by jessefelder
Sentiment is a funny thing. Fear and greed are two very powerful motivators and markets trigger these emotions in people like nothing else. Prices move and people react emotionally; the more they move the more they react and this dynamic manifests in various ways.
Sometimes a price trend will go so far and for so long that it inspires a supermodel to publicly affirm her unwavering affinity for it. Other times a similar trend will spark one of the greatest professional athletes of all time (and, coincidentally, her husband) to do the very same.
Other times, it’s just the good old magazine cover indicator that signals that confidence in a certain trend has reached the overconfidence stage. Whether it be celebrity endorsements or magazine covers or anything else, however, this sort of sentiment only ever comes at the end of a trend.
Recently, we saw not only one but two magazine cover indicators trigger for the dollar. First, it was BusinessWeek proclaiming it “unstoppable” with an image of a dollar sign blasting through a variety of other currency symbols. Then Barron’s followed up with it’s own cover story on the “superstrong” dollar featuring a musclebound George Washington.
Normally, one cover story like this would be a loud enough signal, pointing to the fact that bullish sentiment had reached an extreme, but the two together are nearly deafening. And if the trend in the dollar is poised to reverse, then it has important implications for asset prices, inflation and the economy.
