Minyan Mailbag - Stagflation
Note: Our goal in Minyanville is to remove intimidation from the financial markets and encourage an interactive dialogue among the Minyanship. We share this next discussion with that very intent.
Thought you might appreciate the graph below which shows the occurrences of the word "stagflation" found in U.S. print sources from 1/1/80 through today. The source is Lexis/Nexis.
Notice the jump after last week's job report. If "stagflation" is to become an economic reality it must first become present in the public mindset. The inference is that a growing number of occurrences of the word should be a good signal. When "stagflation" is on the cover of Time, and everyone knows it - it is probably maxed out as both an investment theme and an economic factor. This gives us an early indicator for any identifiable theme or investment idea
We've created search algorithms that allow us to reach into the Nexis database and track themes over time in order to gauge acceptance in the public mind. A bit like looking for the Denial/Migration/Panic tipping points. This is really nothing new and is a subset of the emerging science of memetics. Yet, it is not used by investors. The R&D took much much longer than I ever thought - but it is now complete. We use print as the web does not provide any real history and it is impossible to rapidly distinguish credible source material in HTML. Our analysis is based on over 10,000 print sources, including every major U.S. newspaper and business journal. We can drill down into individual articles or specific timeframes to better understand the nature of the news on that theme for any specific day.
One amazing result so far of this research is that the occurrences of the word "recession" accurately predict the NBER-designated recession dates 7-12 months in advance. In other words, this simple approach is better and faster at predicting recessions than the official recession-dating comittee.
Another benefit is the inferences we can make when a negative or positive stimulus loses its power. For example, a study of the words "terrorism" or "Iraq" correlate beautifully (negatively) with the S&P 500 into the March 2003 low then lose correlation - as those themes have lost their power to produce fear in investors. In the conventional paradigm - that "information has been discounted." After March 2003 "Earnings" became the operative positive theme. "Earnings" has just now turned from a positive theme into a negative theme.
All the best,
Minyan Andreas Calianos
Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at firstname.lastname@example.org.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap Newsletter