Housing: When Magazine Covers Indicate a Clash

The magazine cover indicator is a great contrarian sentiment measure, because once a topic has reached massive public penetration and been put on the front cover of a magazine, the trend is about to finish.

But once in a while we get conflicting covers. And in such a case, the question then is: Which one is right? Which one do we fade?

A recent example is the cover of Time and the Economist in the summer of 2005. They both came out within days of each other and had very different views of the housing market:

After the Fall

The symbolism of the brick in free fall left no doubt what stance The Economist was taking on this issue. Although housing prices were going up like there was no tomorrow, the Economist was asking about what would happen after the inevitable fall.

I remember reading this while in Europe because I could see first hand the freakish gains in real estate and the avarice that it had fueled over there. Published: June 18th, 2005

Home $weet Home

Now contrast that with the cover on Time showing a man happily squeezing a house in a bear hug. Note the $ instead of “S”weet and the taglines: We’re going gaga over real estate, Will your house make you rich?, Super hot markets, It is time to buy-or sell?, The case for renting.

Published: June 13th, 2005

For some perspective, here’s a chart of the housing bubble (superimposed on that of the internet bubble gone by):

Source: InvesTech’s Housing Index is a proprietary composite of the most sensitive stocks in the housing sector.

So which one of those covers should you have listened to?

Obviously The Economist. I myself tried in vain to point out the danger of such a hyper-inflated bubble to a relative who was heavily invested in European real estate. I was given a laundry list of why the argument in the Economist article didn’t matter or was wrong.

But why?

Not because one magazine is inherently better, but because one magazine - Time - is geared to a more general audience, while the other - The Economist - is targeting a very discerning readership. Plus, if you had read both articles, you couldn’t have noticed that Time’s was simply “fluff” while the Economist one was bursting at the seams with data and more data.

My point is this: To get a really good contrarian cover indicator, look for the most general audience publisher. Don’t go for specialty publications.

See here for the full Economist article (minus tables and graphs).

Comments

[BasicFinance]

It's OK to say that the Economist is "inherently better." It is ;)

[res ipsaloquitur]

While I think it is a clear indication of wide acknowledgment of a fact when it reaches the cover of of magazines with wide readership, it is non-sensical to imply that is the end of the trend when the trend is not a fad but the state of the economy. Housing prices fell in Japan for 15 years--I am sure that fall hit the covers of magazines within a year or two. So explain the next thirteen by your theory. Or the Great Depression of 1930 as well. Fads decline after reaching zeitgeist status, there is no similar correlation when it comes to economies.

[MattBlackman]

Let me get this straight. Using one indicator (magazine covers as a contrarian indicator) do you really believe that housing market declines are nearing an end?

Let's review. We have just come off the top of the biggest property price bubble in history and the real estate cycle is 18.5 years long on average. Home prices peaked in December 2006. So doing the math, 18.5/2=9.25 - 1.5 = 7.75 years. In other words, this downtrend is just starting and has years not months to run no matter what Time or People covers may be telling you.

This chart of inflation adjusted home prices might help...
tradesystemguru.com/co...

Oh, and one more thing. The probability of a US recession continues to rise and if we do go into recession, (which is what the majority of my leading market indicators are telling me) job losses increase and incomes fall. This will put even more downward pressure on home prices...

Anyway, interesting chart of InvesTech’s Housing Index and yes, mainstream media reports can be good contrarian indicators but as every trader knows, relying on one indicator or data set to make conclusions is a dangerous and costly habit... Unfortunately, if you buy a home and prices continue falling, there is no such thing as a practical stop-loss.

[rdial54]

The Economist is a great magazine. My brother and I have just built a true "Green Home" in Saratoga NY. hvnorth.com

[ponchovilla]

Unbelievable; Investment advise?
The magazine cover indicator
The sunshine effect on wall street
The Super Bowl indicator
The lick your finger and stick it in the wind indicator?
What's next?

[skinnycat]

Funny- I actually remember that. I was on a flight back from Europe and read both issues. This starting my current obsession with tracking the housing market and reading this site. I remember talking to colleagues in my architecture office about this, and they all just shrugged it off. In general I would trust the economist more than Time.

[GaryD]

Anyone remember the Economist cover called "Drowning in oil"? They put that out right at the bottom of the oil market.

Very few people know that The Economist is controlled by the Rothschild banking family. Be careful about making decisions based on what you read in there. Economist writers are like Goldman Sachs analysts; as likely to misdirect as to direct.

[User 167224]

kudos to GaryD...Rothschild = Illuminati They control the world's wealth.