The rules for the classic magazine cover indicator are:

1. Mainstream — not business — publication

2. Well understood concept that is reaching a climax

3. Asset price gains

So this week’s Barron’s only qualifies on one count — 82% market gains — but even still: Covers like this give me pause:

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click for larger cover

Category: Contrary Indicators, Psychology

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

31 Responses to “Uh-Oh: Barron’s Cover “Bye Bye Bear””

  1. foosion says:

    Isn’t the classic example Business Week’s “Death of Equities” cover? That seems inconsistent with your first rule.

  2. I certainly thought so — but indicator Paul McCrae Montgomery, the inventor of the magazine cover, states we are looking for broad societal beliefs already reflected in equity prices . . .

  3. StatArb says:

    More worry signs = = = =

    AAII % Bulls 51.23% ……AAII % Bears 21.60 %

    Total Put/Call .87 ……..OEX Put/Call .74

    74% S&P 500 stocks trading above 50-day m.a.

  4. gms777 says:

    Here are some lines from that cover story that stood out for me:

    “If Congress ever got its act together, the price of gold would plummet.” –Tim Cummins, Sonata Capital.

    “People feel things are getting better, but we haven’t solve any of the problems we had in March 2009.” –David Corbin, Corbin & Co.

    “83% of managers don’t think another round of stimulus spending is a good idea.”

    “Americans have overconsumed for 15 years and financed this spending with debt,” one stimulus opponent wrote. “We have overbuilt and spent on things previous generations would laugh at. Congress’ proposed policies focus on stimulating more consumption with more debt. This is madness and intellectually flawed. They should focus on the structural problems that got us here in in the first place.”

  5. teraflop says:

    And back in 2005-2007 XBS (MBS/CMBS/etc.) structurers predicted too that spreads would continue to fall and demand would persist.

    Kinda cart before the horse logic just in that cover.

  6. gms777 says:

    I’ll also add someone named “Eye Wall” posted here on October 28, the following….

    “The dark reality:
    Pretend you are the US Gov complex (executive, congressional leadership, Fed, Treasury, etc.). You actually understand the truth of where the country is because you know what the real statistics are (e.g. unemployment equivalent to the great depression, bread / soup lines are hidden due to food stamps or the modern equivalent – the pre-paid debit card). The sellout of our manufacturing base and the fallacy that was good for us (we’ll make it up by trading paper back and forth to one another!). You know there can be no pay back of the US debt. You know there is no solution to social security, medicare / medicaid. You know how little control you have vs. the corporates / lobbies. You know the country is broke. You know all pensions are underfunded. You know that there’s no way back to the America that has been destroyed. What would you do in that situation?

    The end game is the same, something very dark. Perhaps civil unrest and rioting before we try Constitution II (we would all be traitors of course – thanks Patriot Act – so this would have to turn into more of an internal war of the people vs. the Gov). Perhaps WWIII. Perhaps a massive trade and currency war which we would lose as we can’t actually build everything we need anymore. Pick your dark scenario – eventually this all ends very, very badly. So, being logical, wouldn’t you do everything possible to delay the end as long as humanly possible? Doesn’t that make sense in this context? Isn’t that the only real option any of them have? If they don’t keep trying you get to the end game tomorrow, but maybe there’s a chance – through some miracle – that QExx will work. So keep delaying as long as possible – QE2, QE3, print up new currency, POMO, buy ES outright, buy stocks, buy all the mortgages in the country – put everything on the pile before….that SOB burns to the ground. Happy thoughts…”

    Not unlike the situation in America in 1858. No American leader from 1776 to 1861 knew how to solve the slavery problems, so everyone kept pushing the solution back, back, back, hoping it would somehow resolve itself. Today, throwing money at the problem ain’t going to fix it, just pushes the end game down the line.

  7. number2son says:

    Congress’ proposed policies focus on stimulating more consumption with more debt.

    The premise of that comment is wrong. The stimulus spending should properly be focused on infrastructure investments, and that is a vital role of government. So long as they do this (and I’m not talking more cash-for-clunkers nonsense), then this is money well-spent.

    And we’ll have to see about Obama chances for re-election in 2012. I do predict with certainty, however, that he won’t get my vote again. Count me among the many who feel betrayed by his false promise of change.

  8. MayorQuimby says:

    Go short!

  9. bda_guy says:

    The more that government and the Fed feel the need to intervene, the worse things are fundamentally. The fact that there has been no overwhelming call for stimulus and that the QE2 is only planned to be a fraction of QE1 makes me feel that we’ve hit a calm spot in the storm. However, the Fed still needs to unwind all of it’s current positions before we can truly believe that the whole storm has passed. If the markets/economy start to go south again, the wave down could be mighty steep and rough and the boat might sink before the QE2 bilge pump can take effect. We might go up from here but I think that may only be setting us up for a steeper fall.

  10. BuffaloBill says:

    Business Week also did a cover in the mid 1970s on the lLooming Capital Crisis and I seem to recall I.I. headlining a cover many years ago with a dinosaur and a lengthy feature on fixed income? We’re probably safe ignoring what journalists for mainstream media frequently conclude and then place on their covers. They are, after all, in the business of selling controversial content which is a long way from managing money. It works. Having allowed my Barron’s subscription to lapse, I’ll need to buy this issue.

  11. bda_guy says:

    The next week is potentially pivotal in so many different ways. I’ll maintain a “glass half-empty” standpoint if the following occurs for the upcoming week:

    S&P500 index closes the week above 1165.2 but has a high < 1220 (current 1183)

    NASD 100 closes above 2027 but has a high < 2220 (current 2124)

    DJIA closes above 11,007 but has a high < 11,500-ish (current 11,118)

    NASD Composite high < 2535 (current 2507)

    If the highs noted are exceeded, I would remain cautious, change my stance to "the glass is filled half-way".

  12. lawyerguy says:

    Pardon my ignorance, but has the first rule ever been met when the real economy is not thriving? It seems like the magazine cover indicator simply is an indicator for the big boys that the retail crowd is ready to get hosed, and start dumping on those greater fools. Given the massive disconnect between main street and wall street (as evidenced in part by the 25 straight weeks of domestic equity mutual fund outflows), it certainly seems that the little guy is no longer playing ball. Is there really any relevance here?

  13. I’m sure it has — I recall inflation covers in the late 1970s, and their was a pretty infamous Cheap Oil forever cover somewhere in the early 1990s

  14. MayorQuimby says:

    Seriously…if magazines, CNBC, CRAMER etc. – were all AHEAD of the curve, the SPX chart for the past 15 years would probably be INVERTED.

  15. Sechel says:

    Hussman did a piece not too long ago where he points out the following pointing out t S&P dvidends yields are way under trend while dividend growth only averages around 6% per year. At some point there’s reversion to the mena dividend yield of 3.7% from today’s less than 2%
    **************************
    Total annual return = (1+g)(Yoriginal/Yterminal)^(1/T) – 1 + (Yoriginal+Yterminal)/2
    Total annual return = (1.06)(Yoriginal/.037)^(1/7) – 1 + (Yoriginal + .037)/2
    ******************************

    Additionally strong earnings growth is not likely going forward.
    ***New home sales a job generator will not be there.
    ***We’re at the end of inventory rebuilding
    ***Corporations have boosted earnings as much as they can via cost cutting
    ***Higher oil prices will depress economic growth
    ***Consumer is still deleveraging and not likely to borrow to fuel consumption
    ***We have an anti free trade administration who is not signing free trade agreements with South Korea etc
    ***Health Care likely to increase costs to business
    ***Higher Taxes from expiring Bush cuts likely to further weaken the economy

    So from a valuation stand point and likely near term earnings I don’t see the bullish case. We’ve already gone
    up quite a bit and the retail client is not inclined to enter the market after being burned twice(2000&2008).

  16. riodogg says:

    The part of the article concerning bullishness/bearishness of Treasuries is what caught my focus.

    Right now the bullish guys were 5% and bears were 72%.

    At the last polling back in the 4/26/10 issue, the bulls were 8% and the bears 75%

    If I haven’t erred in checking the yields the TNX was 38.15 in on 4/26; now it is 26.12.

    For TYX it was 46.73; now it is 40.00.

    The entire article smelled of the biases one would expect from those seeking to manage other people’s monies.

  17. Onthemoney says:

    Looks to me like the ghost of Newsweek’s April 19th cover – ‘America’s Back!’ At the time, BR hastily posted a slap-down to claims it might be a contrary indicator, stating:

    “1) It refers to an economic turnaround — not the stock market

    2) It does not follow a trend that has been in place for a long time

    3) It does not represent a broad societal belief”

    None of these reasonable objections seemed to matter, as the market plunged a week later. Today, this cover DOES refer to the stock market, it does follow a widely-recognized trend of bubbling stock prices in place for more than 18 months, and as for point 3 – while it might not be a case of ‘there’s no sucker left to buy’, what’s most essential is that the cover should reflect the overwhelming belief of those in the market NOW.

    Yes, more retail investors could be lured back in if the S&P holds up for an extended period but right now, the 4-wk average of the AAII bull ratio is right back up where it was in May 2008, and even higher than at its January and April correction-points this year.

    Finally, if you haven’t lately, step back for a moment and take a good look at a weekly chart of the NDX. This index is now almost at its highs of 2007. That’s right, two-thousand and seven, before the recession even began. The blazing insanity of this is truly mind-boggling. The NDX has, thanks essentially to Apple, become not only the public’s darling but the QE Index, the POMO Average. Bill Gross’s ‘bed of nitro-glycerine’ isn’t lying under UK gilts, folks, it’s right here.

  18. Sechel says:

    Look,
    Economic activity this past year was artificially stimulated with housing tax credits, cash for clunkers, cash for washing machines,etc. The sole reason the market has gone up is because of the Fed flooding the system with money, and just like when Greenspan did the same, the funds flow to financial assets.
    The bubble can only get so big….

  19. SANETT says:

    By definition, do bears and bulls all have a little sheep DNA in them?

  20. Dow says:

    Good lord. Barron’s is advocating Microsoft as a ‘tech star’? Based on what? They haven’t released a decent product in years.

  21. Can anyone tell me why Obama wouldn’t win re-election if the economy is improving? Who owns Barron’s anyway?

  22. rat89 says:

    br – or do you mean covers like this give you paws? ;)

  23. Mannwich says:

    @Calvin: Because the GOP and their MSM friends’ meme will be that it was only after the GOP got control of Congress again were we able to get a true economic “recovery”. It won’t be true but that’s what they’ll say if we do indeed get a real recovery, as hard as that is to imagine right now.

  24. rktbrkr says:

    How is the Fed ever going to clear it’s balance sheet? Talk about unintended consequences, the prices of commodities are already soaring – stuff like food & energy that isn’t counted towards inflation but deeply felt by little people.

    Their bond purchases have forced interest rates down to abnormal and unsustainable levels but all good things come to an end and they’ll have to sell massively while interest rates and inflation are soaring – maybe selling at significant losses (sorry Treasury!).

    I’m sure their collateral isn’t marked any more honestly than the big banks- oooh boy! A day of reckoning is a comin.

    Bernanke’s radical policies have totally distorted valuations, the flip side is going to be at least as painful as the past couple of years

  25. MayorQuimby says:

    With $DXY as weak as it is (see Apple’s margin compression report), there’s also the chance that Ben can’t afford to embark upon QE 2.0. Anything substantial could pummel the dollar sending import prices much higher (aka OIL and FOOD and HEAT etc.). It could also force a major sell-off in bonds since being locked into a 1% five-year return with a 5% depreciation rate in the underlying currency is NOT a winning move.

    We’ve stretched the rubber band as far as it can go. We either stop stretching or it breaks.

  26. diogeron says:

    This is a contra-indicator cover if I ever saw one. Reminds me when the guy shining my shoes at the Hilton across the street from the Indiana state capitol started talking stocks to me in 2000 and I went home and sold some thinking, “this is not good.”

  27. Captain Jack says:

    Vizzini: But it’s so simple. All I have to do is divine it from what I know of you: are you the sort of man who would put the poison into his own cup or his enemy’s. Now, a clever man would put the poison into his own goblet because he would know that only a great fool would reach or what he is given. I am not a great fool, so I can clearly not choose the wine in front of you. But you must have known that I am not a great fool, so I can clearly not choose the wine in front of me.

    Westley: You’ve made your decision then?

    Vizzini: Not remotely!

  28. spigzone says:

    Sure it is, because Peak Oil rolling over into Declining Oil next year will create a solid foundation for growth into the foreseeable future.

  29. [...] Does the Barron's Bye Bye Bear cover meet the magazine cover contrary indicator test?  (TBP) [...]

  30. rdhall3637 says:

    Cover seems to be inline with what some technicals are also showing, which is that the market is tired at these levels and up against what has been a turning point in the past (200MA on weekly chart for S&P 500).

    New updates show my point…

    http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID3274981

  31. [...] you recall 2 weeks ago, we discussed what the premise of the magazine cover is: 1. Mainstream — not business — [...]