When I was in college, I loved listening to a local college radio station (WFUV, Fordham) that had a sports-talk show on Sunday nights. The show featured something new: phone calls from listeners! This was more than 25 years ago, before WFAN in New York, ESPN Radio and all the other sports outlets we have today.
Incidentally, one of the announcers was an annoying student at Fordham, Michael Kay. Kay continues his annoyance today as the obviously homer-voice of the New York Yanke$$.
One day, I got into a conversation with my father about something mentioned on the show. He asked “where did you hear that?” I told him about the radio show.
He replied, “So, they are experts?”
That one line really stuck with me…especially as a communications student. Shortly after, I changed majors to business and focused on economics, later getting my MBA in Finance. But our conversation continued.
“Tom, the job of the media is to sell. They sell advertising. Not a bad profession. You can make a lot of money. But the media has no obligation to look out for YOUR best interests…or even tell you the truth. They want to sell ads. So what do you think they are going to say? And they can (and often do) twist a story to get a different perspective. Be skeptical.”
With that piece as background, let’s look at the top headlines Saturday morning over at CBS Marketwatch:
Freddie Mac to ask for an additional $30 billion
Gosh, that sounds awful, doesn’t it?
But wait…Freddie already was granted a $100 billion line, but only used $13.8 billion. They are tapping a line that is already established. Non-story.
Capital One results suggest gloomy 2009
The unreported part: Capital One also said they don’t see a bottomless pit of losses. Guess CBS Marketwatch missed that. Or maybe that’s just not a sexy headline today. The spin continues: “In the last three months of this year alone, Cap One lost a staggering $1.42 billion.” Sounds bad, right?
But wait: that number includes $1 billion it set aside to deal with expected losses. They are making provisions for losses that may — or may NOT — happen this year. I’m not recommending buying this stock whatsoever, but that sounds like pro-active management to me.
Californa-based 1st Centennial Bank Fails
And your point is…? Look, when banks fail (that is, when banks fail after 1933), they are taken over by the FDIC or sold in a pre-arranged marriage (through the FDIC) to another bank. In the last real-estate driven recession (18 years ago), 800 banks failed. Banks are going to fail in recessions. But accounts don’t get wiped out anymore because of this. They pull down the signs on Friday and re-open on Monday.
AFLAC assures investors it does NOT need additional capital, but S&P downgrades anyway.
What is S&P saying? Are they saying management is lying? Or does S&P just knows AFLAC’s business better than AFLAC? After all, S&P re-affirmed positive ratings on banks and brokers throughout 2007 and much of 2008 — all the way down the drain!
And from a few days ago:
Microsoft cutting 5000 jobs.
Microsoft announced they were cutting 5000 jobs — over the next 18 months. And while 5000 “jobs” were being cut, the actual number of employees being let go — again — over 18 months, is expected to be 2000. Many people will be re-trained and re-assigned.
Look, sites like CBS Marketwatch, Yahoo Finance, magazines like Business Week and channels like CNBC are designed to do two things: generate enough shock value to attract attention and then find a way to keep you glued to them.
This is a waste of your time, and straps you into the emotional roller coaster. Why do you want to do that?
Remember this: Everything said and written in the media on Wall Street is written or said to make you do the wrong thing.
I had a longtime client (and friend) call me yesterday. She told me one of the “experts on TV” said the market could drop another 20% from here. And she was scared, worried, and nervous.
Wouldn’t you be?
I reminded her — that’s just one guy’s opinion. If you met a guy named “Mr. CBS Marketwatch” in the line at the grocery store, you wouldn’t believe half of the nonsense he was spitting out. You’d just nod politely, and pray that he bags his prunes and oatmeal and gets out of your way.
Look, there’s a reason I use these point and figure charts. For the first fifteen years of my career, I was burned relying on “expert opinions.” What do you say to a client after you relied on the “experts” and lost money for them? There’s a lot of brokers wondering exactly that lately. They instruct brokers to tell clients “you have look at the long term picture.”
That’s nonsense. And it’s the path to losing money.
I use these charts because there is no “opinion” built into the chart. They only show price changes. And from price changes, you can see trends. And — unlike other types of charts — point and figure charts are not subject to interpretation. It is what it is. Charts either trend up, trend down, or stay in place. No opinion. Just facts.
And, a funny thing I’ve noticed, time and time again: Point and figure charts often start to move down (meaning, prices are falling) WAY before bad news arrives. And these charts often start moving up (reflecting rising prices) well before the good news is announced.
Keep that in mind as you read this again: Everything said and written in the media on Wall Street is written or said to make you do the wrong thing.
Don’t ever forget that.
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Tearing Apart the Headlines
by Thomas Mullooly on March 7, 2009
Did you know General Electric (GE) posted record revenues last quarter? That has not really helped their stock, has it? Remember always, price is the ultimate indicator, which is why I rely more and more on charts. Fundamental analysts and company management can pontificate all day long about market share, earnings and revenues. If the market doesn’t like it, the stock is going down.
I don’t think I’ll ever get tired of reminding people that the job of the media is to sell advertising. The fact that you get informed — or get information — is a side benefit.
I’m not saying the media dispenses incorrect information. What I’m saying is they tend to focus on some really dumb things, and then pound it over and over and over. Just keep reminding yourself: their job is not to hang around and “fill you in” on the news of the day. The media is there to sell ads. So their teasers and headlines will often be filled more with drama than facts.
And often, the drama persuades you into doing precisely the WRONG thing. My friend, Tom Dorsey has often said “Remember everything that is written or said in the media about Wall Street is made to make you do the wrong thing.”
Example of “News” headlines:
One of the headlines on CBS MarketWatch is Freedom Bank (Georgia) is the 17th bank failure in 2009. OK, look, in the previous recession, there were over 700 bank failures. Some will be spectacular. If we have less than 700 bank failures during this recession, now THAT will be news.
Here’s another:
General Motors shares trade near Great Depression territory. Face it, the stock trades for about a dollar, it’s not coming back. Sure, it might get to two dollars. But will this ever be a $30 stock again? I don’t think so, under its present structure. Now if they were to file bankruptcy, wipe out the common stock and reorganize (where the debt/bondholders become the new stockholders), anything is possible… see Kmart.
I am far more interested in learning what will happen to General Motors and the bondholders in a bankruptcy proceeding. The government has poured $13 billion into General Motors in the last few months, and company management is back at the trough asking for another $17 billion. Amazingly, the market capitalization of General Motors is less than $1 billion ($900 million currently — one third the size of Burger King). Where did all that money go?
And another:
This past week, the financial media focused on how the banks were killing the Dow Jones Industrial Average. This is total nonsense. Citibank trades for $1 per share, Bank of America trades for $3 per share. If these two companies filed for bankruptcy tomorrow (or were nationalized — essentially, the same thing), this would move the Dow Jones Industrial Average a total of 50 points. I wonder how long it will take Dow Jones to remove Citibank, Bank of America, General Motors and General Electric from the Dow Jones Industrial Average.
Another favorite topic:
Unemployment rate reaches 8.1%. Okay, lots of room for debate on this topic. Historically, the average unemployment rate hovers around 5%. Did you know, for the past 15 years, the economy has averaged an unemployment rate between 3% and 4%? This is actually a pretty spectacular news item, but no one was writing headlines about that. During economic recessions, the unemployment rate often reaches 10%. So be prepared for that, and don’t be surprised when that news arrives. In fact, there have been several times where the unemployment rate surges in the latter stages of a recession — and the first phase of recovery. You read that right — many times the unemployment rate will rise, as the economy is improving.
And lastly:
GDP numbers. The stock market fell out of bed last week when it was announced that fourth-quarter GDP came in at -6.2%. First of all, this should not be a shock to anyone. Secondly, the media never really puts it in its proper perspective. So let’s look at this number. It measures growth (or shrinkage) of the economy in the fourth quarter 2008. The quarter ended December 31, 2008.
The original estimate was released January 31, the preliminary number was released February 27, the final revised GDP for fourth-quarter 2008 will be released at the end of March. The final revision may be a completely different number — for better or worse. But by the time we get it, that information is petrified like a redwood. Irrelevant.
By the way, at the end of April we will receive the original estimate for first-quarter 2009 GDP. What do you think THAT number will be? I expect it will be absolutely dreadful. And the media will go crazy. Be prepared.
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