The financial news media is conspiring to blow up your brokerage
account and flush your retirement savings down Ben Bernanke's new
I'm not saying the editors of top financial newspapers and
magazines sat down together and hashed out a plan to brainwash you and
bankrupt you. No, I really don't think they did that. It only looks like they did it...
The conspirator I'd like to focus on today is Barron's,
one of the most well-respected publications in the industry. By the look
of it, you'd think it made a bet that it could nail the best "cover
story sell signal"...
The cover story sell signal is one of the best contrarian
indicators around. Whenever a trend is deeply ingrained enough in the
public mind to sell magazines off the newsstand, you know it's about to
For example, in March 1999, oil was around $15-$16 a barrel. The cover of The Economist showed a picture of two oil workers covered in the stuff, with the
headline, "Drowning in Oil," implying weaker oil prices. That was the
beginning of the massive bull run that eventually took oil to $147 a
barrel in 2008. Another famous example is from BusinessWeek. In
August 1979, the cover said, "The Death of Equities." Stocks bottomed
in the second quarter of 1980, retested the bottom in 1982, and took off
on the biggest bull market in history.
These days, you'll find the most irresponsibly ostrich-like, head-in-sand attitude on the cover of the November 29 issue of Barron's...
It shows a retiree lounging with a cocktail next to a waterfall of
money. The headline promises, "How to keep the income flowing." The
article inside is called "Going with the flow."
That doesn't sound very contrarian to me... It's essentially an
invitation to throw caution to the wind and take on more overpriced
risk. And the Barron's story is recommending a whole slew of risky investments...
Among the high-risk offerings touted by Barron's
market debt, foreign government bonds, high-yield corporate bonds,
Build America Bonds (subsidies for municipal bond issuers), senior bank
loans, MLPs, dividend-paying stocks (well, that one's a pretty good
idea, actually), variable annuities, and the one that's been going straight to hell
faster than the rest of them lately, municipal bonds.
It's as though someone at Barron's sat down and decided to
make a list of the riskiest stuff you could buy right now. Income –
especially fixed income – is clearly a bubble. That Barron's is
trying to sell this list of fixed-income and near-fixed-income
investments as a retirement-worthy portfolio seems more irresponsible
It even tells retirees to take more risk, saying, "Generating a
rich stream of post-retirement income these days requires investments
that retirees once might have shunned."
Adding particular insult to injury, a smaller headline on the left-hand margin of Barron's November 29 cover says, "REITs have the right stuff."
I guess as long as you ignore the cacophonous crashing sound coming
from the commercial mortgage-backed securities (CMBS) market, the
equity in commercial real estate looks positively peachy. In particular,
the delinquency rates on mortgage-backed securities secured by
apartment buildings spiked more than 100 basis points in November, to
15.8%. That's from the same report by CMBS tracker Trepp that says the
overall CMBS delinquency rate rose to 8.93%, up 35 basis points from
The loans underlying U.S. commercial real estate are blowing up at higher rates. But Barron's thinks the equity slice, the riskiest piece of the pie, is somehow appropriate for retirees.
Let me tell you something: If the bond holders aren't getting paid,
the equity holders can throw their tickets in the trash, have a smoke
and a pancake, and resign themselves to getting crushed.
And like every other kind of yield, REIT yields have compressed
like prosciutto under a Sumo wrestler. The U.S. Real Estate Index
dividend yield has fallen from 11.19% in February 2009 to less than 4.6%
today. For taking on all kinds of risk, you're paid just a little more than 30-year Treasurys.
That's a bad deal. And you should turn up your nose.
Barron's and the rest of the financial news industry is a
shameless tout machine, by all appearances in the direct employ of Wall
Street, the Fed, and anybody who's already got a ton of money. It's
forgotten how to say, "Inflation is bad for business, and what's bad
for business is bad for stocks. Sell fairly valued stocks. Hold cash.
Buy only when valuations are dirt cheap and business quality is stellar."
See, that wasn't hard. Sure, subscriptions to my newsletter, Extreme Value,
won't fly off the shelf with that kind of advice. But at least we'll
all sleep soundly, knowing we understand exactly what the heck is going
For more insight and actionable
investment advice on protecting your wealth in a difficult market from
Dan Ferris, consider a trial subscription to
is to show you how to avoid risky investments, and how to avoid what
the average investor is doing. We believe that you can make a lot of
money – and do it safely – by simply doing the opposite of what is most
on a free trial subscription.