The market events of the past two weeks have sent the media into a frenzy of gloom. The cover immediately below this post is last week's Newsweek cover. It is ostensibly about the political death of the republican party, but the double entendre' is pretty obvious. Newsweek then followed up with this week's cover story "The Road to Recession". I think it is also interesting to note the "between the covers" story which appeared in the December 24 issue of Newsweek, "The Roots of Fear".
Business Week's latest cover story is "Market Reckoning". The cover image is at the bottom of this post but a few of rows up you will see the first page of the cover story printed in the classic panic colors, red and black.
Both Fortune and Time Magazine mentioned the market meltdown on their covers this week, although they were not cover stories. "Can the World Stop the Slide" was the headline question for the Time story while the Fortune headline asks "Will the Cure be worse than the Disease".
Finally, Harper's Magazine has a cover story entitled "The Next Bubble". After discussing the recent bubbles (itself a term of pessimism because bubbles always pop) the story predicts that the next bubble will occur in the alternative energy sector.
My general impression formed over the past five years is that investors have been quick to fear the worst. This pattern is continuing. The level of fear and the unanimity of the emotionally expressed outlook for the economy is remarkable. It reminds me very much of the situation in the fall of 1990. Then the US was preparing for the first Gulf war, crude oil was trading at record highs, the S&L industry had collapsed and one could see lines forming a local banks as depositors rushed to withdraw their money. People feared the Fed would be powerless in these circumstances. The Dow and the S&P had dropped 20% in only 10 weeks. There were a large number of magazine cover stories all expressing pessimism about the economic outlook and the consequences of the war. Yet during the subsequent 9 years the Dow rose from 2300 to 11750.
I think a similar market opportunity is emerging now.