The March 30 issue of Time magazine featured one of its most frightening cover stories ever … and that could be very comforting news for investors worried about the novel coronavirus pandemic.
You see, the iconic magazine has gained a reputation over the years as a “contrary indicator.”
Time, despite its name, is somewhat infamous for its lack of timing. On several occasions over the years, the magazine’s cover story has highlighted a particular societal or economic trend just as that trend was about to reverse. Upon observing this tendency, the late Legg Mason strategist Paul McRae Montgomery came up with the “Magazine Cover Indicator.”
The logic behind Montgomery’s unique contrarian indicator goes like this: By the time a particular trend reaches the cover of a major publication, it is so widely embraced by the public that “everyone is in” – i.e., there is no one left to perpetuate it. Therefore, the trend is close to reversing … often with a vengeance.
Time is not the only major magazine to publish poorly timed cover stories. In fact, BusinessWeek holds title to the most infamous cover story ever.
In August 1979, the cover of BusinessWeek proclaimed “The Death of Equities.” As it turned out, equities were far from dead. In fact, they were on the verge of a major rebirth.
Stocks bottomed early in 1980, before launching into one of the biggest bull markets in history. Four years after this cover story appeared, the S&P 500 Index had doubled. And three years after that, the S&P 500 had tripled.
But in the dark days of the late 1970s, after the stock market had gone nowhere for more than a decade, most investors believed that stocks were a dud.
The BusinessWeek article observed:
The masses long ago switched from stocks to investments having higher yields and more protection from inflation. Now the pension funds — the market’s last hope — have won permission to quit stocks and bonds for real estate, futures, gold, and even diamonds. The death of equities looks like an almost permanent condition — reversible someday, but not soon.
Twenty-three years after the “Death of Equities” cover story BusinessWeek cemented its “indicator” credentials for all time by running a July 28, 2002, cover story titled “The Angry Market.” During the two years that preceded this story, the stock market had been very angry indeed. An epic bear market had erased nearly half the S&P 500’s value.
But the S&P hit the low of its 2000-’02 bear market on the exact day the “Angry Market” cover story hit the newsstands! The stock market doubled over the following five years.
So let’s take a stroll down memory lane with Time magazine…
The Perilous World of Forecasting
In September 1977, Time’s cover story warned about “Sky-High Housing.” And while it’s true that American home prices had doubled over the preceding decade, home prices would double again over the following decade … and would quintuple by 2005!
Then, in June 2005, just as this once-in-a-lifetime housing boom was ending, Time hit the newsstands with a cover story titled “Home Sweet Home: Why We’re Going Gaga Over Real Estate.”
Here’s what the article said:
Ah, the blistering real estate market, where dreams of big bucks come wrapped in aluminum siding… Your house is now your piggy bank, ATM and 401(k)… Folks brag about having bought their home in the ’90s the way they used to brag about having bought Microsoft in the ’80s. Even if you’re not contemplating buying or selling anytime soon, the amazing lift in home values is changing the way we think about the roofs over our heads. Real estate isn’t so much about nesting today as it is about nest feathering.
But at that very moment, the spectacular American housing boom was already on its way toward an equally spectacular bust. Condominium prices topped out in the identical month this Time cover story appeared — June 2005. Single-family home prices topped out shortly thereafter.
“Homebuilding stocks went a bit higher during the month or so subsequent to that cover story,” Paul MacRae Montgomery relates. “[But] from that point, they crashed 78%-90% … Housing prices [fell] a more modest 28%… But this drop was still enough to constitute the worst drop ever in home prices – worse than in the Great Depression.”
Not content to be dead wrong twice about the housing market, Time went back to the well one more time. On the cover of its Sept. 6, 2010 issue, the magazine declared, “Rethinking Homeownership: Why Owning a Home May No Longer Make Economic Sense.”
Here’s an excerpt:
Homeownership has let us down. For generations, Americans believed that owning a home was an axiomatic good… A house with a front lawn and a picket fence wasn’t just a nice place to live or a risk-free investment; it was a way to transform a nation… [But] the dark side of homeownership is now all too apparent: foreclosures and walkaways, neighborhoods plagued by abandoned properties and plummeting home values… If there ever were a time to start weaning America off the idea that homeownership cures all our ills, now… would be it.
Or maybe not.
Since publishing that ill-timed story, the U.S. median home price has gained 40%!
The Coronavirus Headline
And now comes the cover story of March 30, 2020, where Time anguishes about the coronavirus pandemic … and the dire economic consequences that may be coming our way.
The magazine warns:
Economists say the sudden stop in spending could strike a bigger blow to the global economy than the terrorist attacks of September 11, 2001… Economies across the world are already experiencing a significant contraction in economic activity that will likely last through the first half of the year. JP Morgan economists predicted that the U.S. economy would shrink by 4% in the first quarter and as much as 14% in the second quarter, while the economy of the 19 nations using the euro would contract by 15% in the first quarter and 22% in the second.
These forecasts, if they come to pass, would be bad news indeed. But the good news is that Time gets it wrong sometimes. So if the magazine’s crystal ball is somewhat foggy once again, the coronavirus pandemic will be topping out soon – and the global economy will recover more vigorously than most folks currently expect.
Obviously, Time holds no monopoly on poorly timed forecasts. We’ve all stubbed our toes trying to tiptoe into the unknowable future. But most of us don’t publish our expectations and distribute them throughout the world.
That’s why Time’s published comments are so valuable. They reflect what most of us are thinking privately.
So for the sake of our collective health and financial well-being, let’s hope Time’s public musings — and our private fears — are misguided once again.
P.S. If you pay attention to the news, you might think the coronavirus and the horse race between Joe Biden and Donald Trump are the only big stories out there. However, the media is totally missing what is by far a bigger election year story.
You see, an alarming new trend taking shape in America is making a lot of people really wealthy… and at the same time making others poorer. I believe this will be the No. 1 factor affecting your money over the next few years. If you haven’t seen this or heard about what’s happening in your hometown, I strongly encourage you to learn what’s going on. I can show you exactly what’s happening.
Eric Fry is an award-winning stock picker with numerous “10-bagger” calls — in good markets AND bad. How? By finding potent global megatrends … before they take off. And when it comes to bear markets, you’ll want to have his “blueprint” in hand before stocks go south. Eric does not own the aforementioned securities.