Fear & Greed Index
James Montier's was the Global Equity Strategist of Dresdner Kleinwort Wasserstein. (He will retains the same title of global equity strategist at Societe Generale) He developed a "Fear & Greed Index."
He describes F&G as "a risk adjusted price momentum measure
between global equities and global bonds. In the past it has served as
a powerful contrarian indicator at a 12 month time horizon."
What is it showing right now?
>
Fear & Greed Index
click for larger graph
courtesy of James Montier
>
As to the history of this indicator:
"I've found that when the F&G is above the upper limit the returns on equities over cash are a meager 2% per annum, but when F&G is below -2 then the returns over cash are more like 14% per annum over the next 12 months.
Right now it tells us that neither of these two extremes is true. I never try to forecast where the F&G is going, but rather use it as a measure of what my friend John Hussman calls market climate."
James now blogs at behaviouralinvesting.blogspot.com.
Tuesday, October 09, 2007 | 11:30 AM | Permalink
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Comments
Shouldn't it be "The end is nigh," as opposed to "neigh?" Or are ponies now mixing it up with the bulls and bears?
Posted by: Florida | Oct 9, 2007 11:47:19 AM
It is telling us that neither of the extremes is true.
Sorry, couldn't resist.
Posted by: Woodshedder | Oct 9, 2007 12:13:58 PM
Anyone know where to find the current updated edition of the F&G index?
~~~
BR: Its James' proprietary index. This is the current version. To have access to it all the time, you need to be a client of his firm . . .
Posted by: Chris | Oct 9, 2007 12:14:21 PM
Very interesting Barry...thx.
(Somewhat off topic)...from Tony C:
"the total amount of real estate loans outstanding at the nation's commercial banks reaching a record $3.486 trillion in the week ended Sept. 26. The figure has been increasing at a faster pace of late, increasing at a 17.2% pace over the past six weeks compared to an 11.3% pace over the past four years"
Posted by: Fred | Oct 9, 2007 12:15:40 PM
I had a dream that "the powers that be" orchestrated a mini-crash between now and the end of the month to make the case for another rate cut on Oct 31st ( since the eco date is kind of ambivalent )...and, of course, I played it perfectly.
Boy, did I clean up.
Posted by: Das Gherkin | Oct 9, 2007 12:48:54 PM
Florida is correct.
The end of the world is "nigh," causing horses the world-over, no doubt, to neigh.
Posted by: Graffiti Grammarian | Oct 9, 2007 1:38:23 PM
It's those darn horsemen of the apocolypse...they can never get their mounts to shush the heck up....LOL
Posted by: lurker | Oct 9, 2007 2:25:11 PM
While the index is proprietary, any semi-competent analyst could produce something correlated based on the description (unless he uses some wierd definition of risk-adjustment or momentum):
"risk adjusted price momentum measure between global equities and global bonds"
Posted by: foo | Oct 9, 2007 3:28:16 PM
The indicator seems to swing wildly even within one year. For instance in early 2002 the high of about 1.3 swung to a low of about -3.5.
This high suggests an annual return of 2% and the low a return of 14% ??? Obviously these average returns do not apply to all the highs and lows on the chart.
Maybe a smoothed average would produce cleaner (more tradable?) highs and lows?
The recent high of about 2.5 would suggest a tradable market high with an annual return of 2% vs. cash (at what percentage rate return?)
The spikes up in 1996 and 1997 indicated equity sell points? The market rallied furiously until 2000 +/-.
Hmmmmm, how useful is this indicator?
Posted by: PeterR | Oct 9, 2007 5:12:31 PM
Peter, well, not very useful, obviously. However, I do like that in the midst of this bull run, it is reading normal.
BR, did you not notice it was saying that everything is ok? ;)
Posted by: Woodshedder | Oct 9, 2007 6:20:13 PM
Woodshedder,
Not sure I'd say that. I have no idea how useful this indicator might be but I do notice that every peak or "double peak" seems to be followed by a trip down to the fear line before the next peak - at least prior to 2003. On the other hand, the dips since '03 seem to suggest that fear ain't what it used to be. Hmmmm.
Posted by: Globalized | Oct 9, 2007 9:38:53 PM
Unless the damn thing changes direction, it looks like it's on it's way to the place where equities are a whole lot chipper.
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