The financial news media is conspiring to blow up your brokerage account and flush your retirement savings down Ben Bernanke’s new commode.

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 end.

[ad#Google Adsense]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: emerging 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 than usual.

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 October.

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 on.

Good investing,

— Dan Ferris

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Source:  Daily Wealth