Having Your Picture On A Magazine Cover Is A Bad Idea

As this is being written, there is much conjecture in the press and in the investment community about the likelihood that the Fed Open Market Committee will lower interest rates again at its next scheduled meeting, or even prior to that meeting. There seems to be a longing for such action, based on the hypothesis that the markets can be saved from a washout and the economy from recession if only the Fed would step up and do its job by lowering interest rates yet one more time.

That is wishful thinking. The Fed is a follower, not a leader. The public longing for a "solution" is based on the underlying assumption that the Fed has the power to stop the natural progression of events and, indeed, to reverse it. That's fiction. Contrary to "conventional wisdom" (a phrase which was coined, I believe, by John Kenneth Galbraith) the market has a mind of its own and is not diverted for long from the natural course of events. Furthermore, it is the stock market which leads the economy, not the other way 'round. Not very many people believe that; but that's the way it is.

Money Manager Paul Macrae Montomerry's "Magazine Cover Indicator" proposes (in broad terms) that the appearance of a photograph of a person or a depiction of a subject on the cover of a major magazine (such as Time, Newsweek, Barron's, The Economist, Forbes, or The New York Times Magazine), together with an accompanying story, is a precursor of bad news for the subject. Over time, the Indicator has been remarkably accurate.

On Sunday, January 20, 2008, the cover of The New York Times Magazine carried a photo of Ben Bernanke, the Chairman of the Federal Reserve. The photo was accompanied by a major story. If the "Magazine Cover Indicator" works this time as it has in the past, this is a very bearish signal, and it will not be long now before Mr. Bernanke and the Federal Reserve are reviled as being impotent to reverse the downtrend in the stock market and to stop the decline in the economy - and thus having failed in their mission. His predecessor, Mr. Greenspan, is likely to receive the same opprobrium, as having been in the driver's seat during the free-swinging years when the groundwork was laid for the disaster in the housing market, the implosion of the credit markets, and the decline in the stock market.

William G. Kurtz Jr.
January 20, 2008
http://www.candlewave.com
info@candlewave.com

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