Victus Spiritus


Springtime renews optimism, will it be enough to jump start the economy

21 Feb 2010

As February comes to a close, a hint of warmer weather has touched the north east (low 40s F). My fiancé and I weren't alone while walking in Wildwood and Connetquot park this weekend. A handful of folks were out and about, cross country skiing, and hiking. What I observed was the potent psychological effect weather has on all aspects of our decision making. My hope is that we'll begin to see the opposite trend of what I mentioned last December.

Let's start by looking at average market returns to get a feeling for how seasons effect stock returns. Investopedia has an article characterizing precisely this data, Capitalizing On Seasonal Effects:
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Looking at the S&P 500 month returns shows the winter months fall pretty low Feb-March except for the January Effect.

At the beginning of January, investors return to equity markets with a vengeance, pushing up prices of mostly small cap and value stocks, according to "Stocks for the Long Run: The Definitive Guide to Financial Market Returns and Long-Term Investment Strategies" by Jeremy J. Siegel (2002) and the "Stock Trader's Almanac, 2005" by Yale Hirsch and Jeffery J. Hirsch.

Note that September is the only month which nose dives into the negative area (as of 2005). Marshall D. Nickles investigates a system for melded seasonal strategy using historical data in Seasonality and the Stock Market. He finds the best Dow Jones' months between May and October. Here's the raw data on Yahoo! finance.

Too small to fail?

Many big businesses are still sliding and shrinking. Small businesses will have to be the heart of a healthy economic recovery. The lack of work has driven folks to explore self employment in the form of micro businesses. Low cost social web and marketing tools are opening up remote opportunities. Instead of trying to compete for limited attention in a physical consumer neighborhood, businessses that exhibit compelling value can discover interested buyers all over the world. The flipside is that only the top few businesses in a given niche will grow to reap the majority of revenue from the expanding network economy.

Part of the problem with putting too much hope in a "web born" recovery is the limited nature of net monetization. Product and affiliate sales are classic business models which have transferred onto the web very well. But Amazon, Walmart online, eBay and a few other big brands dominate this space. Sales and advertisements were some of the few ways to make money off of web attention, but have limited availability to new businesses (exception Zappos who was picked up by Amazon for $900 million). But the web may have found a way to work around the monetization barrier . The recent rise of location based applications and augmented reality have opened up new avenues for businesses to utilize the Internet. This should break past the weak "ad model" that has been driving monetization for web content for over a decade. Older banners, and page context ads are on the decline. My money is on personal, relevant ads that will dominate the attention ad market.