Every week at the Wall Street Transcript, the Portfolio Managers we speak tell us what possible indicators are showing where the market is headed. For some it is economic indicators, like the behavior of Fed or the price of oil. For Thomas Au of R.W. Wentworth & Co., however, the current market climate can be observed through the lens of cultural signifiers. For example, Britney Spears’ hemline:
Mr. Au: You may have heard of the so-called hemline indicator? The hemline indicator started in the 1920s and they were talking about the length of ladies skirts. The hemlines rose also in 1920s in tandem with the stock market, until they reached a certain point, then they fell basically all through the 1930s, which also correlated with the indices.
Actually, this past year, we saw a hemline indicator that suggested that at least the US stock market is again at its peak. I’m referring to the fact that Britney Spears’ hemline rose to the point where, to put it delicately, her dress left nothing to imagination.
What happens is when morals are loose, that’s usually a sign that money is loose and money that was maximally loose about a year ago is now being tightened, the Fed rate cuts notwithstanding. The tightening is being seen in the weakening dollar and also in the tighter lending standards by banks vis-a-vis subprime and mortgage loans generally.
It’s even being seen in the cultural sense in the fact that Britney Spears lost custody of her kids to the father, who was seen as a better parent. This is an unusual event for a mother, but it’s basically saying that the American public has had enough.
For the full interview with Mr. Au, including his complete take on the current market climate and stock picks, click here.
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