Monday, February 6, 2017

Peak populism?

Technical analysts often use the magazine cover indicator as a contrarian indicator. When an idea has become so commonplace that it becomes the cover of a major magazine, the public is all-in and it's time to sell.

The Economist reported on an ad hoc study by Greg Marks and Brent Donnelly at Citigroup using covers from The Economist and did find contrarianism works, even though The Economist is not really a popular mainstream magazine:
Interestingly, their analysis finds that after 180 days only about 53.3% of Economist covers are contrarian; little better than tossing a coin. After 360 days, the signal is a lot more reliable—68.2% are contrarian. Buying the asset if the cover is very bearish results in an 18% return over the following year; shorting the asset when the cover is bullish generates a return of 7.5%.
Now consider the following Time magazine cover and accompanying story on Steve Bannon, who is said to be the man behind the Donald Trump presidential throne.

There is also this cover from The Economist within the same week.

Still not convinced? How about this cover from Der Spiegel. You don't even have to read German to understand the idea.

It isn't just me, Helene Meisler raised the same question about magazine covers, which was answered by Liz Ann Sonders at Schwab.

Here at Humble Student of the Markets, our mission to focus on investing and try to remain apolitical. Like most on Wall Street, we don't protest political developments, we trade them.

Rather than interpreting these magazine covers as just peak Trump, as he will be POTUS for the next four years, the contrarian message may be "peak populism". Nate Silver recently wrote an article called "14 versions of Trump's presidency, from #MAGA to impeachment", where he laid out a variety of scenarios of how Trump's presidency might proceed.

I would like to offer some details of how the reversal of peak populism might work. As well, there is a possible trade for contrarian investors who are willing to bet on the "peak populism" theme.

The full post can be found at our new site here.

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