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Mustard and Mortgages


Once everybody is aboard an idea, who is left to push the boat even if it works?

Minyanville would like to introduce Ryan Krueger, the newest Professor to our community!

I was watching King James' coronation (with the beard you almost forget LeBron is 21 don't you?), held at the Quicken Loans Arena. Can a triple-double ever spell trouble? The time had come to revisit what may be one of our most reliable indicators of all-time. You may recall a few years ago when technology companies started paying for scoreboards instead of motherboards. The story opened when certain companies had so much extra money on their hands that they decided to buy the naming rights on sports stadiums. Painful reminders are still etched on brokerage statement scorecards to remind folks how this game ended for some of those companies. Looking back, the stadium indicator signaled a few "top-ticks" in the stock market.

At last check, there were 70 major sports stadiums that had sold their naming rights, according to data from ESPN ("Yes, Honey, I am still working."). I organized this list, just as I did six years ago. I was shocked by the results, had no idea how many of the names had changed in the past few years. There are now 22 stadiums financed by financing companies! If you were inclined to divide 22 into 70, you would see that financial companies represent more than 31% of this stadium naming "index." That is an eerie number for those of us that remember when the technology sector peaked after representing 29% of the S&P 500 in 1999.

I was just as surprised six years ago as I was today that so few are stopping to ask a basic question: Once everybody is aboard an idea, who is left to push the boat even if it works? The fundamentals are a source of great debate but the key, yet often forgotten factor in causing a stock to go up in price tomorrow morning is whether or not there is an imbalance caused by investors who do not own the stock yet and want to. The stock market is an auction, not a store. We believe technology stocks stopped going higher not because the business got bad (many did the exact opposite) but because almost one out of every three dollars in the stock market already owned a technology stock in 1999! The same can be said today about financial services. I think our own El Presidente Wassong nailed it, in his hot dog eating essay. Even Kobyashi gets full at some point and my hunch is that the market's hot dog (largest sector) threshold gets full around 30%. Don't forget the other way to outperform the stock market - being right about what NOT to own. I'm not calling for a collapse but I'm dramatically underweighted in the sector and almost all of my chips here are placed on unusual names, some that will benefit directly from the puking of the usual suspects in this sector, once the mustard is on the mortgage that finally stops going down so easily.

"It's so popular no one goes there anymore."
Yogi Berra
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No positions in stocks mentioned.
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