Fishing Lodge Indicator

If you want to lose credibility the best way to so is to quote a cause and effect that has no basis in reality.  Something nice and anecdotal with little to no prior precedent.  Better still, a meta-analysis of an oft-quoted heuristic.  The absolute best is when you can combine the two and provide something truly ridiculous, something like, “This rally is going to keep going because CNBC keeps posting on-air graphics with sad-faced people.”  Oh really, the “CNBC Sad Face” indicator?

A couple weeks back I was lucky enough to get away for several days of fishing.  Our group has been going to the same lodge Queen Charlotte Islands for the last couple years, some have been making the trip for the last dozen or so years.  Most of the guests at this particular lodge work in the industrial and financial sectors.  In addition to fishing, it’s always a great place to have informal conversations about business and the economy with people with boots on the ground.

Even better is analyzing the various industry constituents that make up the lodge guests.  The lodge is always full of familiar faces because about 60% of the guests are long-term repeat visitors.  The other 40% is made up of newcomers.  These newcomers are often from an industry that has been particularly hot or up-and-coming in the last year.  They’re there because of perks for top sales teams, executives rewarding themselves, or other celebratory achievements.  Over the years we’ve noticed that whatever industry dominates a season is usually worth paying close attention to.  The disagreement is whether it is a bullish or bearish sign.  Some think that it’s a healthy sign and others see it as indication that the industry as reached, or is very close to, full valuation.  Previous candidates have included: Oil and Gas (2005-2006), Home builders (2005-2006), Private Equity (2007-2008), Gold and Silver (2010 – 2011).

I did an informal survey of the fishing guides and the common thread among them this year was home builders and anything to do with fracking.  After six or seven years laying dormant the housing guys are back at the fishing lodge.  Question is, are we nearing the end of the housing cycle or just mid-stride.

While these observations are not quite as silly as the “CNBC Sad Face” indicator, this analysis is nowhere near fool-proof.  Among the many things that make this a less than robust indicator are the fact that the experience is anecdotal in nature and observation is actually a meta-observation.  Besides, the Fishing Lodge Indicator tends to take time to be fully realized.  If you’re looking at it from a contrary perspective, in 2010 several silver mines nearly bought every room at the lodge for months at a time.  Silver had a great run beyond and most will recall that it didn’t blow up until early 2011.

It was a successful trip and housing stocks are now officially on my radar.  My fishing guide won’t be making any near-term trading calls for me.

Related stocks: $LEN, $RYL, $DHI, $TOL, $PHM, $NVR, $PXD, $EOG

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