Thoughts on “The Big Short” and CNBC Cheat Sheet
So I’ve been reading “The Big Short” by Michael Lewis and it confirms a lot of my cynicism towards Wall Street- how markets are rigged by white collar criminals and how the media and government are generally delusional in their endless optimism.
The best paragraph I ran across is on the bottom of page 168. It’s a quote from Danny Moses, a trader who bet on the housing collapse through credit default swaps and shorting CDOs:
“We turned off CNBC,” said Danny Moses. “It became very frustrating that they weren’t in touch with reality anymore. If something negative happened, they’d spin it positive. If something positive happened, they’d blow it out of proportion. It alters your mind. You can’t be clouded with shit like that.”
I previous blogged about why you should watch less of CNBC here. If you are an active investor, you need to develop a healthy cynicism about Wall Street, the government and the media. So without further delay, here is the CNBC cheat sheet. In general here’s what you need to know about CNBC:
The Perma Bulls – These are people who are always bullish on the economy or a particular sector. They will always defend any fiscal stimulus or monetary easing policy by the government as being positive for the economy. They will also find something positive to say about any economic report even if the numbers from the report are on the downside or revised to be on the downside. When prompted to make an end-of-year prediction for an index like the Dow Jones they will likely project a 20% increase from the current levels.
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The Sector Bulls – These people are also always bullish in a particular sector. Dick Bove is always bullish on financial stocks; especially Citigroup. Gene Munster, senior research analyst, from Piper Jaffray will always be bullish in technology stocks and say that Apple and Google are a buy. He will always boost his price target of either stock from their current levels when interviewed on television. Phil Libeau is loyal to the car industry and will always defend an automaker bailout. He will also issue bullish comments about the carmakers despite weakness in sales or other manufacturing issues.
Dick Bove (Rochdale) |
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Cautious Stocks, Bullish Bonds - The title says it all, but basically these people will try to sell the need for investors to allocate a larger portion of their investments into fixed income securities. Rick Santelli is an on-air editor who hangs out at the Chicago Board of Trade. Mohamed El-Erian is co-CIO of PIMCO, the world’s largest bond investor.
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Perma Bears - These people are generally bearish on U.S. Equities and are inflation hawks. Peter Schiff will suggest buying gold and getting out of U.S. equities and the U.S. dollar. Noriel Roubini (formerly known as Professor Doom and now Deputy Doom) will urge for more caution and warn of some impending asset bubble correction. Meredith Whitney, who runs her own advisory firm now, is bearish on financial stocks and will make the case that the banks will miss their earnings projections or have to slash credit borrowing to customers.
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Trade Prompters – Basically these are reporters on CNBC who spend the entire day asking different people how they should trade the markets. They will phrase questions like, “How do you trade this market?”, “Where is the smart money going to work in this market?”, “Are you putting more money to work right now?”. Maria Bartiromo (aka as the Money Honey) runs around the trading floor and asks these questions during the last hour of the trading day. Melissa Lee will repeat the same questions during the Fast Money segments on CNBC.
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Nomadic Wanderers – These people just roam around the trading floor during the day and offer opinions as to what is going on. Art Cashin is head of floor operations for UBS Financial Services and always sounds like he is afraid of something when offering an opinion on the markets (perhaps that is why he’s wearing a mask in this picture). Bob Pisani also does the same, but hangs around until the closing bell.
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I’m sure I’ve missed many others. The thing about the commentators are that they market themselves to be on television with their unyielding bias. What I mean is that CNBC tries to create a framework for a debate and bring two people on with differences in opinion. For example, if I were the producer and wanted to do a segment on whether I should buy gold I would bring in Peter Schiff (who is always bullish on gold, bearish U.S. equities) and someone else who is more bullish on U.S. equities. What ensues is just a shouting match and neither commentators make any concessions to the possibility that they could be wrong. But this is how they market themselves so they may be brought on to the show again and discreetly promote their firms services, their books, newsletters, etc.
So while I do think the recent bull run is a bit overextended, I do not think you should short the market (also mentioned in a previous post). In wrapping up this blog, from the same page (168) in “The Big Short” I also found this quote:
“Credit quality always gets better in March and April,” said Eisman. “And the reason it gets better in March and April is that people get their tax refunds.”
This is why I think the markets will continue to run up higher despite the trouble in Greece and other EU countries mired in debt (Spain, Portugal, Italy). Wall Street will also use this month to launch more IPOs for investors eager to put their tax refunds to work in this bull market. And CNBC will continue to pump the markets…
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Other Links to this Post
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Mr. Nice Geek » Roubini vs. Buffett on Jobs — May 5, 2010 @ 9:20 AM
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Mr. Nice Geek » A Closed Mouth Gathers No Foot — July 12, 2010 @ 10:19 PM
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