Breaking the Business Week Cover Curse?

Wednesday, November 21, 2007 | 11:30 AM

0708covdc It's A Low, Low, Low, Low-Rate World.

No, really -- it is. The yield on the 10 Year was under 4% this morning -- briefly kissing 3.99%.

You may be noticing about now that this lies in stark contrast to our prior discussion of Rates and the Magazine Cover Indicator (for more on the magazine cover indicator, see this).

To the wayback machine: Earlier this year, we noted (with an  "Uh-Oh") that Business Week's February 19, 2007 cover story on our "Low, Low, Low, Low-Rate World" might be a contrary indicator that rates were about to tick higher. After that article came out, Fixed income rates went lower for a month, then rallied to a new 12 month high.

Things were looking grim for Messers. Mandel and Henry.

However, as the chart nearby shows, Yield on the 10 year has since plummeted. Have Michael Mandel and David Henry broken the "Curse of the Magazine Cover?"

It appears they have. The dominant theme of that February 19, 2007 remains intact: After some volatility, Rates have trended lower. We can quibble about the actual article content, which wasn't exactly forecasting a major economic slowdown or recession -- the likely cause of the current flight to bonds.

However, the key point -- rates are low, and likely to stay that way -- strongly suggests that cover failed as an indicator in this instance.

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2_year_chart_10_year_rate

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Does this invalidate the cover theory?

Not at all. To begin with, all of these cover indicators are merely anecdotal, rather than quantitative, evidence. As such, it is imperfect, and occasionally wrong.  Perhaps interest rates not that big a cultural touchstone.

When it does work correctly, the results can be spectacular -- think of the infamous Business Week "Death of Equities" cover that set up the greatest Bull market the world had ever seen, or Jeff Bezos as Time Magazine's Man of the Year marking the top of the internet bubble.

~~~

Perhaps now someone at Business Week will see their way clear to getting me a copy of that August 13, 1979 "Death of Equities" cover . . . 


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Sources:
It's A Low, Low, Low, Low-Rate World   
Michael Mandel and David Henry
Business Week, FEBRUARY 19, 2007   http://www.businessweek.com/magazine/content/07_08/b4022001.htm

Treasuries Rally as Stocks Drop; Ten-Year Yield Falls Below 4%   
Daniel Kruger and Lukanyo Mnyanda    
Bloomberg,Nov. 21 2007
http://www.bloomberg.com/apps/news?pid=20601087&sid=a.OYR87ZNPPc&

Previously:

Uh-Oh: It's A Low, Low, Low, Low-Rate World    
The Big Picture, February 12, 2007
http://bigpicture.typepad.com/comments/2007/02/uhoh_its_a_low_.html

Rising Bond Yields (or, The Magazine Cover Indicator Lives!)    
The Big Picture, June 05, 2007
http://bigpicture.typepad.com/comments/2007/06/rising_bond_yie.html

It's A Low, Low, Low, Low Medium-Rate World
The Big Picture, June 09, 2007
http://bigpicture.typepad.com/comments/2007/06/its_a_low_low_l.html

Wednesday, November 21, 2007 | 11:30 AM | Permalink | Comments (17) | TrackBack (0)
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Comments

For 20 years I have heard that, if the dollar falls rapidly, foreigners will pull out of Treasuries, interest rates will surge and the Fed will be forced to raise rates (even if during a recession) in order to attract capital.

Can we finally put this myth to bed?

Any discussion?

Posted by: bsneath | Nov 21, 2007 11:43:02 AM

The comments to this entry are closed.



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