November 8, 2007

Jay-Z Calls The Next Market Move

jay.JPG
That's a still from Jay-Z's video, "Blue Magic."  The significance of the shot should be obvious to anyone, whether or not they trade currencies.  Why it's not obvious is the real question.



1.  Friend of mine comes over Monday night and says, "hey, I know you own Google-- I'm thinking of buying it.  And what about Euros?"

2. Did you know 7 countries are considering abandoning the U.S. Dollar?

3.  11 out of 12 experts vehemently believe the dollar is headed for collapse, or at least much further fall.  None of them tempered their opinion, or qualified it.  “The dollar has further room to fall regardless of incoming US data.”  “The dollar will keep falling in the near term no matter what.”

4. and, of course, Jay-Z uses euros in his video.  And Gisele Bundchen wants to be paid in euros, not dollars. 

And everyone is convinced that if even Gisele and Jay-Z are converting to euros, then that's it for the dollar.

Well, not exactly.

I have never been in a room, on the side of a trade, or in an argument when everyone- everyone-- was in agreement about something, and that something turned out to be correct.  The more people convinced of a proposition, of a certain mindset, the greater the likelihood that they are wrong.

Why does anyone think that Jay-Z knows when it's time to covert to euros?  But, to a man, everyone commenting on the blog that discusses the Jay-Z/euro link is bearish on the dollar.  I defy you to find anyone who is bullish on the U.S. dollar.  Everyone thinks it goes lower. (Interestingly, except Alan Greenspan.

People like Jay-Z, and everyone else in a situation of unanimous agreement, are what is known as contrarian indicators. So are cover stories in magazines.  When Time puts the iphone on the cover, you sell Apple.


aapl chart.JPG



Not forever; just until they stop talking about it.

When my friend, who knows nothing beyond the basics about trading stocks, wants to buy GOOG, then you sell-- until he says, "no way am I touching GOOG."

Here's why contrarian indicators are so reliable.  Most people say it is because "by the time" Jay-Z knows about an economic trend, the trend is over.  Implying that he is not smart enough to perceive the trend early. That's not exactly correct.  It's not  that he is late to a trend; it is that he is the last money into a trend.  For whatever reason-- lack of knowledge, lack of motivation, resources (including opening a trading account, etc) he puts his money in later than others.  But once he puts his money in, then there is no more money to put in.  If everyone has bought-- and everyone agrees on the rightness of their position-- there's no more money to put in.  So the trend ends.

This is true about everything, not just money. When every psychiatrist "knows" an antiepileptic mood stabilizer is the first line for bipolar in the absence of any evidence for this primacy, then you know it soon won't be.  When everyone "knows" a girl is a slut; when everyone "knows" X policy will do Y things; all these things should be tells that the opposite will be true.

Not always because they were wrong, mind you, but because they cause it to be wrong.  That's the key. It's not that Jay-Z is wrong about the dollar; it's that by investing in euros he causes a top in the euro.

I'm on record: I call a bottom.

(long gold, long oils, brk and aapl-- and dollars.  And I'm not touching the euro.)

 







Comments

True if Jay-Z is the last m... (Below threshold)

November 8, 2007 3:07 PM | Posted by Jason: | Reply

True if Jay-Z is the last money in. Which might normally be a good bet, but in this case, individuals are much quicker to move than institutions or nations. Those 7 countries are still only considering making the move. They have yet to actually make it. Jay-Z's the leading edge on this one, not the trailing.

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So, will you manage my port... (Below threshold)

November 8, 2007 5:36 PM | Posted by demoenise: | Reply

So, will you manage my portfolio? For some reason, I've always had a gap applying psychology to money. . .

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and apparently, I can't spe... (Below threshold)

November 8, 2007 5:37 PM | Posted by Demodenise: | Reply

and apparently, I can't spell my own name, either. . . . ;-)

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I'm reminded of something I... (Below threshold)

November 8, 2007 5:51 PM | Posted by Jon S.: | Reply

I'm reminded of something I heard in one of my art history classes. It went something to the effect of "once a theory/style/movement/"-ism"/etc. starts getting taught in school, then it's become obsolete."

Off topic, yes, but does it count as an example of a contrarian indicator?

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There's a PBS program calle... (Below threshold)

November 8, 2007 6:48 PM | Posted by shaan: | Reply

There's a PBS program called 'The Merchants of Cool' [to watch, click on my name] that applies to your ideas in this post.

Long story short, a trend (or 'meme') 'trickles down' a pyramid comprised of four distinct groups: from top to bottom, you have the innovators, early adopters, early majority, and late majority. By the time the late majority has caught on to a trend, the innovators have moved on to something else precisely because the late majority has caught on. In a way, cultural 'innovation' is much like a dog chasing its tail.

Yeah. Humans are weird.

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So, i know you're not a fan... (Below threshold)

November 8, 2007 7:55 PM | Posted by Steve: | Reply

So, i know you're not a fan of depakote -- but are you planning a post on it soon? (or did I miss it?)

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Well, you ARE sort of force... (Below threshold)

November 9, 2007 3:30 AM | Posted by Whatever: | Reply

Well, you ARE sort of forced to be long on dollars aren't you...since you appear to be living in the US. :)

There IS such thing as a contrarian indicator and then there's such thing as singing "Happy days are here again" when you're smack dab in the middle of a financial revolution.

Personally I'm long on commodities and the *Yen.*

That said, I hope you'll keep up the cool postings about the stock market.

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I was a technical analyst<b... (Below threshold)

November 9, 2007 2:20 PM | Posted by Patrick Cullinan: | Reply

I was a technical analyst
for 25 years (bonds/derivatives--not stocks). You are right on
about trends. Technical
analysis was always considered the quantification
of the psychology of overbought and oversold markets. Besides, a weak
currency is usually good
for a country like the U.S.

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Long USD? There are elephan... (Below threshold)

November 11, 2007 12:53 AM | Posted by Chui Tey: | Reply

Long USD? There are elephants in the room, China, UEA, Japan. They haven't even stirred for fear for starting a stampede.

On the other hand I've been wrong before. A few years back, the central reserves around the world were publicly mulling the sale of their gold reserves. That was meant to have sent the value of gold plunging. It didn't after all.

Dollar reversed today. Which, I have to say, was faster than I anticipated. Dollar is too heavily shorted. Japan is dead meat, for sure. People selling yen now-- carry trade--, and that will likely reverse, but long term (10 years?) Japan is in big trouble. So is Russia. UAE great; China=verdict out, IMHO.

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Tried and true advice from ... (Below threshold)

November 11, 2007 12:57 PM | Posted by s.b.: | Reply

Tried and true advice from the Arctic Monkeys who aptly titled their first album Whatever People Say I Am, That's What I'm Not.

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Maybe the ability to buy a ... (Below threshold)

November 14, 2007 3:11 PM | Posted by Anonymous: | Reply

Maybe the ability to buy a share of GOOG with a single 500 Euro note (and have money left over) is more of a reason. In other words, if you are dealing drugs, etc., you can have a bag of money that's lighter and easier to smuggle with large denominations. Then again, if you were going to have a pile of cash outside of the banking system and draw no interest on it, it would be better to have Euros b/c the dollar is sinking. Maybe that's true even if you are getting 5% interest...

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