Sometimes the best market indicators are right in front of your eyes…
In April 2016, I went to a mining industry conference here in Singapore.
According to the conference’s marketing materials, this was supposed to be “where miners and investors converge in Asia.”
With a name like that, I expected a conference venue the size of an airplane hangar… with hundreds, if not thousands, of attendees… and dozens of mining companies and service providers pitching their products.
Instead, the event was held in a room a bit larger than the size of a football penalty area. There were no more than 60 delegates, and just a small handful of company stalls. It was like expecting a seven-course culinary extravaganza, and being offered a pile of stale peanuts instead.
It’s possible so few people showed up because the event wasn’t well publicised or because potential participants didn’t have time to come to Singapore.
But to me, the small turnout was just another sign that things were close to getting as bad as they could in the mining sector. At that time, commodity prices were suffering… taking the prices of mining companies with them. At its January 2016 low, the iShares MSCI Global Metals & Mining Producers ETF (New York; ticker: PICK) was down 59 percent from its 2015 highs.
Usually, conferences like this are overflowing at market tops. That’s when you should sell. But it can be a buying opportunity when share prices, and investor interest, are down – like they were at the mining conference I attended.
It turns out that the indicator was right. Since that conference, investor interest in mining companies has turned around… and PICK is up 69 percent. Had you paid attention to this indicator and bought PICK shares in early 2016, you could have made a tidy return by now.
There are plenty of other unusual ways to measure market trends.
Looking beyond the traditional indexes…
Indexes are the lifeblood of the financial markets. They monitor inflation, economic growth, unemployment and production. Pretty much every major economic figure cited by talking heads on TV is indexed in one form or another.
The problem is that most of the traditional indexes investors and markets watch are about as interesting as a sunny day in Los Angeles.
And they don’t always look at the real world… which can often give you several clues about how a market is doing.
So here are just a few real-world indexes to pay attention to…
The Economist’s Big Mac index: Years ago, The Economist drew upon the global ubiquity of McDonald’s fast food restaurants to create a purchasing power index of its own. The Big Mac index assesses relative currency valuations by comparing the prices of Big Macs in different markets throughout the world, with comparability predicated in part upon the near-total uniformity of the ingredients and inputs of the hamburger regardless of location.
The skyscraper index: This index tries to establish a correlation between the height of buildings under construction and the dynamism of the local economy. As the Washington Post explained, “The Sears Tower was built just as the U.S. entered the paradox of stagflation. And as Malaysia stole the title of world’s tallest building, it was being engulfed by the Asian financial crisis. Looking back in history, the Chrysler and Empire State buildings were completed one year into the Great Depression.”
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The current tallest building in the world, the Burj Khalifa in Dubai, was completed in 2010, coinciding with the global economic crisis.
The hemline index: The “hemline indicator” says that the hemline of women’s dresses is an indicator of macroeconomic performance – and that the higher the hemline, the better the prospects of the economy. A semi-scientific study conducted by Business Insider in early 2012 showed that hemlines were significantly higher than those of the fall/winter 2011 fashions. Coincidentally, the U.S. economy grew by 2.2 percent in 2012, up from 1.6 percent in 2011 – and by an average of 2.2 percent per year since.
My additions to the index repertoire
The re-pat index: When I was recently in Bangladesh for International Capitalist, I met a lot of “re-pats”… that is, people who were originally from Bangladesh, but had left the country for many years – and then returned. (So they’re not really expatriates – but they’re “re-patriates” who are returning to their home country.)
Many of these people – most of whom were senior executives at the country’s biggest conglomerates, heads of start-ups, and senior managers of large subdivisions of family companies – left a good situation in a part of the world that’s a lot easier to live in. (Dhaka is exciting but no one will mistake it for Vancouver or Sydney.)
And why were they back? For one main reason: Opportunity. They could enjoy a respectable and comfortable life in the developed world… or have the opportunity to multiply their income manifold in a wild and chaotic country, at a far higher level of responsibility, creating something new out of nothing.
That these folks returned is a very positive sign for the country. And of course, it’s also a huge benefit for the development and evolution of the market to have international professionals lending their expertise to the economy.
I don’t have in mind any specific kind of quantification for this… but the more re-pats, the better – and the more things will improve.
The brain drain index: Brain drain – the departure of smart, educated professionals from an economy (the opposite of their “re-patriation”) – suggests that a country is headed in the wrong direction. If the people who know a country the best – they’re from there and they’ve grown up there – are abandoning it like they would a boat made of bread in a soup ocean, it’s clear that things are going poorly.
I saw brain drain and re-patriation play out in real time not so long ago.
In the late 1990s, I was working at an investment bank in Moscow. Over the period of several months, I wrote at least one recommendation per week for Russian colleagues who were applying to business school or a job or a visa to leave. These were the best and brightest – and they were willing to do just about anything to leave the sinking ship of Russia. They saw underemployment, poor earnings potential, and professional boredom in their future.
(After the economy’s collapse in the late 1990s, and several years of stagnation, Russia slowly came back (aided by a historical rally in commodities prices). And the people who I helped escape the “old” Russia began to return – because they could earn a lot more back in Russia as much as a western educated, near-bilingual analyst at a Russian bank, than they could as a run-of-the-mill recent MBA working on Wall Street or in London. Their return was a great bull signal for Russia… the “re-pat index” in action.)
These indexes aren’t necessarily scientific… but they can tell you a lot about how a country or market is doing and where it’s headed.
Publisher, Stansberry Churchouse Research