The Truth Behind Stock Market Gains Revealed…

Markets were quiet overnight. So today’s Daily Reckoning is all about emotions. An apology; depression, testosterone and statistics all feature. And there are plenty of pretty pictures too.

The most important news comes from the academic world. As our friend Kris Sayce would say, ‘They’ve only gone and done it.’ American academics Andy Kim, and Felix Meschke have discovered the true source of stock market gains. And you will never believe what makes stocks go up.

No, it’s not money printing. Nor is it earnings or profit. It’s got nothing to do with valuations, the discount rate or fiscal stimulus. In fact, it isn’t really anything to do with finance at all.

It’s all about anchor-women. As in TV hosts on the 24/7 financial news channel CNBC.

The (statistically proven) theory works like this: The more attractive the anchor-woman interviewing a company’s CEO, the more its stock goes up. And not just in the short term.

If you don’t believe us, here is an excerpt from the paper’s abstract:

‘We find that individual investors are net buyers on the [days when CEOs were interviewed on CNBC], and that they keep on buying if the interview was both carried out by attractive anchorwoman and was watched by more male viewers.’

What a waste of time all our research has been. We’ve been pouring over annual reports, analysing price distributions and building elaborate spreadsheets. All for naught.

Central banks have been printing billions of dollars a month to try and generate a ‘wealth effect’ in the stock market, and governments have been bailing out anything with a lobbyist to prevent stocks from falling. It was all a waste of money.

In the end, the stock market’s moves come down to what the researchers call ‘Money Honey’ and ‘Econo Babe’. Those aren’t the only witty academic terms with sexual connotations in the paper. By using the ‘Fama French’ the two academics hoped to tease out an ‘Alpha’ for themselves. And they scored, with statistically significant results.

We needn’t tell you that this research is deeply flawed. The academics used what’s called a dummy variable for whether the anchorwoman is attractive or not. So it wasn’t the 1-10 you usually hear in university halls.

Instead, their definition of attractive simply consists of whether the interview was conducted by designated hottie and CNBC anchor Maria Bartiromo. All other anchorwomen were simply defined as ‘ugly’.

The problem with this is that it’s just plain wrong. Money Honey, as Bartiromo is supposedly known, is not the most attractive anchorwoman on CNBC. She’s in the top right hand corner, if you don’t believe us.

click to enlarge
Source: Google Images

And yet, Professors Kim and Measchke claim that ‘among many anchorwomen at CNBC, Maria Bartiromo is by far the most attention drawing for male investors, as is depicted by her nickname “Money Honey” or “Econo Babe”(McLaughlin, 2007). She is both attractive as a female and intelligent.

Yes, that was an academic reference for a news anchorwoman’s sexual nickname.

And you thought Federal Reserve Chairman Ben Bernanke was the Money Honey. Or was it Sugar Daddy? Does that make the new Fed Chair Janet Yellen a Sugar Mummy?

There is a valuable point in all this somewhere. The researchers’ claim is that traders get a testosterone boost when they spot Money Honey on TV. And testosterone triggers risk taking behaviour. So if you can get on the air with Bartiromo, your company will be on the receiving end of sexually frustrated impulse purchases.

Politicians are always the last to catch on to these ideas. Janet Yellen isn’t exactly a stunner. Perhaps Obama should’ve hired the recent Miss Universe winner from Venezuela:


Under her economic leadership the world could experience a testosterone fuelled economic recovery.

Of course, the real source of economic growth isn’t testosterone or rising stock markets and the wealth effect. It’s productivity. And two Markets and Money readers emailed in with a say on that. We couldn’t have put it better ourselves:

The single biggest impediment (by a wide margin) to productivity in Australia today is high housing costs.

Productivity is simply the value of a unit of output (be it a car or whatever) divided by its cost of production.

The biggest single element of the cost of manufactured goods (manufacturing is needed to keep people employed in large numbers) is almost always the cost of labor, of which the single largest component is the cost of housing.


In the same vein, Colin sent this:

Hi Reckoners

I reckon the problem in Australia is simple. Everyone, and I mean everyone complains about the high cost of labour in Australia, from business people here, business people overseas, politicians and economists.

So, why is labour so dear? I’ll tell you what I suspect the culprit to be, and that is our unaffordable housing.

If house prices had not risen so much I think you would find that wages would be much, much lower and labour costs would actually be reasonable here. Who knows, maybe if housing got slammed by 50 percent, we could actually have a manufacturing industry to be proud of.

Therefore, bring on the housing bust, the sooner the better. And while they’re at it they should abolish that scourge called negative gearing which has a lot to answer for.

I mean for God’s sake, there are only three countries in the world that allow negative gearing, us, NZ and Canada. And guess what, all three consistently rank in the top in Demographian international surveys for severely unaffordable housing.


Our question is whether house prices will fall because of a recession, or whether there will be a recession because house prices will fall. Dan Denning has more here.

In the meantime, house prices just keep soaring. Keen to get in on the action, an Australian psychologist has come up with another new mental condition. Apparently it’s running amok among Australia’s home buyers.

It’s called GOMO, Grief Over Missing Out. According to the Sydney Morning Herald it’s ‘the anguish felt by those who pin all their hopes on buying a particular property but are outbid at auction…a feeling similar to that experienced by a bride or groom who is jilted at the altar.’

We’ve never been left at the altar. Or been outbid at an auction. But this really seems like something concocted to prod us happy renters into overbidding our hand. ‘We had to pay a ridiculous price to avoid getting GOMO.’

With the housing market continuing to sizzle…for now…things are looking up for psychology majors. In September new home buyers made up less than 10% of the value of new home loans. That’s the lowest since 1991, and a heck of a lot of GOMO.

Maybe you should invest in the sector. Pfizer makes plenty of anti-depressants. It’s a win-win scenario. If property prices rise, bidders who miss out are depressed. If property prices fall, all the home owners will get GOHO. Greif Over Having Overpaid.

Last but not least, we owe an apology to the new airport at Toowoomba. A few weeks ago we made fun of the idea that someone would want to build an airport so far away from a major city. It seemed like another harebrained scheme of some local politician. But in today’s Australian Financial Review, we discovered to our enormous delight that this ‘is the first time any private organisation has built a public airport from scratch since federation without government support’. Huzzah!

And how is this for an opening line: ‘When businessman John Wagner and his three brothers weren’t satisfied with the size of their local airport in Toowoomba, west of Brisbane, they didn’t complain to the local council. They decided to spend more than $100 million to build a much larger one.‘ The Wagner’s plan to build their new airport in under two years and it will handle major airlines.

And that’s what economic growth is made of.


Nick Hubble+
for Markets and Money

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Having gained degrees in Finance, Economics and Law from the prestigious Bond University, Nick completed an internship at probably the most famous investment bank in the world, where he discovered what the financial world was really like.

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