Contrarian Indicators -- Housing Market Edition

"The Death of the Housing Market?"

"The reports of my death are greatly exaggerated."

--Mark Twain

It's hard to be a student of markets without some passing familiarity with so-called contrarian indicators: those harbingers that signal that a market is at an inflection point, presenting investors with a singular opportunity.

That opportunity can either be to get out -- before things crash -- or to get in, after everyone else has despaired, sold their positions -- and driven prices through the floor (of course, as we now know in nauseating detail in the wake of the housing market "troubles," there's a third option: '(sell) short like crazy').

One of the most famous stock market contrarian indicators was the 1979 Business Week cover story proclaiming "The Death of Equities" (pictured above).

Two, short years later, the Dow Jones began an epic, 17-fold rise spanning two decades.

The reverse would be when CNBC, Jim Cramer, etc. supplant sports programing on health club TV's.

In both cases, the underlying theory is that, by the time shoeshines are dispensing stock tips (supposedly, what prompted Joseph Kennedy to sell before the 1929 Crash), there are no more marginal Buyers/Sellers left -- and therefore things are about to flip.

Housing Market Harbinger

So, what would constitute a contrarian indicator for the housing market?

Besides the spate of stories heralding the "End of the American Dream" the last week or so, I can think of one, at least in Minnesota.

That would be a push to eliminate the time lag setting property taxes.

Background

If you didn't know, by longstanding tradition, Minnesota sets property taxes every January 2 for the following year.

So, in 2012, you'll pay property taxes on whatever your home was worth -- or the government thought it was worth -- this January.

When home values are rising, this lag works in everyone's favor.

However, when prices are dropping, "sticky" property taxes are decidedly negative, delaying needed relief for beleaguered home owners.

Continuing with the contrarian theme, a very good sign of a long-term bottom in housing prices will be when conventional wisdom decides that falling prices are the norm, not the exception, and demands grow to revise how property taxes are assessed.

Legislators??

P.S.: want to know why Minnesota collects property taxes on May 15 and October 15?

The story I've heard is that the two times farmers are reliably flush are in the Spring, before they plant, and in the fall, after they've sold their crop(s).

Risk Without Reward: 'Lost Decade for Stocks'

"The Sky is Blue," "The Earth is Round" & Other Bold Pronouncements

A disastrous ten years for the stock market ends in just a month. Will the turning of a new decade change investors' luck?

--Ben Steverman, "Stocks: The 'Loss' Decade"; Business Week (12/1/09)

If you're a long-term investor, you don't need pundits to tell you that the last decade has been a washout for stocks.

Unfortunately, that won't stop the onslaught of year-end articles surveying the damage -- or predicting what comes next.

Exactly how badly have stocks done?

Excluding dividends, the S&P 500 -- the most popular benchmark of big, U.S. stocks -- is about 20% lower today than at the beginning of the decade.

What makes that return even worse is all the volatility and gyrations you had to endure along the way.

Put it this way: unless you're a financial masochist, or somehow find eye-popping, jaw-dropping roller coaster rides entertaining . . . you're probably a lot worse for the wear.

And I'm not even getting to truly epic -- and offensive -- executive compensation, backdated stock options, lavish pensions, parachute payments, bonuses, unpoliced insider trading -- you name it.

The Choices: Up, Down -- or Flat

Which naturally leads to predicting what comes next.

Here's Steverman's takeaway:

Investors in 2009 are looking out into an unknown future. Those willing to make big bets could profit. Or they could face yet another decade of dashed hopes and shrinking 401(k)s.

Or . . . I suppose the market could end up where it started.

There, that should exhaust the possibilities!

Thanks, Ben. That's awfully bold of you . . .

P.S.: Personally, I suggest taking Mark Twain's stock market advice: 'making money in stocks is easy: only buy stocks that go up. If they don't go up, don't buy 'em.'

Or this chestnut: 'October is a particularly treacherous month for buying stocks. The others are September, November, December, January . . . . "