Think of this as Volume 11, Number 46 of A-Clue.com, the online newsletter I've written since 1997. Enjoy.
In all the to-ing and fro-ing over the financial mess we are in one culprit has gotten off scot-free.
CNBC.
I have been watching CNBC for over a decade now. I'm one of those shut-in executives who are their prime market. Here is what I have learned.
They are always, always wrong.
It's not that they are trying to be wrong. But what they do is look at the latest trend in order to identify where people should be putting their money. That is what is always wrong.
Call it the stupidity of crowds. Any financial trend or concept immediately stops working once enough people start using it. Always. When everyone is buying something you should be looking to sell. When everyone is selling you should be looking to buy. This is the way to profit, and always has been.
During the late 1990s, however, every guest on CNBC was touting Internet stocks. When they tanked, CNBC guests (and talent) went on to the next hot trend. And the next. And the next. Maria Bartiromo cooed over hedge fund managers like they were her lovers. Once Jim Cramer touted any stock on his Mad Money show, you could be certain some stupid money was about to get shaved, once the smart guys got downwind of it.
The result has been to exacerbate every trend. It's terribly unhealthy.
The smart guys are just as stupid as anyone else. Hedge funds
depended on complex mathematical models that tried to see where trends
were and get in before they changed, electronically. That works great,
until everyone is doing it. The smart guys' answer was to use leverage
in order to get the most out of every mini-trend. Worked great, until
everyone was doing it.
Nothing works all the time. Everything stops working once everyone starts doing it. When they're talking about it on TV it means enough are doing whatever it is that you need to be very, very wary. Yet no one on CNBC ever offered viewers this basic bit of wisdom, which has been true since the 17th century.
The purpose of regulation, and transparency, is to limit bubbles by letting every participant in the market know where one might be. Yet we've just spent three decades systematically destroying financial regulations, de-fanging regulators, and calling it efficiency. No wonder we wound up with a 19th century style market panic.
And it is in their own reaction to this panic that CNBC has really proven its callowness. What did their cast say when the bubble burst? Stop spending, start saving. At one point in the middle of the panic the Fast Money boys were even telling their viewers to SELL NOW. So consumers went on strike, the market went down further, and now no one trusts anyone or anything. Heckuva job.
The result of all this is that every strategy, even the most tried-and-tested ones of buy-and-hold or diversification, stopped working and took investors backward. Will this wisdom ever work again? Yes. But you already lost your money so you won't be able to take advantage.
I'm as guilty as you are, by the way. My retirement fund is worth half what it was. I loaded up on international funds, thinking a U.S. recession would not go overseas, but our Confederate Money turned up everywhere and those other markets weren't liquid enough to let my fund managers get out. I also bought 100 shares in AIG, at around $60, because a friend was working there.
Here's another point that really pisses me off. Why is it that every guest on CNBC, without exception, when asked about trading strategies, says they saw today's mistake yesterday and got out? No matter the subject, that's the claim. "I didn't do that. If you had listened to me you wouldn't have done that either, but you didn't so listen to me now."
Bullshit.
Here is the truth. Prices fluctuate. You can't guarantee results,
ever. You put your money into a casino, you bet on the come line, and
you're going to get craps as often as not. Scary. It's like telling
kids there is no Santa or telling old people that death is inevitable.
But it's the truth.
Worse, real casinos are regulated better than the one where you put your retirement account. If we can get the same transparency on all financial markets you get at Caesar's Palace, then it will be time to invest again. Slowly, sanely, in a diversified manner.
Oh, and before you consider any investment, one more bit of true wisdom.
Turn off the TV.
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