are extremely easy stories to develop since the deterioration from optimism to pessimism or from avarice to greed then to fear and finally, grave concern, are manifested at the worse point in the stock market's cycle,'' he says.
This contrarian thing goes beyond the market itself.
``The best example recently of how this media sentiment worked was when Jeff Bezos, the chairman of Amazon.com Inc. (NasdaqNM:AMZN - news), appeared on the cover of Time magazine in December 1999 as 'Man of the Year' when Amazon was selling for $113 a share,'' says Montgomery who has relied on the indicator for the last 30 years. ''It turned out to be a sell signal.''
The stock of Amazon.com, the world's biggest Internet retailer is now selling at $10 a share.
Be warned of one hitch.
``When the media embrace a media-based contrary indicator, it may be a Yogi Berra situation: ``Nobody goes there anymore, it's too crowded.''
Wall Street analysts have not been the only ones to generate negative stuff, Riley says. The chief executives and chief financial officers have also gone through the wringer, flipping from great cheerleaders about their companies to depressed spectators who just can't figure out how their team lost so quickly after having such big quarters.
CORPORATE FOOT AND MOUTH CONTAGION?
``Most of the CEOs and CFOs who have to go through the embarrassing confessional of marking down their results three times in one month feel guilty and they tend to think that 'I better not venture out there and say anything positive about my company because I could easily be in the same position that those other fellows were three to six months ago,''' Riley said.
Today's stocks story is hard to ignore by the media because the market's switchback has been so alarming. A year ago, stocks were up in the clouds and 12 months later, they are locked in the jaws of one of the cruelest bear markets in history.
What's happened is that the extreme stock valuations could not be sustained after the U.S. economy was stunned by Federal Reserve Chairman Alan Greenspan's rapid-fire increases in interest rates between 1999 and 2000. The Fed launched six rate hikes totaling 175 basis points as the economy picked up more steam than the Fed chief was willing to tolerate.
The central bank has since gotten back into the picture, lowering interest rates three times so far this year by 150 basis points to reinvigorate the economy and steady shaky American consumers.
But the market just can't get back up after a nose-bleed of a drop, which has put some sectors in a recession.
Yet, many veterans say the overall market is still overvalued and because the economy is in a new chapter, new rules will have to apply. For investors, it will be a case to rationalize what are acceptable valuations as the economy slows.
A year ago, people were asking: Does it get any better than this? Now they are wondering: Does it get any worse than this? Perhaps the answer is: It will get even better next year for the stock market.
For the week, the Dow Jones industrial average was up 374 points at 9,878. The Nasdaq composite index fell 88 to 1840 and the Standard & Poor's 500 index rose 21 to 1,160.
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