The collision of global markets and social mood

Monday, February 11, 2013

What A Weekend

It's as if the news of the world became unhinged this weekend. Paul Krugman started it. His Friday NYT editorial set the tone by asserting that we should kick the can down the road because "it's the responsible thing to do."

Then the IMF revealed that Putin has made Russia the biggest buyer of gold over the last decade. The article made a startling admission by noting "In 1998, the year Russia defaulted on $40 billion of domestic debt . . . ."

That's amazing since Putin is rumored to be the wealthiest world leader on the planet with a fortune estimated at . . . $40 billion.

Bidding wars are back! I loved seeing this NYT article, too. So many juicy quotes.

Record low mortgage rates and a scarcity of listings have combined to create a sense of urgency among buyers and drive up prices across many market segments . . .

. . . she had 25 offers. All but two were above the asking price. The house went into contract for 20 percent above the listed price to an all-cash buyer, who didn’t even ask for an inspection.

Rival buyers “can have remorse” and drop out, said Jessica Cohen, an associate broker with Douglas Elliman. “Some overbid out of angst to not lose out . . .

. . . navigating a bidding war can be emotionally draining . . .

Nail-biting commenced.

One buyer dropped out, but the other interested party upped the ante to $615,000. At that point, Ms. Ponce said, “I’m miserable and depressed.” 

Ironically, she's also the chief administrative officer for a hedge fund.

Ms. Ponce matched the rival buyer’s offer . . . Now, she is about to begin a gut renovation, which she hopes to complete by summer.

I’m on the extreme high again,” she said.

I was struck by the article's up and down mood. Bifurcation, as noted in The Socionomic Implications Of September Vogue: 2012 is still going strong.

Elsewhere in the Times, as if it was only a matter of time, there was a trial balloon written by a state university tax professor that was more like a tiny time bomb.

Looking Beyond Income, to a Tax on Wealth floated the idea of taxing wealth simply because it's there. This is a wonderful incentive for us to earn money, pay tax on it, be lucky enough to make a capital gain on it, get taxed again, and then when enough of it accumulates through wise habits, it gets taxed again just because it's there. Nuts.

I notice crap like this is usually floated by an academic first. Then some stooge like Christina Romer, a former academic and Obama's former Chair of the Council of Economic Advisers, will chime in with an editorial to make it sound like it's got traction within the administration. Nothing more than institutionalized PR.

Then I found The Billionaire Shop, a sure sign that the Doomsday Preppers may be onto something.

Then the Pope resigned, the first one since 1415.

Then the best for last: Hermes $10,000 Birkin Purse Seen Leading to Record Sales.

The writing in this Bloomberg article was superb -- especially if you study social mood. It was a socionomics gold mine. As the world's central banks are flooding the markets with liquidity, it is easy to mistake rising social mood for a strong economy.

For decades, fashionistas have known that a Birkin bag is a safe style bet -- if you can get your hands on one. That demand makes its producer, Hermes International SCA, the surest bet in the luxury industry when it comes to sales growth.

(it may appear to be a sure bet, but only until social mood changes)

. . . demand for Hermes handbags shows how the Paris- based company, which analysts estimate will report record revenue tomorrow, is capable of determining its own financial performance.

(demand is not linear, it is cyclical, and is dependent on social mood)

“The limit to what Hermes sells is how much it can produce,” said Luca Solca, an analyst who heads luxury-goods research at Exane BNP Paribas in London. Revenue “is what they decide it’s going to be.”

(i like the strategy of not flooding the market with product, but revenue is never what a company decides it to be. it's what it is)

Because the products are hard to get hold of, “consumers don’t pay attention to price,” said Yann Le Floc’h, a former sales trader at Exane BNP, who founded online marketplace in 2009. “They want to have the product now. They don’t want to wait.”

This is the sort of unhinged thinking that I like to see when markets are rallying and sentiment is bullish. Just like bidding wars in real estate, when consumers have to have the product now, when they're shouting "Gimmie that bag!" as market commentator Joe Granville of The Granville Letter used to say, sell it to them.

However, I do think that the mood underlying the S&P 500 is not unhinged enough, yet. I may be wrong, but it feels like it will take another up-down-up, possibly to new all-time highs, to get things fully fogged up enough for us to see clearly.

With the market resting just below the 1519 Fibonacci extension target, perhaps it wants to thrust higher. If so, there is another target at 1532. Below 1495 would signal a deeper retracement instead.

Strange days by The Doors on Grooveshark

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