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March 05, 2007
Magazine cover curse evaded--so far
About four weeks ago I (together with my co-author David Henry) wrote a cover story for BusinessWeek entitled "It's a Low, Low, Low-Rate World: Why money may stay cheap longer than you think".
We closed the article the evening of Wednesday, February 7. It was released on businessweek.com after market close on Thursday February 8. At that point the rate on the 10-year Treasury bond, according to Bloomberg, was 4.73
On February 12, Barry Ritholtz of the Big Picture blog wrote a post entitled "Uh-Oh: It's A Low, Low, Low, Low-Rate World.". His first comment:
Damn! Now I have to go sell all my Bonds!
Barry then went on to say
We've discussed the impact of these sorts of magazine covers before. The most reliable are the general interest press (Time, Newsweek, etc.). We have seen some uncanny peaks and valleys from the Economist, Businessweek, Forbes and Fortune before.
Of course, since the article came out, the 10-year rate has dropped to 4.50 (as of Friday).
So here's the question (and it's an honest one). What's the right time frame to assess a BW cover story? Short, medium, or long? One month, one year, or five years? Have I escaped the cover curse (or Ritholtz more elegantly puts it, the "magazine cover indicator")? Or will it still return to haunt me?
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I can just imagine when in a year or two, we look back and wonder how anyone could have believed that rates were low at the time and wished they had taken advantage of them at the time. ;-)
Posted by: Lord at March 5, 2007 02:17 PM
So far, you are looking pretty good! And if we slip into a recession by year's end, you will look even better, rate wise. Typically, 6 mos to a year is a good amount of time for these
If you look at the past examples of the mag cover ind, you will see its not infallible -- but its been pretty dan good!
If you click onm the link on my name, then go to the Google search box and cut & paste "magazine cover indicator," you can check out quite a few examples!
Posted by: Barry Ritholtz at March 5, 2007 09:20 PM
Maybe the new rate would be 4.3% without your story.
Posted by: Joe Cushing at March 5, 2007 11:41 PM
Six months to a year seems to be a good answer. That gives plenty of time for any short-term "fad" effects to fade away and enough time for "threats" to emerge to challenge the story's thesis.
The three main ingredients for low rates are likely to "linger" for some time: an excess of liquidity, the Fed having a "moderately" effective handle on core inflation, and a world awash with overvalued assets that cause even modestly conservative investors to have at least a moderate bias towards safety.
-- Jack Krupansky
Posted by: Jack Krupansky at March 7, 2007 10:52 AM
Low Rates? Last I looked our Prime Rate was 2% higher than Canada,and almost 6% higher than Japan. What's low cost in the long term is leveraged in the short term.
Which is safer: a 5% bond or a 5% interest rate?
You could loose in both cases, and still have the safest investment vehicle.
Posted by: Frank at March 10, 2007 12:34 AM
The 10 year yield seems to have made a bottom just shy of 4.5% -- its now over 4.6% and it appears to be running towards 4.7%
Still, thats relatively low ...
Posted by: Barry Ritholtz at March 23, 2007 02:23 PM
Prime fixed mortgage rates are still low as well. The day is still young though
Posted by: Mike Mandel at March 26, 2007 08:52 AM