Evercore ISI Says Sotheby’s Hitting High Is Bubble Sign

Watch Sotheby’s stock price, says an Evercore Partners Inc. (NYSE:EVR) ISI research report today.  Once the price of the high end auctioneer reaches the tip of its price channel, which is projected to trigger near $75 per share, investors might do well to watch for that’s rather ugly bubble popping sound. It was bubbles and the Fed unwinding a dependency that was the topic at hand.

Bubble, bubble in this case toil and trouble

Sometimes popping bubbles is alluring, fun in even how a bubble pop can sound. But popping a financial bubble, one that carries with it hopes and dreams, is a little more serious, particularly if the investor is not properly protected with noncorrelated portfolio components. Because if Evercore ISI researchers are correct, when Sothebys (NYSE:BID) breaks the current highs and hits an uptrend line that has preceded the 2008 credit derivatives crash, the 2000 tech wreck and the 1989 Japan bubble.”Recent bubbles have been very clearly marked by a surge in Sotheby’s stock,” the researchers led by Ed Hyan and Melissa Pumphrey, stated in the research.

Let’s call this the Sothebys indicator. When Dan Loeb looks at his legacy – and if he sells on the Evercore ISI trend line, he might go down in history as the man who pulled Sothebys up to new heights and then, like a legendary hedge fund manager, sold at the top when everyone else was buying.

Its more than just Sotheby’s that will trigger the next market sell off. The elevated price of Sothebys stock being a measure of wealthy dalliance with high end art, jewelry and estate belongings that command a king’s ransom aside, Evercore ISI might be on to something bigger.

“The bursting of bubbles have all been preceded by substantial central bank tightening.”

If Evercore ISI is correct, it’s not just a high-end society auction house stock price being the benchmark for a global stock market crash that is humorous in its irony, but also the odd economics that fostered negative interest rates and those who have an almost dire resistance to pulling out the economic needle supplying stimulus that might be questioned as well.

Most recessions have been preceded by inflation accelerating, the report reminded investors, and then cautioned “the bursting of bubbles have all been preceded by substantial central bank tightening.”

While commodity prices have been dropping lately, the Fed tightening component of this analysis might be in play nonetheless.

Repeat the mesmerizing fairy tale and then believe it without questioning

With a central bank tightening approaching, such historical analysis might be interesting to note, particularly as a a contentious election approaches. As previously discussed in ValueWalk, raising rates during a contentious election year is a logical consideration, a known unknown.

In essence the Evercore ISI report bookmarked the importance of Yellen getting it right, extracting the needle of dependency and getting off the floor of zero interest rates. There might be a market correction when rates rise, but wise investors should be aware of this and manage the portfolio accordingly, particularly with regards to noncorrelated designed programs that have crisis alpha attached. These are terms of an industry of noncorrelated investments that might be a portfolio rescue plan if seas get choppy.

Zero interest rates are an artificial level not set by free markets. When looking through the lens of traditional economics one might also shake their heads in confusion at negative interest rates in a similar but even less accepting way. This is why the tightening process is accurately termed “normalization.” Strange times indeed.