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Kass: Stock Market Super Bowl Indicator

Stocks in this article: PEP

On Sunday, one of the grand sporting events of the year will take place: Super Bowl XLVIII.

Back in January 2000, I created a brand new stock market Super Bowl indicator as a contrary indicator, very similar to the cover of Time.

My indicator dictates that the more intense the Super Bowl TV advertising by a group of companies, particularly in a specific industry, the more likely the stocks of those companies will perform poorly in the year ahead.

Barron's' Alan Abelson was kind enough to include and highlight my indicator in his "Up and Down Wall Street" during the weekend of the 2000 Super Bowl.

As the late Sir Alan wrote:

As it happens, last week's tech wreck was accurately forecast by a remarkable new stock-market indicator, one we're proud to print for the first time anywhere, the Stock Market Super Bowl Indicator.

Before you start yapping about it being old hat -- or old helmet -- we respectfully suggest you cool it. Pure and simple, our new indicator has nothing to do with the old Super Bowl indicator. Unlike the latter, its predictive power doesn't depend on the outcome of the Super Bowl or, more specifically, whether the winner represents the National Football League's American Conference or the National Conference.

Our brand-new Stock Market Super Bowl Indicator is a contrary indicator, kind of like the cover of Time. Its critical components are the commercials carried on television coverage of the event and the identity of the companies doing the advertising. Its virtue is not as a forecaster for the market as a whole, but for individual sectors of the market.

The indicator is the handiwork of Doug Kass, a kindly hedge-fund operator who, despite a propensity to short quantum leapers, wound up last year with an improbable performance matching Nasdaq's improbable performance.

Simply put, the more intense the Super Bowl TV advertising by a group of companies, the more likely the stocks of those companies -- and others of a kindred ilk -- will do poorly in the year ahead. For 2000, we're sorry to report, the indicator is flashing red for the Internet crew.

By Doug's count, roughly 12 of the 30 companies shelling out an average of $2 million for 30-second spots are dot.coms. That's four times the number of 'Net outfits that made their pitch on Super Bowl TV last year and compares with only one in each of the prior two years.

What's more, for the first time, an Internet company, E*Trade, is sponsoring the half-time show. That's known in locker-room lingo as piling on.

If nothing else, the greater the number of look-alike or sound-alike companies doing the shilling, the less the impact of the individual shills. And in fact, there seems to be more than a modicum of evidence that for the viewer, the link between the commercial and the sponsoring Web company barely registers.

Making the auguries all the darker for those dozen dotcoms is the sad history of the sole 'Net TV advertiser during Super Bowls XXXI and XXXII, autobytel.com. A '99 IPO, the stock peaked at $48 and, last we looked, was a hair under 17.

Without Wall Street, Silicon Valley would not have been able to remove the burden of salaries from its operating statements and substitute stock options for cash compensation. Without the lovely boost to earnings afforded by the incredible lightness of labor costs, earnings growth would be considerably less, and so the multiples awarded that growth would be merely ridiculous instead of absurd. There would be only a quarter as many West Coast billionaires and half as many millionaires.

In like manner, since the vast bulk of Internet companies are bereft of even a hint of cash flow, Wall Street has, via stock offerings, endowed them with the means of promoting their wares, not only on TV during the Super Bowl breaks but also in newspapers and magazines, on billboards and in subway cars and every other space known to advertising man.

If, indeed, we are rapidly reaching the point of cognitive congestion where the consumer is under such assault from so many dot.coms that they have begun to merge in his psyche into one big indivisible glob, that spells trouble in capital letters. And not only for the 'Net companies, but also for the media on which that vast flow of lucre has been lavished.

-- Alan Abelson, Barron's (January 2000)

Of course, the rest was history, as one of the largest stock market declines (especially of a technology and Internet kind) occurred during the following few years.

Last year, the food and beverage sectors were responsible for an outsized 41% of all Super Bowl advertisements -- and, on cue, this defensive group was an underperformer in 2013's sharp U.S. stock market advance.

$4 Million for 30 Seconds of Your Time

This year, Super Bowl ad rates are through the roof and are expected to approach $4 million (up from $3.5 million in 2013) for a 30-second commercial compared to about $2 million in 2000, $1.15 million in 1995, $700,000 in 1990, $222,000 in 1980, $78,000 in 1970 and only $42,000 in the first Super Bowl in 1967.

Below is a charted history of Super Bowl ad rates.

If this average growth rate were to continue into the future, we'd see the extrapolated trend line charted below.

Rates approaching $10 million for a single commercial are going to happen sooner than you might expect!

The Greatest Super Bowl Ads

For fun, here are some of the best Super Bowl advertisements ever aired!

How Now (2014), Super Bowl Advertisers?

Significant, again, this year is the preponderance of consumer products companies that have anted up for 30- and 60-second advertisements during the Super Bowl! Auto advertisers are close behind. Combined they represent the lion's share of Super Bowl ads.

Of the 30 2014 Super Bowl advertisers, 12 are consumer-products-related, accounting for 11.5 minutes of advertising (or 40% of the total number of advertisers) -- and that does not include PepsiCo (PEP), the beverage and snack company that is sponsoring the halftime show. Eight advertisers are automobile-related, accounting for 8.5 minutes of advertising (or 27% of the total). Between consumer product and auto companies, the two sectors account for 20 out of 30 advertisers, representing 20 minutes of all Super Bowl commercials (or 67% of the total).

Here is the full list of 2014 Super Bowl advertisers.

Summary

In summary, we might conclude from the historic causality between my indicator and the industry composition of Super Bowl advertisers that headwinds could be facing the shares of both the consumer products (especially food and beverage) and auto manufacturing industries in 2014.


This column originally appeared on Real Money Pro at 8:00 a.m. EST on Feb. 1.

At the time of publication, Kass and/or his funds had no positions in the stocks mentioned, although holdings can change at any time.

Doug Kass is the president of Seabreeze Partners Management Inc. Under no circumstances does this information represent a recommendation to buy, sell or hold any security.

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