Friday, March 6, 2009

Beware The Misleading Nature Of 24 Hour Business News

Breaking News

Citigroup, that mammoth banking institution and the original financial supermarket has joined the ranks of AIG, Fannie Mae and Freddie Mac with a stock trading under $1.00. Are we in the Twilight Zone?

At 8:30 this morning, possibly before you read this, the employment report will have been released with the expectation for a loss of 600,000 jobs.

What Do You Do When You Need To Fill Up Air Time All Day Every Day?

Watching business news every day I see an endless parade of the "experts" from both the buy and sell side of the market giving their opinions and prognostications on where the market is going.

They are expert at telling you where the market has been, why it has been weak and what the problem areas have been. Now anyone can do the backwards looking, but no one can really do the forward looking forecasting with any degree of confidence because nobody has any real idea. Or as the saying goes they wouldn't be on T.V., but on an island somewhere sipping pina colladas on the beach.



Credibility Gap

Now on these shows the guests are presented as true experienced and capable market professionals, and as such are viewed by viewers with the impression that they may actually know what they are talking about. They are typically also almost always bullish. They will tell you about the HISTORIC, ONCE IN A LIFETIME OPPORTUNITY that this crushing sell-off is presenting. Many of these are the same analysts and prognosticators that said with 99% certainty that the lows set in the chart above in November 2008 would hold and that at that point the market represented a great buying opportunity.

I think what would be instructive is having the hosts of the shows go back through the bear market that we are in, and tell us the point where these guests thought that the market was a sell and NOT a great buying opportunity. Or the time and price they first started recommneding a stock. If they did this there would be few guests left to appear due to lack of credibility.

Take a look at the chart above, and consider the fact that if the earnings expectations on the S&P 500 keeps coming down and that if you put a true bear market multiple on those earnings, that the market may still have plenty of room to the downside.

The greatest quotes made are how far down stocks have come down from the highs, and simply due to that makes them a great buy. Have they said that all along this drop? How relative to next years projected earnings and with a multiple of X applied to those earnings, they are giving them away. Well, I guess the question would be just how reliable are next years earnings expectations provided by analysts that are right less than weathermen.

Looking at the chart above, we had a one day move up on Wednesday which actually faded into the close. This came after how many days down. What was the commentary? Is this the beginning of the next move up, the end of the bear market or at least a quick and severe bear market rally that could take us up 20-30%?

Caveat Emptor

Beware the shills and prognosticators (particularly sell side) that have never met a market they didn't like. Why? Because their jobs depend on people buying, and if not buying at the very least not selling. They will always make a strong and compelling argument, but buyer beware and buyer be very cautious.

6 comments :

  1. hey mike, first intelligent thing you said for a while...you fall and hit your head????

    ReplyDelete
  2. Your site has won a Blog of the Day Award (BOTDA)


    Your award will go live sometime on Fri March 6, 2009


    Award Code

    Thank you,


    Bill Austin

    ReplyDelete
  3. C'mon Anonymous: Was that really necessary. Couldn't you stop at the first part?

    ReplyDelete
  4. this is how these news channels manipulate people by bringing in some joe blows and having them battle it out or discredit someone in hopes of getting you to do what they say while in the back end, this is all planned and the smart ones are already selling their share while these ones are telling you to buy.

    Recent example would be Jim Cramer getting hammered by Jon Stewart.

    ReplyDelete
  5. If you go back and read the prognostications of most of these people they are typically wrong, reactive and never proactive.

    ReplyDelete

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