Economist Cover: The Great American Slowdown
One of the things that people get wrong all the time is the contra meanings of magazine covers. This is a subject we have discussed for quite some time around here.
The assumption is that if something shows up on a mag cover, whatever the subject is must therefore be all over, hence, its time to go the other way. This is a fundamental misunderstanding of what the cover indicator is all about.
The short version is that when a long running trend, well represented by consensus opinion and stock prices, finally bubbles up to the front of a major magazine cover, THATS WHEN its very very late in the cycle. Hence, it is a contrary indicator.
A recent classic cover was the Time Magazine on Housing back in the summer of 2005. The timing was near perfect, as Housing peaked in August '05. However, when something is relatively new, such as the US economic slowdown (see Economist cover below), it is not a true contrary indicator.
Let's compare these two examples:
• Housing Boom
- Lasted almost 10 years
- Home prices increased 2 and 3 standard deviations from historical means
- Homebuilder stocks ran 500% to all time highs• US Economic Slowdown
- (Un)Offically going on for less than 6 months; GDP still positive
- S&P 500 and Dow Industrials made all time highs six months ago
- Equities still within 10-15% of highs
- No consensus for a recession
When we compare these two quantitatively, the differences are pretty obvious as to which one is the true contrary indicator . . .
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Previously:
The Magazine Cover Indicator
Big Picture Overview
uh-oh: Time Magazine on Housing http://bigpicture.typepad.com/comments/2005/06/uhoh_time_magaz.html
Source:
The great American slowdown
Apr 10th 2008
The Economist print edition
http://www.economist.com/opinion/displaystory.cfm?story_id=11016333
Wednesday, April 16, 2008 | 10:30 AM | Permalink
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Comments
According to Hussman's excellent piece this week, he feels we are in the 3rd inning of the mortgage crisis. I recommend reading that. Reggie Middleton's blog is hammering Lehman and Morgan Stanley. I have to agree with them and Barry, that we are not near the end of this cycle.
Watch oil today too...bullish inventory just out...could see 115 and above.
Posted by: Steve Barry | Apr 16, 2008 10:43:16 AM
The greatest Economist cover and story of all time was August 1982, "The Bull Jumped Over The Moon."
It basically laid out the bull market for the ensueing 18 years.
Posted by: Ross | Apr 16, 2008 10:43:39 AM
Well, first of all, it's not on the cover of one of the Old Media Big Three: Tome, Useless News and World Distort or Newsweak.
So right there, you know it's not a contrary indicator.
~~~
BR: If you check the Contrary Indicator Report I did in 2003, you will see that the Economist can at times, be just as contra as anyone else.
Posted by: GRL | Apr 16, 2008 10:46:43 AM
these oil inventory numbers are either wrong manipulated or credit cards are picking up the slack...maybe a little of all three
Posted by: brasil | Apr 16, 2008 10:54:12 AM
Two other seemingly contrary indicators must be ignored right now:
1) Insider Buying...insiders on Wall Street promulgated this mess...why follow their lead? Other insiders are grossly out of touch with the average American's pain.
2) Small Investor Sentiment...again the small investors are going to be right this time...they have no money to buy stocks and won't have much, after food and gas, for much else either.
Posted by: Steve Barry | Apr 16, 2008 11:02:26 AM
Economist is a great read, regardless if its top or bottom ticking trends. But I agree that its best not to lump the cover theory on every cycle.
Except if they put Bernanke on the cover of Madden 09 ITS OVER!
Posted by: mitch | Apr 16, 2008 11:13:05 AM
A good cover was "It's A Low Low Low Rate World" in Business Week, Feb 2007. That was the first sign of the troubles coming for all the easy money (first sub-prime problems, first default credit swap problems, the stall in mergers).
http://www.businessweek.com/magazine/content/07_08/b4022001.htm?chan=top+news_top+news+index_businessweek+exclusives
Posted by: Patrick | Apr 16, 2008 11:19:18 AM
Not to be snarky, but it could be said that you consider it a contrarian indicator when it's convenient to do so.
Considering the negative slant of this otherwise excellent blog for the past couple of years, any cover that is economically positive is treated as contrarian, and any cover that is economically negative is considered 'on the money'.
Just to clarify my position here -- I agree with Barry and many posters here on topics such as the sub-prime mess, inflated real-estate, fudged government numbers, etc. But I feel that the doom-and-gloom is usually overstated, for reasons that I can only assume are that negativity brings in the readers.
~~~
BR: That's not true. Here's why:
1) I specified the differences between the two covers quantitatively: length of time of phenomena, standard deviations, stock performance, relative high or lows -- these are all significant datapoints.
Anyone who wants to quantify why they think this cover is a similar contrary indicator, e.g., like the Housing cover, then by all means go for it. (One factor in your favor is media recession mentions -- start there).
2) The blog traffic as a Bullish contrary indicator worked well for a longside trade. And, if this cover was a contrary indicator, it would support our Jan 23rd market calls (cover shorts/trade long for a bounce) which was bullish.
I don't talk our book, I calls 'em as I sees 'em.
I'll also see if I can get that recent commentary posted.
Posted by: Eddie | Apr 16, 2008 11:19:29 AM
Barry,
I apologize for the slightly off-topic comment but I had trouble getting an email to you...
I just wanted to say "thanks" for all that you do and let you know that you are still a "core holding" in my "blog portfolio."
If you read this, please check out my kudos to TBP on my post:
http://financialphilosopher.typepad.com/thefinancialphilosopher/2008/04/blog-portfolio.html
I've learned a great deal from you Barry.
Cheers...
Kent (aka The Financial Philosopher)
Posted by: The Financial Philosopher | Apr 16, 2008 11:26:20 AM
The weird thing about this crisis is that the fear seems to be moving from the inside to to the outside, rather than vis-versa.
It's economists and wonks who say things like "worst since the Depression" and the guy on the street says "huh?"
I'd be much more sanguine if this was just a conspiracy theory a-la peak oil or something.
(peak oil has some real foundations, but it is most often driven by the nutters.)
Posted by: odograph | Apr 16, 2008 11:29:06 AM
The big diff is that Time is a mag that reports on whatever is in the public eye at the time, whether it be politics, religion, war, sports, music, economics, etc. Whereas, the Economist reports on economics. Also, a bubble is something that very often pops simply because the investment trend or scheme has run out of newcomers to the party. However, an economic downturn has a different life cycle. So, when a magazine like Time reports on an economic trend, it means the trend has reached a wide spectrum of the public eye in order for Time's editors to deem the story important enough to report on. In other words, the pyramid scheme has reached the greatest fool. Another classic contrary indicator by Time was the cover on dot com entrepreneurs getting rich that was featured in I think 2000. So, if Time magazine does a cover story on folks getting rich trading gold or oil or some other kinds of commodities, that will be a good contrary indicator for the uptrend in commodities. But if the Economist were to do the same, well they're just reporting on what they're supposed to report on. And if either mag reports on a recession, I don't know that would be any kind of contrary indicator at all.
Posted by: tabasco | Apr 16, 2008 11:42:40 AM
So it's not the magazine cover at all -- still pays to be aware of all the other factors and simply use the magazine covers as inspiration for clever blog posts ;)
-Wayne
Posted by: Wayne Mulligan | Apr 16, 2008 11:45:19 AM
You cannot have both ways Barry. I agree with you that this cover doesn't mean the bottom is in...but it certainly may mean we're due for a wicked short covering rally before the downtrend resumes.
The news got VERY negative VERY quickly. My wife's morning talk shows are all talking about how shitty everything is.....
AT
~~~
BR: The contrary call was made on Jan 23rd (Time for the Bounce).
This is now 2 months AFTER that . . .
Posted by: Andy Tabbo | Apr 16, 2008 11:49:58 AM
should be noted that the economist had a cover (After the Fall) in june '05 calling the housing bust.
Posted by: a guy called john | Apr 16, 2008 12:13:12 PM
10 yr yield breaking up...mortgage rates heading higher = lots more housing pain. Dollar at 71.3 and near all time lows. They can't save the stock market, dollar, and housing at the same time. The bigger question is can any of the three be saved.
Posted by: brian | Apr 16, 2008 12:14:06 PM
We used to have a game where the kids would collect snails and we would put chalk numbers on their shells, and race them to see which could crawl out of a circle first. The winning snail was tossed into the street first. It was a great way to clear the snails out of my garden.
Silly things never did evolve enough to fly.
Fun to see America, usually represented by the great eagle, as a little snail. Seems about right these days. Not even a slow but steady turtle, but a snail crawling about in a directionless fashion.
Posted by: donna | Apr 16, 2008 12:14:46 PM
Donna "...a snail crawling about in a directionless fashion."
... and leaving a trail of slime behind it ;-)
Posted by: Estragon | Apr 16, 2008 12:17:42 PM
Rising prices for slow snails ... The magazine's emphasis should perhaps have been on the price of the escargots going through the roof, together with food in general, rather than on the slowdown per se. Full marks in any event for a fabulous illustration.
Prieur du Plessis
http://www.investmentpostcards.com
Posted by: Prieur du Plessis | Apr 16, 2008 12:26:15 PM
A number of magazines had negative housing covers prior to and after August '05. The Economist springs to mind, but I also remember a very striking issue of Harper's sometime in 2006. In fact, I remember the Time issue as being very gutsy as it was the only magazine to write about how well housing was doing without mentioning the word "bubble".
In addition, according to Case-Shiller, the US Housing market peaked in July 2006.
Posted by: Mal | Apr 16, 2008 12:28:45 PM
The Economist nailed the housing slowdown about 18 months ago with a cover story about how the world wide housing bubble was about to pop. I remember it being a really interesting, thorough article that has been spot on since published ... it saved me a boat load of $$$.
Posted by: Ryan | Apr 16, 2008 12:32:15 PM
I feel that the doom-and-gloom is usually overstated, for reasons that I can only assume are that negativity brings in the readers.
Posted by: Eddie | Apr 16, 2008 11:19:29 AM
____
If the doom and gloom were based on emotion and prejudice, I would agree with you. Unfortunately, they're based on mathematics and observable reality.
I think you're just mad 'cause you can't find a Kool-aid drinkin' buddy.
I understand that we're not supposed to acknowledge the 600 lb. gorilla in the living room, but whoever is feeding him beans needs to stop.
Posted by: Marcus Aurelius | Apr 16, 2008 12:36:56 PM
I never did like Escargot. It always seemed to have little bits of sand in it, no matter how well the silly things were cleaned. And definitely overpriced.
Yes, I do like the very weathered look of the flag on the shell. But the stupid snail is still looking to the right for an answer to its problems....
Posted by: donna | Apr 16, 2008 12:48:33 PM
Marcus Aurelius, that is a terribly funny line
Posted by: Scott | Apr 16, 2008 12:50:18 PM
Can we safely short escargot futures?
Posted by: John F. | Apr 16, 2008 1:00:29 PM
18 months ago? There were blogs 2-3 years ago calling for this to happen.
Just like in 2-3 years we will be in full realization of this slow down.
We have had 20% of clients call in to cancel with inability to pay. Some get off on doom and gloom, I'm just telling you how it is. I can't spend and make payroll if I don't get paid,...and on and on and on. I'm sure I'm an isolated case(hook in mouth).
The magazine covers are acedotal and fun but the average joe doesn't need it to notice the elephant or gorilla in the room.
Marcus, It's not going to be the gorilla that kills us, it's going to be the rattle snake we didn't see while trying to avoid the Gorilla. That's what will bring this house of cards down.
Posted by: Ken H. | Apr 16, 2008 1:14:05 PM
