Dear Weekend AFR editor, please refrain from putting our metal on your cover
23 November 2009
Sean Russo
THE AFR Weekend Edition ran a cover story on gold the weekend before last. Norman May would have been proud: it was gold, gold, gold and $US2000/oz was nothing to be laughed at. I call on all people who are involved in, or benefit from, gold mining to write to that venerable publication and plead for them to cease and desist. Feel free to copy the following and send it to them.
“Dear AFR, leave us alone, point your cursed cover story bone somewhere else! Please AFR do the gold industry a favour and stick to stories on the inevitability of Eddie Groves’ plans for world domination, the rise and rise of MFS, the wonders of Forestry MIS or Climate Change; anything but us. AFR if you must talk gold, talk about how it’s useless and has no industrial value. Quote Warren Buffett, as you like to – that always sells. Warren says: ‘Gold gets dug out of the ground in Africa or some place. Then we melt it down, dig another hole, transport it halfway round the world, then bury it again and pay people to stand around guarding it.’ It has, he argues, ‘no utility’. When’s the last time Warren wasn’t right?
“We prefer the kind of stories you and your peers all ran in the 1990s predicting the final demise of Keyne’s ‘Barbarous Relic’. A bit like the article that ran in 2000, in Barrons, that venerable Wall Street newspaper, under the headline, ‘Gold going nowhere soon’, quoting luminaries from major gold miners about how gold’s future looked bleak! Or just don’t talk about us. If we want to quit our stock we’ll send you a bullish press release and then you can go crazy. Until then lavish your praise on someone else, please! We are still getting over the cover story ‘Boomtown WA’ you ran in your glossy magazine early last year!
“With sincere thanks, The Australian Gold Mining Community”.
“PS: we did like the AFR Weekend cover story a month or so ago about the power of the Aussie dollar, feel free to keep beating that drum”.
In the United States there is a gentleman called Paul Montgomery who has researched and followed the correlation between magazine covers and markets for many years. He actually incorporates his research into a contrarian advisory service. The logic being that once a story gains sufficient editorial support to make the cover of a major magazine, or other broadly distributed publication, it must be “red hot” in the public psyche and it will sell magazines and papers. His research reflects the situation that if the public desperately wants in, or is seeking confirmation they should get out, right now before it’s too late, it’s likely the professionals are probably circling and looking for the opposite trade. Often the inspiration provided to “investors” on seeing their favorite stock’s CEO on the cover, or a story about their “Home $weet Home – we’re going gaga over real estate”, (which ran on the cover of Time magazine on June 13 2005 right at the high of the US property market), sitting there on the newsstand, as the “It” stock or “It” market next to those fabulous “It Girls” like Siena, Posh, Angelina and Elle, is enough to push them and the markets they play in right over the edge.
At Noah’s Rule we like to remind clients that markets never trade at fair value. Fair value is simply the line economists and others draw in after the event marking the mid-point between overvaluation and undervaluation. Ironically these cover stories always tend to appear at the extremes boosting the almost exhausted trend. In fact it could be argued they are very visible outpourings of the mood driving the mania to over/undervaluation.
For many professional value traders and more aggressive hedge fund manager like Paul Tudor Jones the boost in activity around these stories often provides just the jump in volume needed for serious distribution (or accumulation). These traders are people who don’t read papers and magazines to get their investment/trading ideas, only insights into how the other side of their next trade is thinking.
Montgomery’s research suggests that market highs often occur within four months of such stories or clusters of stories (as editors out-do each other for our attention and dollars) and market bottoms within one month. It’s clearly not an infallible indicator but when it comes to markets nothing is. It is however worth remembering and reflecting on as you scan the newsstands. Remember “It Girls” learned a long time ago not to read anything written about them but to take full advantage of the publicity because that window in which they are “It” is all too small .