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Jim Cook



Every once in a while I switch the TV channel from Fox to CNBC to see what the liberals are saying.  After listening awhile I get a deep sense of hopelessness and foreboding for our country.  The most important thing for the left is giving money to people.  They are happy to see the growth of food stamps, disability payments, housing subsidies, free healthcare and all the other welfare benefits.  They utterly fail to see the damage it is doing to the recipients.  Whole cities that once flourished have deteriorated into rotting eyesores populated with shambling hulks of chemically dependent drones.  These people are no longer employable.  They have become incompetent and helpless and the liberals can’t see that it’s their doing.

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The Best of Jim Cook Archive

Commentary Of The Month
December 10, 2008
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By Nicholas Vardy

Consider the fate of the two favorite investment themes of 2007: the relentless upward trajectory of the Chinese stock market and the inevitable demise of the U.S. dollar. Although supported by the careful analysis of scores of academics and specialists, both predictions turned out to be remarkably wrong.

In the summer of 2007, four of the world's Top Ten most valuable companies were Chinese. PetroChina briefly became the world's first trillion-dollar company. Dozens of business magazines and financial newsletters predicted how the Chinese stock market was set to soar forever. An Economist magazine cover last December portrayed Chairman Mao as both Santa Claus and a capitalist management guru.

So what has happened since? The Chinese market peaked in October of 2007, and is now down close to 70%. That means those who bet the farm on the "Chinese miracle" have to wait for Chinese stocks to rise well over 150% just to get back to the level they were a year ago.

The pundits predicting the demise of the U.S. dollar were similarly wrong. A year ago, only an economic heretic would have suggested that the U.S. dollar wasn't on the verge of collapse. After all, the U.S. economy had become dangerously dependent on foreign capital and foreign investors who had tired of financing the profligate ways of the United States. Foreign central banks -- fearing the United States may not be able to repay its huge debts in outstanding Treasury bonds -- were rushing to unload their Greenback reserves. This dumping of dollars would prevent the Fed from cutting interest rates, tipping the Titanic that is the U.S. economy into the cold waters of economic depression. Harvard economist Ken Rogoff argued that the subprime mess had irretrievably tarnished the U.S. image as a global financial center. Berkeley's Barry Eichengreen exhorted that a bullish dollar scenario "is... hard to stomach, and not only for those with a well developed sense of justice." And it was exactly a year ago this week that the Economist magazine ran a cover story entitled: "The Panic About the Dollar."

One year later, events unfolded pretty much exactly the opposite of what the pundits had predicted. When it got too hot in the world's economic kitchen, instead of abandoning the U.S. dollar, the Greenback became the ultimate "safe haven" -- rising against almost every single currency in the world. Ironically, it was last year's seemingly invincible currency, the British pound sterling, which took over the U.S. dollar's role as the whipping boy of the global currency markets. Since touching an eye-watering $2.11 in November of 2007, the British pound sterling has dropped close to 30%, slicing through the $1.50 level a few weeks ago like a warm knife through butter.

Why I'm Optimistic: Betting Against Magazine Cover Stories

I trust magazine cover stories as contrarian indicators more than I do the analysis of any academic or pundit -- including my own. Here's why this works so well. By the time a company, or country or currency's success or failure reaches the cover page of a major publication, the issue is so well known that it is reflected fully in the market price. Once all the good/bad news is out, the subject of the cover story is destined to under/outperform. As Princeton economist Paul Krugman wryly noted, "Whom the Gods would destroy, they first put on the cover of Business Week." The reverse holds for negative stories. Business Week's famous 1979 cover, "The Death of Equities," is a textbook case of the media getting it wrong. The Dow Jones Industrial Average was at 800 back then. On October 1, 2007, the Dow peaked at 14,087.

An academic study by three finance professors at the University of Richmond put the magazine cover story indicator to the test -- specifically as it focused on coverage of individual companies. The professors culled headlines from stories in Business Week, Fortune, and Forbes for a 20-year period to examine whether positive cover stories are associated with superior future performance and negative stories are associated with inferior future performance. The most negatively portrayed companies managed to beat the market by an average of 12.4%, whereas the outperformance of the media darlings fell to just 4.2%. The conclusion? Positive stories generally indicate that the stock's price performance has topped out. Negative stories often come right at the time of a turnaround.

Why I'm Optimistic: The Good News is...

If magazine cover stories are anything to go by, global stock markets are set for an extraordinary time between now and 12 months from now. An astonishing six of the last nine covers of the Economist magazine have been about the global financial crisis. That ratio is probably unprecedented. It even trumps the remarkable number of cover stories generated by a Barrack Obama-obsessed media by three to one.