Objectivity!
One of the most important questions for consumers of punditry is whether the source is intellectually honest about methods and interpretation. The test is a simple one:
- If an indicator is cited as support for a market position, take note.
- If the observer decides to change indicators, there should be a logical explanation – best done when it is not an excuse for maintaining current viewpoints.
- If the indicator is dropped when it no longer supports the pre-conceived viewpoint, be warned!
Since I read widely from many sources, I am often intrigued by provocative claims. If you want to challenge your own biases, you must be willing to see an opposing viewpoint. If you learn that a source has turned a blind eye that should be a red flag.
Two Examples
Case one. There has been a lot of recent buzz about high levels of margin at the NYSE. For a time, your favorite conspiracy site insisted that this had nothing to do with short interest, since that was declining as the S&P was rising. Here was the chart:
Let us now compare with more recent data via CNBC:
It is pretty obvious that the ZH post coincided with the one big diversion in this series. Do not hold your breath waiting for an update!
Case two. A famous pundit who is generally bearish identified an interesting indicator – purchase of dental services. The basic idea was that many dental procedures were discretionary and therefore a great real-time indicator of consumer strength. Since I admire the source and his ability to find innovative ideas, I thought this was quite interesting. I put the key stock, which he recommended as a short, on my quote screen. One of his several public comments (and not the first) was in mid-2012 when he noted that the stock was at an all-time high. Here is the stock chart:
We can see that the stock is up 50% since the time of this widely-publicized article. You probably did not short it, and neither did I. Our hero (no doubt) had a nice stop on his short. That is not the point.
