Magazine covers tend to coincide with extreme sentiment. The Economist is particularly good at offering contrarian articles.
In December of 2016, The Economist nailed the peak in the US dollar with its “Mighty Dollar” issue.
The dollar has been gradually gaining strength for years. But the prompt for this latest surge is the prospect of a shift in the economic-policy mix in America. The weight of investors’ money has bet that Mr Trump will cut taxes and spend more public funds on fixing America’s crumbling infrastructure. A big fiscal boost would lead the Federal Reserve to raise interest rates at a faster rate to check inflation. America’s ten-year bond yield has risen to 2.3%, from almost 1.7% on election night. Higher yields are a magnet for capital flows.
The trade deficit will widen as a strong currency squeezes exports and sucks in imports. In the Reagan era, a soaring deficit stoked protectionism. This time America starts with a big deficit and one that has already been politicized, not least by Mr. Trump, who sees it as evidence that the rules of international commerce are rigged in other countries’ favor. A bigger deficit raises the chances that he act on his threats to impose steep tariffs on imports from China and Mexico in an attempt to bring trade into balance. If Mr. Trump succumbs to his protectionist instincts, the consequences would be disastrous for all.
US Dollar Index
As a special treat, The Economist takes you “Behind the scenes” for a look at its contrarian cover that proved to be a market-topping call.
Edwards Carr Deputy Editor discusses the “Mighty dollar” with Editor-in-chief Zanny Minton Beddoes.
Click on the preceding link for a video. In hindsight, the video into is quite amusing with an animated George Washington flexing his muscles.
Beddoes offers this insight: “The consequence of a very strong dollar is America’s trade deficit will get much much larger.”
About That Trade Deficit
The Economist seems to think a falling dollar will help exports. I happen to have a picture showing the results.
For further discussion, please consider Balance of Trade Deficit Near Expectations: Analyzing the Impact on Second Quarter GDP.
Let’s now investigate other contrarian covers.
Economist – March 6, 1999 – Drowning in Oil
The economist predicted $5 oil.
Newsweek – April 10, 2009 – Cheap Oil Forever (Why Prices Will Keep Falling)
I can only find a small image.
The Economist which thought oil was going under $5 in 1999 was worried about high prices in 2008.
Economist – May 29, 2008 – RecOIL
That very same week BusinessWeek was “Bracing for Inflation“.
The article is only available to Bloomberg’s “Professional Service subscribers”. However, I captured snips on my blog, and it’s a real flashback hoot.
Growing evidence suggests American consumers, businesspeople, and political leaders should all be bracing for double-digit inflation, probably as early as 2009.
The relative price stability of the past 15 years is giving way to worsening inflation, despite the recent softening of oil prices. The Consumer Price Index for all items shows the inflation rate averaged 2.6% a year from 1992 through 2007 but has doubled since January, reaching an annual rate of 5.6% in July. By next year, the monthly figure could hit double digits, and the inflation rate for 2009 overall could triple 2007’s 2.85%.
I say this not only because I have looked at a broad range of statistics that point in this direction. I also run a private equity investment firm that owns companies in a number of industries—including restaurants, the manufacture of gardening tools, oil and gas exploration services, and distribution of entertainment products such as books and videos—that are already being forced to pass price increases on to the consumer.
The skyrocketing price of oil is obviously a central element in the accelerating price spiral. But a sea change in China’s role is beginning to have a huge impact as well. ….
In 2016, oil prices crashed, and Goldman Sachs was right on time discussing $20 oil.
Time Magazine Goes Gaga Over Real Estate
The June 13, 2005 issue of Time Magazine cover: Home $weet Home marked the real estate top.
In my It’s Time to Shift the Arrow on June 5, I posted some amusing comments from economists about a permanently high plateau and ended with this simple statement:
“In case you missed it, here was the Home $weet Home top call.”
April 10, 2016 Mish
On April 10, 2016, in US vs. Japan Land Prices Pictorial Update I made a pictorial presentation of where we were and where we were going. I am especially fond of this post so what follows is a repeat.
In Spring of 2005 I announced It’s a Totally New Paradigm
At that time the chart looked like this.
In June I announced It’s time to shift the arrow on the basis of Time Magazine going gaga over real estate.
In December I wrote that It’s Too Late.
When you see stuff like this, not only is it too late, it’s way too late.
I am pleased to announce that we have moved the arrow once again.
The current picture looks something like this.
When Was the Top?
Based on Case-Shiller, some claim housing peaked in Summer of 2006 not 2005. I dispute that allegation. Case-Shiller does not include condos, and I believe Case-Shiller did not take into consideration kickbacks, free pools, free cars, free trips, and cash back arrangements widely used to seal deals starting summer of 2005. Contract price was often not what it appeared.
Finally, things went from people standing in line hoping to get the right to buy a condo via lotteries, to lines of zero length almost overnight, in numerous places. That happened summer of 2005.
Sentiment does not get more extreme than Time magazine going “gaga” (yes, they used that word right on the cover).
Harry Dent Contrarian Book Covers
Economist Harry Dent made a fortune with a series of 100% ass-backwards books.
- The Roaring 2000s (1998)
- The Roaring 2000s Investor (1999)
- The Great Depression Ahead (2009)
- The Great Crash Ahead (2011)
- The Demographic Cliff: How to Survive and Prosper During the Great Deflation of 2014-2019 (2014)
Thanks to Peter Atwater who Tweeted The Economist “Mighty Dollar” cover earlier today inspiring this post.
Mike “Mish” Shedlock
You still like the weaker dollar and stronger pound trade?
Brexit -will strengthen the beaten pound over the long term…
Dollar – Trump wants to be the manufacturing president. Weak dollar helps…
Yes – I am still in the Pound Trade
If you were to go back and check the posts on this website at that time, you will see a chorus of commentators, all of whom aggressively agreed with that article – mostly on an anti-Euro sentiment. I include myself in that group of those that were wrong.
Several of those people tend to project themselves as the all knowing sages of market price movement, (crystal ball holders) and interestingly never returned to comment on how they were wrong or turned their opinions. If they were trading they would probably be riding their shorts until the blew themselves out.
In fairness, I am definitely not a technical analyst, but do understand their thought process, and on a technical basis it was a short – making the new lows below 1.0480ish, but technically it therefore became a buy – or at a minimum – a stop out above around 1.0540. So even though I was incorrect, and I too believed the Euro was finished those days, the mistake would have been tolerable and the loss small. Quite probable, the turn there would have resulted in going long and a nice win for the month and months to come. Probably not the same for the sages of the site on that day who like to project an air of certainty that they are never wrong (99% of economists fall into that grouping as well).
Basically, the Euro looked like shite in December and looks wonderful today. Aren’t markets fun and easy!!!
I’m surprised. That was very unlike you. Are you finally coming out of the closet?
It was the Russians.
Lack of sleep. Napped. Now I’ll Tom Cruise it back into the closet.
“The trade deficit will widen as a strong currency squeezes exports and sucks in imports”.
“The Economist seems to think a falling dollar will help exports”.
A falling dollar will decrease the trade deficit by decreasing imports, not by increasing exports. If Japan and Korea can’t sell cars here at a profit, they will sell fewer, in theory. In reality, these countries will bankrupt themselves if that’s what it takes to support their exporters. Just look at what the Bank of Japan is doing. Japan isn’t so much a functioning state as it is a system for transferring national wealth to a few chosen industries.
One would think that an intelligent person would learn to avoid knee-jerk reactions/conclusions. If so, either one is incorrect, or the run-of-the -mill economist is not intelligent. Take your pick, Six of one, half a dozen of the other.
With markets, careful analysis doesn’t tend to help much either…
If we’re going to give out awards for wrong calls, the grand prize would have to go to Bernanke and Yellen. Remember all those “the economy is on the verge of recovery” and “this downturn is only temporary” pronouncements? How about “the wealth effect”? Just how many years does it take for record stock prices to drive the rest of the economy? The world may never know.
Just because the flat earth society hasn’t got pictures of the edge of the world doesn’t mean its round. In fact they have set off in one direction and travelled several times the supposed circumference of the earth, which just goes to show. For some peculiar reason the scenery keeps repeating itself though…
Imam Semar said:
Prechter is actually worse than Harry Dent. He was bearish with gold in 2000s as well as stocks.
According to Gene Epstein of Barron’s Magazine, “Harry S. Dent Jr. knows how to sell books. But whether his stock-market strategies make sense—or money for investors—is another question.” Harry had an investment ETF for a while but it was delisted due to underperformance and excessive maintenance fees. But like a broken clock, he gets it right once in a while. I would not call him an economist; maybe an economic con man.
Maximus Minimus said:
A good summary of why I stopped reading The Economist. I realized what a waste of time it was to read this high-minded baffoonery.
Well put, with the FT and pollsters.
A human trait is belief that studying something means you should be listened to, your pronouncements are correct and thetherefore others should follow.
I cannot do the “like” thing Maximus, so I’ll give you a “Yup!”
Even the Economist can get lucky once. BTW, the gold bugs and dollar haters have been wrong for five years. By 4Q17 the dollar pull-back will bottom, likely shortly after the German elections, when a propaganda-won election for Merkel will signal the EU has no intention of reforming, putting the final nail in the euro’s coffin.
It is the coming rise in the dollar (because there is no alternative just yet) that will be the catalyst for the big economic reset everyone’s been incorrectly forecasting for the last seven years. When the balance sheets of foreign countries and company’s start blowing up due to their massive amounts of dollar-based debts and rising rates, even the retail bag-holders will not be able to stay away from soaring US stocks.
Harry Dent makes financial predictions based on FEAR. Because people on average have no faith in other sources, they pay millions to hear Harry speak.
It matters not that he has been wrong many times. He always has an excuse and publishes a new best seller.
It’s a great gig if you can get it.
– One shouldn’t rely on Harry Dent for market timing but his demographic work is TRULY EXCELLENT. And demographics are a VERY powerful force in the economy.
– And was more than once simply right.
1) He predicted that the japanese economy would “weaken” in the 1990s. His prediction was that that would happen in 1994 or 1995. He was off because the japanese economy already tanked in 1990/1991. Still a good prediction because he got the direction right.
2) He predicted that US real estate would peak in 2003. He was again was off by a few years because US housing peaked in 2005. Still a good prediction.
3) Didn’t we have “roaring 2000s” ? Just look at what happened between 2003 and 2007. Roaring 2000s !!!!
– In other words: “100% ass backwards” ??? No, far from. But why does one “Mish” not blame the central banks this time ? One “Mish” is fuming angry and he wants to lash out to someone everytime and now the “victim du jour” is Harry S. Dent. Right ?
– If one “Mish” wants to blame someone then he should blame “rising prices”. Because “rising prices” is required to get increased “credit growth”. Just ask the brilliant Steve Keen.
– And no, the FED follows what a person called “Mr. Market” does.
His demographic work is at best modest. His timing has been spectacularly wrong with evey book.