With our economy being in a state that is, we might say- nebulous- with high volume, growing volatility and an excess of speculation, the atmosphere is creating a surplus of unease.
Just three months shy of the stock market’s most dreaded month of the year and nearing the anniversary of the Lehman Brothers’ collapse- this is a good time to be mindful of the fact the current conditions might have been welcome in a different time.
In more bullish times, like say- the 80s, point swings between 300 and 500 would have only made for a bit of excitement. Risk hasn’t always been such a scary thing, and it’s been a much more common and welcome thing in different times.
Even in times when such volatility was not regarded with the same dread that it is now, they were usually the only available indicators that another financial institution could be on the edge of catastrophe- and were always the most reliable signs of danger.
These days, we don’t like to play so fast and loose. There are a number of indicators that are usually pretty reliable, such as market cycle timelines and the behavior of financially savvy governments like China and the Vatican.
But you can never have too many market indicators like these. The way to judge their usefulness is by their visibility and their track record. They should have a low profile. That is to say, they should be grossly underutilized and have a proven record of predicting market troughs.
One such market indicator that, according to a study published by the Bespoke Investment Group, is the Drudge Report. According to the researchers, there is a directly inverse relationship between the direction of the S&P 500, and the condition of the stock market.
It’s not credible, on its face, but the numbers are pretty compelling. It seems to indicate that either Matt Drudge is the greatest speculator on Earth, or that the man has somehow managed to steer the entire economy from somewhere in his office.
What’s more likely is that Drudge has a fair amount of knowledge of the market and that the Drudge Report tends to focus on the economy when market conditions are heading in an especially bad direction.
According to the study, “The Drudge Report, with its thirty million daily clicks, appears to have a larger audience than any other Internet news source. News junkies in search of a fix visit the Drudge Report regularly, while those in the media- from leading networks and newspapers to bloggers- go to it several times every day. Political stories get the majority of the Report’s links. Whatever Matt Drudge thinks is the day’s most important topic is what takes the top of the page.”
Matt Drudge and his site are not financially oriented by nature. Whenever a story about finance manages to grab Drudge’s attention it indicates that the story deals with financial issues that are dire enough to have broad implications on other areas of the political scene.
Likewise, when a financial story makes the jump into the mainstream mediasphere, it’s a sign that those in the media who don’t normally follow finance news are following the market suddenly. This is a good sign that the market is doing something unusual, generally something bad.
The Bespoke Investment Group laid out a set of rather compelling data to make their point. Their timeline shows a number of news cycles during which there were headlines related to finance on the Drudge Report over an ongoing 50-day stretch beginning in mid-2003.
At the starting point, the market was in the formative stages of the bull market of 2002 to 2007. Not surprisingly, the number of finance headlines reached a peak approximately around the time when the market moved into its financial crisis level lows.
The maximum reading at 21 days out of the sample of 50 financial related headlines on the Drudge Report came in on February the 27th in 2009. That was only 10 days prior to the S&P 500’s lowest point in the bear market of the time.
The amount of finance-related headlines on Drudge dropped after that straight down to zero. This happened just as the market, economy completed a recovery after a particularly severe bear market. But it began to pick up once again in February of 2010 as the crisis shifted from our shores to Europe’s.
We wouldn’t want you to go and wager your life savings based on Matt Drudge’s whims, but it may be wise to curtail spending whenever the Drudge Report begins to focus on issues of the economy- and it could also be a great time to pick up stocks right as they hit their lowest prices.
Regards,
Ethan Warrick
Editor
Wealth Authority
