Signs Of The Times

The Magazine Cover Indicator is contrarian. It says to sell what magazines say to buy, buy what they say to sell, and do the opposite of what they say about the current market. The idea is that magazine reporters are not paid to go out on limbs. They are paid to report the current mood, current consensus, because there’s little danger in that. They can always just say, “Well, that’s what people thought back then.”

Princeton economist Paul Krugman, winner of this year’s Nobel Memorial Prize in Economic Sciences, said, “Whom the Gods would destroy, they first put on the cover of Business Week.”

One of the most famous examples is the August 13, 1979 issue of Business Week with the cover story, “The Death of Equities” just as stocks were at their cheapest since The Great Depression and primed for the historic 20-year bull market that included the tech bubble of the late 1990s. Here’s the cover:

Do we have anything like that going on today? You bet.

Here’s what MarketWatch showed on its front page over the weekend:

I sent the following to Kelly Letter subscribers yesterday morning:

What of the VIX? We’ve kept a close eye on it as it hovers around what I described Wednesday as Double Panic Plus levels. Calm used to be less than 20, stressed out used to be over 30, and panic used to be over 40. We’ve been around 80 recently, the highest levels ever recorded by the fear gauge.

It finished at 77 on Friday after hitting 89.5 intraday. Too bad we can’t sell fear. We’d make a bundle on it these days.

I remember my grandfather joking about watching the VIX in the tribulation period leading up to the second coming of Christ. “I wonder if that would get it all the way up to 100?” he asked. We may be finding out. If the Rapture awaits at the bottom of this bear market, I’ll speak on your behalf when explaining to the Lord why we kept buying into the downturn.

Bob O’Brien at Barron’s Online provided on Friday some interesting anecdotal evidence similar to the “magazine cover indicator,” which claims we’ll know the bottom is close when calls of doom dominate magazine covers.

Prior to Friday’s open in the market, at a time when futures were locked at limit down levels, Mr. O’Brien was scheduled to appear that evening on a famous cable TV news program to discuss the disastrous day on Wall Street. He thought it was a classic anecdotal indicator. But, guess what? The show never happened.

He wrote: “So what are we to make of the fact that the same appearance was peremptorily cancelled shortly after the close of trading because the market wasn’t sufficiently distressed? Just a backward-looking affirmation? Or something more sinister? We’ll know if our appearance is rebooked — and kept — on Monday.”

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