Trader’s Narrative

Did you know that the magazine cover is a stealth sentiment measure?

It may strike you as a bit strange but it has an uncanny prescience. Well, in the sense that it can foretell the opposite of what is most likely to happen. The most famous one that is usually cited is the Business Week cover which screamed to the world: “Death of Equities” (August 13th 1979).

Probably for this most egregious gaffe, Business Week is singled out for the dubious distinction of having a cover ‘curse’. But other magazines have equal billing. The only condition is that the magazine must have a wide audience (think Time or Newsweek, not the Spokane Structural Engineer’s Quarterly). The reason is quite simple and it goes to the heart of contrarian thinking.

Magazines exist for one purpose. No, its not to inform you and to make you money. It’s to sell as many copies as possible. The editor uses a lot of tricks and ploys to accomplish this. Among the most powerful tool in his or her arsenal is the cover. It is after all the first impression that the product will make.

And you only get one chance to make a first impression. So you better make it good while you can.

So considering all that, imagine you’re the editor: would you go with a cover that is unfamiliar with the wider public? a cover that goes against the grain? one that takes an unpopular stance that goes against public perceptions?

Or would you try to carefully gauge the audience’s mood and pander to them?

That’s why the recent Economist cover (above) should send shivers down the backs of anyone who is long Goldman Sachs, or any of its peers in that sector. The accompanying cover story is a fawning one in which the great Wall Street institution is held up as an object of admiration. The truth is that Goldman Sachs is making more money by taking on more risk. Their nebulous disclosure may be confusing this simple concept to the good folks at the Economist. But you ignore the magazine cover curse at your peril.