You’ve got to hand it to Barron’s. They don’t pussyfoot around when it comes to making contrarian market calls.
“Buy GM” it blared from its cover just last month. Hope you missed that issue. If you didn’t and followed the magazine’s advice you’ve lost nearly half of your money in six weeks.
Its current cover story similarly goes boldly against the grain, predictably counterintuitive, if that’s possible, saying “Home Prices Are About to Bottom.” At least this is a safer bet than GM—home prices aren’t going to fall by half in six weeks—but Barron’s piece has many of the negative elements of the here’s-what’s-coming genre of business journalism.
Ahh, the tricks of the trend story. First, call it “nascent,” as Barron’s does near the top of the story. That way you don’t look too bad if your prediction takes forever to come true, but prescient if you luck out (that’s what most market calls boil down to, anyway). Next: imply some big name is a skeptic when he certainly is not. (Barron’s says “even Treasury Secretary Henry Paulson” noted recently that housing supply numbers are turning around—as if the Treasury Secretary is a raging bear with little incentive to put the best face possible on the economy). Imply you’ve got more evidence than you really do and overweight it (“such pessimism appears overdone, based on much recent data.”). Quickly raise and dispatch that which is most contrarian to your thesis, just to show you’re not in cuckoo land (“the U.S. could be on the cusp of a painful recession.”)
Barron’s “much recent data” consists of a one-month downtick in housing inventories, which took supply from a large 11.2 months in April to a slightly less-large 10.8 months in May; prices rising (barely) in eight of twenty markets in the much-watched Case-Shiller Home Price Indices, which also showed the worst annual decline overall in the history of the survey, a whopping 15.3 percent; median sales prices rising 2 percent from April to May; and new housing starts falling below a million, a number similar to levels right before rebounds in the last two downturns, which Barron’s doesn’t acknowledge until later on were much less severe than this one.
The magazine also looks at average house price/per capita income ratio and finds it has fallen to what Barron’s says are historical averages (though some dispute that), meaning that prices are affordable by historic standards for an average wager earner. The problem is that prices during corrections invariably overshoot historic affordability levels and other metrics of reasonable value on the downside just as they did during bubbles on the way up, so there’s every indication these ratios have room to fall further.
As far as the economy, that’s the proverbial 800-pound gorilla here. People losing their jobs or worrying about losing them aren’t going to run out and buy houses, especially when they think they might be playing Catch the Falling Knife. But Barron’s barely mentions the grim big picture and then smoothes it over by saying “official measures of economic growth don’t indicate a recession yet.” Right, and that’s fine as far as technicalities matter. But you don’t need a long-after-the-fact committee vote to know that we’re in a big economic downturn though that’s severely impacting millions of Americans and businesses.
Barron’s tosses in a bit of media bashing to boot, in an unintentionally funny paragraph:
“Other than Larry Kudlow of CNBC, none of the journalists who interviewed me after the latest release seemed at all interested in any of the positive developments,” says David Blitzer, chairman of the S&P Index Committee. “They seemed focused on the bad year-over-year number.”
First off, Larry “Goldilocks” Kudlow doesn’t do anything but tout the Bush economy. Negative talk from him will have to wait for an Obama administration. Second, the media has indeed reported widely on the positive developments, sometimes over-emphasizing the more volatile monthly (and statistically manipulated, err, seasonally adjusted) numbers over the year-to-year ones.
The only thing funnier than Kudlow would be to quote the hacktacular National Association of Realtors. Barron’s does so, giving chief economist Lawrence Yun more column inches than the recession, though the mag does qualify it, noting that NAR are “typically cheerleaders.” Thanks, Barron’s!
Barry Ritholtz takes Barron’s to task as well, and has a good list of reasons why the magazine is just flat-out wrong, including several bad stock calls its author, Jonathan R. Liang, has made in the last year. About the below-a-million housing starts indicator Laing cites, Ritholtz says:
Housing completions passed the minus 1MM figure a year ago—you could have called a housing bottom in August 2007 by the same logic.