Newsweek’s cover a contrarian indicator?

  • Posted on: April 14, 2010

Its official. Newsweek is bullish the US. If you’ve been reading my comments over the past 7 months, you know how I feel about popular opinion reflected in major news publications.
The cover story is a gushing love fest about the US. Boldly proclaiming :The US is Back… I didn’t realize that we had left….

For the past weeks, I have been writing about the possibility of Time or Newsweek cover story, complete with Obama riding a bull up 5000 points. Of course, we have to have the Dow print 11,465 to get that cover, but my guess is, its in the works.

Bottom line. I think its late in the day for this low volume, low volatility rally.
Time will tell if this type of news story marked the beginning of a nice correction, which, of course will be blamed on speculators.

In the mean time, I want to mention the obvious. Two summer’s ago, Rice was being rationed by Walmart. When that story hit the TV and Newspaper wires, it marked a multi month high.

Recently, TV and print have been commenting on the high prices of beef and hogs. Hogs rallied from 6 year low prices just 8 months ago, up to recent 13 year high settlements in the hogs. Beef has rallied the past 5 months, after posting 4 1/2 month price lows in Dec 2009. Again, these sharply higher prices have been blamed on speculators, certainly because that is more sexy to talk about than a supply/demand curve. Not coincidentally, these news stories have been met by what? Sharply lower prices almost to the day these articles were published. The move to lower prices has been hastened by the blood of weak long speculators who got long based on the fact that ‘I read about it in the paper… or watched a story on TV’.

Back in 2007 when corn values were sky rocketing, a broker friend of mine called me because he was fielding calls from novice investors, interested in owning corn. Typically, these new ‘investor’s asked a the question which most often sounded like.. “Is corn like stocks?” Can I own corn? what is a share of corn going for?”…
Typically, this marked the highs in corn historically.

Ditto, when Maxine Waters and Hillary Clinton were campaigning to punish big US oil with either 1) nationalization or 2) windfall profits taxes (Maxine Waters is a fan of Hugo Chavez), while Hillary was just campaigning and looking for a populist message.
In any event, those meetings on the Hill, which saw the heads of US oil companies trotted out and scolded for making too much money… The world was looking at 150 dollar a barrel oil, 5 dollar a gallon gas… etc. etc…
My point being that popular hysteria, either positive or negative, is historically a fade.
On that note, I’d look to take some profits and have some sell stops protecting gains we’ve “enjoyed” over the past 14 months in the US stock indexes.

Newsweek can put you in touch with some Americans who now think its safe to get long. You may want to sell them some of what they want.

Good Trading