No, this is not a cover indicator — the cover indicator requires several factors not present here: It helps to be for a widely
tradable item (Stocks, Oil, Bonds, etc.), and it has to be something that is widely known — A recession is questionable amongst the pros, although surveys make it clear the public is hip to this.
The economy is simply too big and too general to
be much of a trading tell via a cover. Same thing goes for single companies, too — Google, Apple etc.
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Previously:
The Single Company Magazine Cover Indicator (March 2006) http://bigpicture.typepad.com/comments/2006/03/the_single_comp.html
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Source:
Why It’s Worse Than You Think
Daniel Gross
NEWSWEEK June 16, 2008
http://www.newsweek.com/id/140553/page/1
Once burned, twice shy. The message of the Newsweek cover is that gasoline prices are causing a recession. That’s a magazine cover indicator to me. At very least it suggests that the influence of skyrocketing oil prices on the GDP is at its peak.
Big tops in markets occur when everybody thinks you’d have to be out of your mind not to see that the price is going to continue upward.
Just sayin’….
Barry:
Just a note of thanks for your indefatigable reporting of data and competent data analysis. The stuff on Lehman with Einhorn’s trenchant summary was particularly good as is this Daniel Gross article in News Week.
Don’t worry about Kudlow. The few times I catch him, I have to wonder whether there isn’t a high positive correlation between the prolixity of his thinking and the fact that the he’s looking more and more like a refugee from Madame Tussaud’s.
I know. I know. We shouldn’t be unkind.
Appearances of the word “recession” in the media are more of a coincident indicator — the higher the frequency, the stronger the recession indication.
But ndd is right — the obvious panic over gasoline prices evident in the cover photo suggests that gasoline prices may have peaked the very day this cover was prepared (probably last Friday, or during the weekend).
I can live with that —
tho I am barred by any sense of good ethics from calling any tops in Oil or Gasoline for 90 days due to the Economist cover . . .
http://bigpicture.typepad.com/comments/2008/06/uh-oh-economist.html
“concerns about consumer spending and the housing market were eased by better-than-expected sales figures from McDonald’s Corp and a surprising gain in pending home sales.”
I love how highly debatable RE data can be combined with a population eating more Happy Meals to yield a rise in the Dow.
I love your work, but the idea that a cover indicator is non-fuzzy, non-squishy, is a little odd.
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BR: Its totally squishy !
Is it gas prices causing recession?
Or is it the incompetence in government that created the conditions for the gas price explosion?
Gasoline prices do not necessarily move in lockstep w/crude. The crack spreads, while wider than a few weeks ago, are still low. Look for refiners to try to maintain or raise gasoline prices even tho crude may dip. Furthermore, say crude dips to $115. It’s still very high and not included in anyone’s forecasting model. Leave the “crude is falling” meme to CNBC. Crude will be high vis-a vis last year for some time, even in the best of circumstances.
Part of the “crude is falling” shoutout comes from DC, where the administration still hopes that we overlook the fact that there is no energy policy.
What up with DUG not running the same way as oil?
in “CONTRARY INDICATORS” | Financial Press | Psychology/Sentiment | Trading
No, this is not a cover indicator – …
—————————————–
Then why categorize it that way? :)
Just asking
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BR: Its part of the cover indicator discussion.
If Daniel Gross the author of this piece thinks the CPI is truly 3% then he needs to get another job…
but I have a contrary contrary indicator…
Don Luskin still has the June 6 article on the Smart Money website that none of us investor types should be suckered into bear market thinking…he’s examined the bear case in detail, and has figured out there is no there there…..
Bruce in Tennessee
Bruce, that is my contrary indicator: The week when we don’t have to endure the stock market evangelists (Knealy, Luskin, et al) on TV and that Cramerica gets cancelled.
Media is putting them on because people are still hopeful that markets will be OK, and they want hope, and those guys are meeting that need.
When the reality sinks in, majority starts feeling the pain, the same public will be so turned off, and externalize their own failure of not recognizing reality, these guys will be the sacrificial lambs…
Bob A.: IIRC – Gas prices move UP directly lock step with crude. Down not so much… like that’s a surprise. http://www.greenstreetinvestor.com/surprisingly-a-iowa-state-university-study-finds-ethanol-to-be-lowering-gas-prices/” rel=”nofollow”>I read a study done by Iowa State about how Ethanol was keeping pump prices down.
What struck me was how sensitive prices are at the margin (the “huge” value of the Ethanol was driven primarily by this factor. This was a few months ago – its worse now..
Last I checked the government was still buying oil for the strategic reserve (when they should probably be letting oil out) – which given the marginal pressure on the market strikes me as tremendously stupid or (more likely) tremendously pro-buddies in the oil business….
Furthermore, to underscore the stupidity of our current administration they are sitting on $27 dollar oil in the SRI – which would generate a tidy (meaning humongous) profit for the treasury (could easily pay for extending the solar tax credit for about 5 years for instance) were they to sell on the open market – instead they are buying at the high – exascerbating demand and wasting tax payer dollars…
First do no harm…
A far more sobering thing for me was the report on CNN Money last week of the 1.7 TRILLION reduction in American’s net worth during last QUARTER. Oil prices are getting all the attention, but there seem to be some even more fundamental issues that aren’t anywhere near as hyped. The MSM plays to the gas prices because it is so visible. But how many people are aware of the net worth of their neighbors?
Heys this is Richard from http://hedgeagainstspeculation.com, I`d like to invite you to participate in our “Cooly Amazing Contest” which ends June 15th. To sum it up you can win prize packages worth over $275…there are a total of 20 prizes to be won and anyone can enter. It`s simply a random draw, and entering takes little to no time. Feel free to go to my website and click on the “Cooly Amazing Contest” banner for details :)
“What up with DUG not running the same way as oil?”
Posted by: Chris Noyes | Jun 9, 2008 6:14:20 PM
DUG tracks the DJ Oil & Gas Index, which is not directly correlated to any crude contract or spot pricing. Over 40% of the Index is XOM, CVX, & COP, and those equities held-up today rather well.
http://tinyurl.com/3z53qt
If you’re looking for a correlated short of oil, try one of the E&P plays that are more directly tied to the price of crude, such as HES, XTO, etc. Caveat Emptor: shorting parabolic charts requires tight stops and a high-pain threshold, so you might want to execute a more subtle trade: Long refiners, short E&P ( Long TSO, Short XTO, etc.)
Regardless of what it means it’s a brilliant cover image. Even the letters are grimy. The hoses look like tenticles. Kind of war of the worlds.
“Its got to be for a widely tradable item”
Do we think that the Intrade contract provided too little liquidity for us to consider a 2008 US Recession tradable?
N.b.: I don’t agree with their contract definition of 2 consecutive GDP quarters of negative growth — it would be interesting to compare the existing contract with an ex-post “NBER-identified” 2008 US Recession contract…
…and remember how invading Iraq was going to bring us $20/bbl oil?
http://blip.tv/file/972042/
NO! NO! NO! The cover is WRONG!! We all know that things are very bad, and are getting worse. Look @the consumer confidence #s. Its the damn gov. w their BS data that claim that things are getting better, and expect a rebound in the 2nd Half. BS. The real cover should read “WHY Things are so bad and are getting worse”. Thank God everyone is waking up and finally questioning that dumb ass Bernanke and his Fed ponzi schemes. All the govs #s are bogus…. we are no different than Venezuela, Argentina, and Zimbabwe….
just print trillions of dollars and lie about the inflation #s
Hasta Luego Comrades
Bob A:
Speaking of that, did you hear about Bill Moyers this weekend? He was at some media conference in Minneapolis. A O’Reilly staffer tried a guerrilla interview. The guy was telling Moyers that he was scared to go on O’Reilly’s show. Anyway, Moyers shot back that he’d go on O’Reilly’s show, if Moyers could have O’Reilly(or any other Faux Noise flunky) on his show to discuss Murdoch’s support of the war(which is where that $20/barrel thing comes in).
Gas stations will soon have to replace prices with make me an offer signs. At least driving has become a pleasure again with so many fewer vehicles on the road.
I wonder whether domestic oil companies are producing all out or are speculating on even higher prices.
Man, it’s not remotely squishy.
Two quarters of negative GDP growth. What’s squishy about that?
I can’t believe this magazine indicator thing lives on.
An even better contrary indicator is this from the BBC:
“Mr Bernanke said the risk of a substantial downturn had “diminished over the past month or so”.
Does anyone else think that his use of “moral suasion” to prop up the dollar by threatening to raise rates when things are headed south is pathetic?
Now he comes up the qualification: “Its got to be tradeable”