DAX-Sentiment: The Market Timers

13. February 2014

12 February 2013. FRANKFURT (Börse Frankfurt). It was no exaggeration to say that professional investors on Boerse Frankfurt’s weekly sentiment panel urgently needed a rebound in stock prices last week. Although this group had steeled themselves for some kind of pullback in January, many would concede that the decline, when it came, was a somewhat more brutal than they had expected. Nonetheless, they stuck to their dip-buying plan, buying as the German benchmark index slumped. At this time last week, the panel’s overall optimism stood at its highest level in over a year – it was make or break time. So when, starting on the very next day, prices started to recover strongly, gaining some 4.5 percent on a week-on-week comparison, these investors required no advice about what should be their next step: profit-taking.

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DAX-Sentiment: Careful What You Wish For

6. February 2014

This is not exactly the correction investors had in mind

5 February 2013. FRANKFURT (Börse Frankfurt). Although investors had prepared themselves for an equity price correction last month, we suspect they have imagined it little differently to the way it unfolded. When one thinks about what a future correction might look like, the tendency is to see it as a step-by-step pullback, burdened by news that, while negative, doesn’t ultimately change the fundamentals. In this respect, the heavy snowfalls that battered the US east coast fit the bill perfectly. What one does not expect is a heavy price slide that unfolds against the backdrop of an apparently contagious emerging market currency crisis and emergency central bank policymaking. One also does not imagine a seven percent decline in the German DAX, which, even though it was spread over more than two weeks, was in reality concentrated into three dreadful one-day losses. However, the most important thing that one sees when one imagines a future correction is the price recovering thereafter. So far, therefore, the DAX has not fully met popular expectations.

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DAX-Sentiment: Crises with Benefits

31. January 2014

Investors profit from steep correction to rebuy

29 January 2013. FRANKFURT (Börse Frankfurt). It was not obvious why the German DAX index had to fall three percent last Friday. There was no catalyst, no economic data release, for example. Rather there appears to have been a build-up of headwinds for the equity markets that had finally managed to tip the sailboat over. To begin with, there was a nascent currency crisis in the developing markets. The Argentinian peso had slumped some 13 percent 24 hours earlier and trading in some other currencies like the Turkish lira and Venezuelan peso had also become more nervous. Investors also looked back on the credit crunch in China and on the underwhelming earnings announcements of US corporates. Some commentators even dwelled on the likely second instalment of the Federal Reserve’s stimulus withdrawal (due today) as an explanation for the sudden fragility in the DAX. None of the factors were brand new, and none could have upset the valuations of German blue-chips on its own, but all coming together proved to be too much.

Read more at Boerse Farnkfurt’s website

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DAX-Sentiment: Where the Air is Thin

23. January 2014

DAX investors can envisage 10,000, just not yet

22 January 2013. FRANKFURT (Börse Frankfurt). Economic forecasters, both public and private, are brimming with optimism. For the first time in years, argue analysts around the globe, the financial headwinds have died down and the risks are moderate. Even the International Monetary Fund, which has been known for its conservatism in recent years, has given a thumbs-up for the global economy. And the latest survey by PricewaterhouseCoopers, a consultancy firm, has revealed that just 7 percent of international CEOs believe the global economy will worsen; this figure stood at 28 percent 12 months ago. The US is the country where they see the greatest promise, but close behind is Germany, where exports are set to flourish. The enthusiasm is such that not even a slightly disappointing Chinese growth number was able to sour the mood.

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DAX-Sentiment: A Sober Start to 2014

9. January 2014

Investors could hardly wait for the New Year to sell

8 January 2013. FRANKFURT (Börse Frankfurt). Three weeks make for a stretched comparison when one looks at the results of what is typically a weekly sentiment survey. Yet that is how long it has been since Boerse Frankfurt last sounded out domestic professional investors for their opinions on the DAX benchmark index. In the previous poll, the sentiment panel had expressed their most bullish views of 2013. As they had tended to be rather sceptical of German blue chips during the second half of the year – the period during which practically the entire 2013 performance was delivered – it was noteworthy that they stepped up to the plate in the final full week of the year. This, we considered, would be the admittedly window-dressed holding they would report at the year-end. This intention proved to be more challenging than any of them probably imagined – not because of losses, though, but because of the sudden appearance of impressive gains.

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Most Popular Posts of 2013

3. January 2014

Investment themes – namely the evolution in the price of gold and stocks – hogged the two top spots in the annual ranking. However, a post about the common regrets of the dying managed to outdo discussions on bitcoins, euros, and a trillion-dollar coin to claim third place. Enjoy.

1)  A Costly Shortage of Gold

2)  Warning: Triple-Peak Forecasters Ahead

3)  The Top Five Crocodile Tears of the Dying

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Merry Christmas

14. December 2013

We would like to thank our readers for following the Unexpected Utility blog. We also take this occasion to wish you all an excellent holiday and a prosperous New Year and above all opportunities to make good decisions.


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DAX-Sentiment: Fully Loaded

12. December 2013

Investors’ late play on a Santa-Claus Rally

11 December 2013. FRANKFURT (Börse Frankfurt). This is second consecutive week in which members of Boerse Frankfurt’s sentiment panel have had to judge the DAX index against a backdrop of week-on-week declines. This time, the dip is a little meatier: 1.4 percent. It appears all the more grim if one considers that the major US benchmarks  drifted back up to their record peaks during the same period. The domestic professionals on the panel are also short of a plausible explanation for the weakness, or any obvious alternative asset that investors might have preferred instead.  For instance, the euro currency remains very much in favour – its value rose every day since the previous survey and now stands at its highest level against a basket of major trading since July 2011 – so there was no apparent flight from the eurozone. Similarly, German long bond yields rose since last week, so there was no apparent asset re-allocation from stocks to bonds…

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Optimising Christmas Gift Giving

8. December 2013

What to get loved ones for Christmas – the perennial problem? Even if you’ve already found what you believe to be the ideal gift, you might not better off than those of us who have yet to make up our minds because you don’t know that it’s the right one? Will your other half glow with delight on the big day, or will you be rewarded with a long face and a polite ‘that’s nice’?  Yet choosing a gift needn’t be left entirely to chance. What use is the academic study of happiness if not to inform us what it is that makes people happy?

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DAX-Sentiment: What’s up with the DAX now?

5. December 2013

Professional investors are unmoved by the fall

4 December 2013. FRANKFURT (Börse Frankfurt). November was barely over, but stock market chroniclers already seemed to be writing the tale of the German DAX in 2013 – and it included a rally in the final month of the year. Why not? The blue-chip index had climbed an average of five percent in each of the three preceding months.  Of course, those gains were only available for those who were fully invested. For the professional investors on Boerse Frankfurt’s weekly sentiment panel, this precondition was probably not met. They have only expressed any reliable optimism in the weekly survey in the past four weeks, and even this has been at bullishness levels very close to the year-to-date average…

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The Manipulators are Among Us

3. December 2013

In my previous blog I described how, if we are not careful, randomly-occurring reference points manage to hijack our decision-making. The case concerned a would-be stock market investor who wondered whether one could still buy the German DAX even though it trades at a new record high. He was obviously desirous to buy, but my introduction of a new, wholly irrelevant reference point (the index level at the start of the year) was enough to undermine this bullishness; it was even enough to provoke a desire to sell stocks!

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Are You Really in Control of Your Decision-Making?

29. November 2013

It is typically when stocks markets are at record highs that investment strategists on financial television are asked the question: “Can investors still get in?” Of course, those who have accepted the invitation to appear are often those who are already long; those who missed the move, or who are short, tend to have busier calendars when the TV networks call. So these sound-bites are not necessarily objective, or even representative of the average strategist’s opinion.

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DAX-Sentiment: No Profits to Take

28. November 2013

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Blackout in the spotlight

25. November 2013

Have you ever had one of those blackouts? One of those moments when you suddenly have no idea what is going on, what is up and what is down? I had one just recently. I stood, pre-dawn, in front of my dressing room mirror and couldn’t remember how to knot a tie. I tried left over right then right over left, but it was hopeless; the decades-old knowledge had seemingly vanished. Mercifully, there were no witnesses to my bafflement and, one double espresso later, I was able to easily recall the Double Windsor.

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Cudda shudda wudda

22. November 2013

‘What’s going on?’ I thought to myself when the price of bitcoins leapt beyond $900 this week. It had increased four-fold since that drizzly Thursday afternoon two weeks ago when I tortured myself over whether I should buy some at $220. If only, just for once, I had ignored my gut instinct and listened to my blogger-in-crime, Herman. Of course, now he cannot help but remind me of his timely advice: “Didn’t I tell you’ve got to get some of those bitcoins!”

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DAX-Sentiment: The Record High IS the News

21. November 2013

Investors’ focus remains on a pursuit of the year-end rally

20 November 2013. FRANKFURT. It has been an unusually quiet week for news-flow in the stock markets. Since the major news shocks from the ECB and from the US Bureau of Labor Statistics, most of the headlines about central bank policy have been regurgitated. For instance, many Fed governors have spoken in the meantime, but all have simply restated their earlier stances about the likelihood of tapering. Similarly in the eurozone, ECB Governing Council members have been at pains to downplay any suggestion of a north-south rift in policy setting, and to dispel the fears of deflation that emerged after the eurozone’s inflation figures were published earlier this month…

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A Century of Investment Lessons

19. November 2013

Why didn’t anybody tell me before? Had I been aware of a 2012 study by Credit Suisse and the London School of Economics I might have been better prepared for swift evaporation of inflationary pressures currently taking place around the globe. The study investigated the degree to which major asset classes protect against inflation and deflation using data from 19 countries over a 112 year period.

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Bitcoin Mania

15. November 2013

I only narrowly missed it. I finally decided to activate my account at the bitcoin exchange Mt.Gox last Thursday so I could buy some of this virtual money. All I had to do was to submit my credit card details and a scanned copy of my passport (what could possibly go wrong?) and I could become a bitcoin investor.

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DAX-Sentiment: Draghi Delivers a Windfall

14. November 2013

Investors will jump through a flaming hoop, but not twice

13 November 2013. FRANKFURT (Börse Frankfurt). Buying stocks at record high prices is a challenge for even the most disciplined investor. Buying stocks at record prices after one has spent months convinced about the vulnerability of the equity market requires no less than a Herculean effort. This is because it involves not only exposing oneself to the risk of future regret if prices should go lower again, but also conceding that one was previously wrong. This is the psychological equivalent of jumping through flaming hoops. Yet this is precisely what the domestic professional investors on Boerse Frankfurt’s sentiment panel confessed to in the previous weekly poll

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Have a Safe Trip

11. November 2013
Gute reise

Me: Well, I’ll see you in three weeks’ time. I’m going on holiday.

Her: Where are you off to?

Me: Somewhere warm, Israel.

Her:  Israel? I s r a e l?

Me: (Puzzled expression)

Her: Really? Israel?

Me: Yes really, Israel.

Her: Why Israel, of all places?

Me: Why not Israel?

Her: I mean there are lots of other sunny places in mid-October.

Me: Yes.

Her: Oh, I get it. You’re visiting relatives in Israel?

Me: No.

Her: Ah, so you mean you are not…?

Me: Well, I’m not really sure. There was a thing with my father, but…

Her: Isn’t it a little dangerous, especially now with Syria, and Palestine, and those rockets? You want to travel with your kids to a crisis region?

Me: There is always a crisis somewhere, not just in Israel.

Her: (Shakes head in despair) Well, I dunno!  Why Israel of all places?

Me:   That’s why.

In the above conversation, any resemblance to persons living or dead is deliberate. The ‘You’ in this exchange is personally known to the author and, like so many others, claims only to have my best interests at heart.


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DAX-Sentiment: The White Swan

7. November 2013

Domestic investors position themselves for the year-end rally

6 November 2013. FRANKFURT (Börse Frankfurt). Volatility has been eerily absent on the Frankfurt bourse since the previous sentiment survey. After arriving at a record peak one week ago, the DAX index has basically just sat there; the week-on-week change is just one-tenth of one percent. Like a swan gliding across the water (let’s make it a white swan), the apparent tranquillity in the price understates the furious activity below the water line. Despite the largely unchanged prices, domestic professional investors on Boerse Frankfurt’s weekly sentiment panel have revealed a dramatic shift in their opinion of the market. The bearish camp has simply wilted: the proportion that expresses a pessimistic view has declined by seven percentage points, almost all of which has gone straight into the bullish pool…

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Are We There Yet?

6. November 2013

Companies are trying to cut costs everywhere these days, even if this means delivering a worse service. This, at least was my impression on a recent vacation to Tel Aviv. Formerly, Lufthansa would use much larger aircraft on this route. These days, it uses the same aircraft on a four-hour international flight as it does on a domestic German inter-city flight.

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A Message That Can Save You Money

4. November 2013

I’ve gotten into something of a pickle with this latest trading position. Just a few weeks ago is seemed that all the operational and economic stars were aligned to send this stock into the stratosphere, but things did not work out like they were supposed to. It is not a complete disaster, but there were numerous little ‘misses’ on the way. So, although the broader equity market is reaching a 52-week high, my stock is closer to its 52-week low, and I am losing money.

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DAX-Sentiment: There’s no denying a bull market

31. October 2013

Domestic investors would like a cheaper entry into the year-end rally


30 October 2013. FRANKFURT (Börse Frankfurt). At last, the cheerleaders for the German DAX index have returned. Earlier in the year, even though the equity benchmark had managed a decent performance, and had even recorded a new all-time peak, we had wondered why more market commentators were not singing its praises. Usually, when a market climbs into record territory after a bull run, analysts and statisticians crunch the numbers to show how much investors could have earned if only they had been fully engaged. This year, however, it has required two assaults on record territory before such statistics have been considered worthy of publication. But, once again the message is the same: over the long-run, investors forgo an equity engagement at their peril…

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Thou Shalt Not Buy Positional Goods

30. October 2013

Over the course of four blog posts on the subject of positional goods, I have perhaps given the impression there is not much positive to say about them. Some readers might have been tempted to say: What is the point of all that stress? Why join in this daily rat-race where everyone is battling to secure higher social status, constantly comparing themselves with others, and ultimately being left feeling frustrated because there is always someone else who is wealthier or more accomplished than oneself?

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The Positional Rat-Race

28. October 2013

In recent blog posts, I have explored the difference between positional and non-positional goods, i.e., those goods whose ownership confers some social status on the owner, and those that don’t. As people attach a great deal of importance to how they rank in social comparisons, there is a tendency to sacrifice non-positional goods in favour of positional ones. For instance, people are prepared to forgo time spent with family and friends, or even time spent sleeping, in order to work longer hours. Sleep is a non-positional good, so being able to enjoy more of it has no impact on one’s social ranking. However, the top-of-the-range car that one can afford to buy with the extra income is a positional good; it confers social status on its owner, so this is an important part of its perceived value. Of course, some of this status will be lost as soon as the neighbours park even more desirable automobiles on their driveways. The foregone sleep, in contrast, can never be regained.

Social norms play an important role in this context. Any product that happens to be ‘in’ at a given time, for example the latest iPhone, will see its value as a positional good suddenly upgraded. This can result as a function of its scarcity – only the first people to leave the Apple store with the newly-released smartphone will proudly hoist the gadget into the air. The positional clout of a good could also be due to its lofty price, which means that not everyone can afford one. Even the most unlikely products, which because of the social norm or fashion have become must-have products, can mutate into positional goods. Once again, though, as soon as these products stop being trendy, for example, once everyone else has one, the mutation will go the other way – the positional cachet will be lost.

In the end, a veritable race to consume positional goods can develop. Larger and more powerful cars will be bought as motorists try to improve their relative positions in society. Even if this means that the cars people buy are wholly unsuited to the practical use they are eventually put – for instance, on roads with speed, width, height and emission limits – people still want them. The race is typically led by the wealthiest; they shift the reference point higher for the less-wealthy. This ripple effect is visible even among the least wealthy in society, with less expensive goods. Indeed, the proportion of positional goods in the total household consumption will tend to rise as the household income falls. A poor household has to give up more of their non-positional goods, like sleep, in order to keep up with the Jones’ in the positional race.

The completion for positional goods also manifests itself in financial markets when ownership of certain securities suddenly becomes trendy. Admittedly, this is not very easy; after all, people do not wear their share certificates on their sleeves. However, during phases of stock market bubble when rapid price rises allow investors to quickly realise profits and convert them into more visible positional goods, to be seen as the owner of a must-have start-up company or subscriber to a fast-growing technology firm’s IPO confers social status. A the social reference point rises with the booming stock market, those who would normally squirrel their savings away on a deposit account, suddenly have the need to try their hand at the bourse. This particular race typically ends badly; when the market turns the entire neighbourhood loses money. As they all lose in similar proportions, at least the prior social ranking is left intact.

One could argue that it would be better, for the greater good of society, to bring an end to this positional rate-race. Would this make sense? Would it even be possible? This is the question I will answer in the fifth and final part of this blog series.




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DAX-Sentiment: DAX welcomes the world’s investors

24. October 2013

Germany might be benefitting from global asset re-allocation

23 October 2013. FRANKFURT (Börse Frankfurt). The undeniably risky decision to add German blue-chips to one’s portfolio just as the US congress embarked on the most bitter budget standoffs in recent history, finally paid off for domestic investors on Boerse Frankfurt’s sentiment panel. Since the start of September, the DAX has delivered an impressive performance that has taken it to a new record high. However, the professional investors on the panel have not held their breaths waiting for more; after barely being able to testify to optimism at the year’s average, we note that their positive mood has evaporated again. Sentiment, as measured by the Cognitrend Bull/Bear-Index is again struggling to hold above the 50-level.

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House-Hunting with Economists (Positional Goods III)

21. October 2013

Not all goods satisfy the conditions to be classified as ‘positional’. One essential characteristic of a positional good is that it must be comparable with other goods, which means it must be easily recognisable and measurable. Just consider the good we call ‘income’ with the one we call ‘leisure’.

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DAX-Sentiment: Thinking the Unthinkable

17. October 2013

Optimism shrinks, but not because of US default risk

16 October 2013. FRANKFURT (Börse Frankfurt).This is not the first government shutdown in US history yet, three weeks ago, there were very few market participants who thought matters would come to that. Once the shutdown actually started, and Federal workers were sent home, few thought it would last. When the US Treasury announced the debt ceiling would be reached by October 17th, few believed the deadlock would be allowed to fester up to that date. Yet, here we are…

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The ‘Positional’ Economy is not a Zero-Sum Game

16. October 2013
Positionsgut 2

To measure the value of a positional good, one shouldn’t look (only) at the price tag. This is because these goods are desirable principally for what they say about their owners’ social status. If someone owns something that everyone else in a group wants but cannot have, the owner can demonstrate a higher group status.

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