Read This Post and Do the Opposite!

Discussion in 'Economics' started by Comanche, Jun 14, 2007.

  1. STREET SAVVY: Read This Column, Then Do The Opposite


    By Spencer Jakab
    A Dow Jones Newswires Column

    NEW YORK (Dow Jones)--Financial journalists may be the ultimate contrarian indicator.

    Not Street Savvy, we hope - but the notion that a trend is nearly played out when it advances to the cover of a major magazine may be as true for business trends as much as it is for popular culture or dominant athletes and sports teams. Take the February cover of Business Week, which proclaimed that: "It's A Low, Low, Low, Low-Rate World - Why Money May Stay Cheap Longer Than You Think."

    Oops. Financial markets have been sent into convulsions the past several weeks, as the bond market has been crushed. The 10-year Treasury note's yield went from about 4.7% at the time of Business Week's cover story down to a low of about 4.5% shortly afterward and surged to a high of 5.31% Wednesday, a seismic shift that some analysts see going much further. Superstar bond fund manager Bill Gross threw in the towel last week, saying he is now a bond bear after 25 years of being a bull, and former Fed chairman Alan Greenspan suggested Tuesday that the era of cheap money is over.

    The formerly bullish Gross could be wrong again, and the spike could be a blip, but Business Week's unlucky call brings to mind perhaps its classic contrarian cover story, "The Death of Equities," in the summer of 1979. The Dow was near its 10-year low near 875 and on the cusp of the greatest bull market of all time. Anyone who bought and held blue chip stocks made about 14 times their money since then, without counting dividends.

    It may be for this reason that market strategist Barry Ritholtz wrote in his blog after the publication of the Business Week cover: "Damn! Now I have to go sell all my Bonds!"

    Wrong For The Right Reasons

    "How could Business Week be so wrong?" asked blogger Henry Copeland before the latest cover story. Copeland, who spent seven successful years on Wall Street and seven more as a financial journalist, said it's "Precisely because the publication's staff does a wonderful job. Each cover is a finely tuned encapsulation of conventional wisdom." He explains that magazine covers "can be done only if enough of the 'right' people agree on something and are willing to be quoted."

    Michael Mandel, who co-wrote the Feb. story and is also Business Week's chief economist, defends the story and says it isn't necessarily a bad call.

    "Interest rates are still low, and that's what I'd stand by," he said.

    He said he isn't convinced there's a magazine cover curse for financial predictions and insisted that it was a matter of what time frame one chose to review the call.

    "If you allowed me to cherry-pick your columns, I'm sure I could find a couple that weren't right."


    Daniel Wheeler of portfolio management firm Dimensional Advisors wrote in a 2005 commentary that financial magazine covers give readers what they want.

    "The press has an acute understanding of how most investors think - that you need to know the future in order to invest successfully," he wrote. "Therefore, they focus on making forecast after forecast. Traditionally they've done so by having their writers pick up the phone and call sources who profess to have a crystal ball."

    Cue James W. Paulsen, chief investment strategist at Wells Capital Management, told Business Week that the interest rate trend "could be a prolonged cycle where the cost of capital is low [for] 10 or 20 years."

    Paulsen wasn't available to comment.

    Regular Trading Signals

    Business Week isn't alone. Remember the cover of The Economist in March 1999 that predicted $5 oil? Its publication almost perfectly marked the low in oil prices, with benchmark U.S. crude futures trading at a little over $10 a barrel at the time. As we all know, prices rose sevenfold through last year's all-time high.

    Or how about the February 2000 "Special Report" cover of Business Week. "After 107 months, the American economic juggernaut is still going strong. What went right?"

    Mandel calls this an outlier, insisting that Business Week was uniquely prescient about the collapse of the dot-com bubble.

    "We were the only people who called that right," he said.

    On the other end of the spectrum, with equally rotten timing, was the August 1997 Money Magazine cover: "Don't Just Sit There...Sell Stock Now!"

    Like pro athletes in Sports Illustrated, cover stories about executives aren't always good news either.

    "I still remember a timely Barron's cover highlighting a glowing article on Dennis Kozlowski that essentially crowned him the next Jack Welch," writes blogger Chad Band in The Peridot Capitalist. "We know what happened shortly after that." (Barron's, like this newswire, is published by Dow Jones.)

    The moral of the story isn't that one should listen to financial professionals and not to the media. There's a lot of great work done by financial journalists, and Wall Street has been caught napping by the press time and again, with Enron Corp. (ENE) being just one prominent example. What's more, journalists don't have the usual Wall Street conflicts - either in the financial sense or in terms of career repercussions. Bearishness is as welcome as bullishness to an editor.

    Mandel, who said he has devoted a lot of thought to whether magazine cover curses exist in finance, said there is just as much evidence of them being a leading as a lagging indicator.

    Perhaps, but the boldest calls seem to suffer from uncannily rotten luck. The magazine cover curse is far from scientific, though once a story has become entrenched enough to rise to the level of a blaring cover story prediction, it's already very much part of the zeitgeist. This why Copeland states that, "for the savvy patient investor, Business Week covers can be a contrarian gold mine."

    (Spencer Jakab, a columnist who provides insightful and unique takes on financial markets, previously wrote about energy.)

    -By Spencer Jakab, Dow Jones Newswires; 201-938-2429;

    Copyright (c) 2007 Dow Jones & Company, Inc.

    URL for this article:,,DN-CO-20070613-013077,00.html