"When journalists cover politics, their outsider role is clearly defined. No single reporter can
affect White House policies or a candidate’s campaign through mere analysis or
commentary. True, if several news organizations pound away in unison, they can put an
issue on the national agenda or throw a politician on the defensive. But such efforts can be
measured only roughly, through the fleeting snapshot of opinion polls. Much of the public
distrusts the press, muting the impact of a concerted editorial attack on the president or other
national figures. In this realm, journalists are scorekeepers and second-guessers and
naysayers, and their influence is ephemeral and diffuse.
In the business arena, however, financial journalists are players. They make things happen
instantaneously, and their impact is gauged not by subjective polls but by the starker
standard of stock prices. A single negative story, true or not, can send a company’s share
price tumbling in a matter of minutes. A report about a possible takeover attempt can
immediately pump up a stock, adding billions of dollars to a company’s net worth. The clout
of financial journalists affects not just the corporate bottom line, but the hard-earned cash of
millions of average investors. In business, unlike politics, the reporting of rumors is deemed
fair game, since rumors, even bogus ones, move markets. And in an age of lightning-quick
Internet reports, saturation cable coverage, and jittery day traders, moving the market is a
remarkably easy thing to do.
Journalists, of course, don’t spew out information and speculation in a vacuum. They are
used every day by CEOs, by Wall Street analysts, by brokerage firms, by fund managers who
own the stocks they are touting or are betting against the stocks they are trashing. These
money men are as practiced in the art of spin as the most slippery office-seeker, measuring
their success not in votes but in dollars, not in campaign seasons but in minute-by-minute
prices.
Amid this daily deluge, there’s one inescapable problem: Nobody knows anything. These are
savvy folks, to be sure, but all of them — the journalists, the commentators, the brokers, the
traders, the analysts — are feeling their way in a blizzard, squinting through the snow,
straining amid the white noise to make out the next trend or market movement or sizzling
stock.
They traffic in a strange soup-like mixture of facts and gossip and rumor, and while their
guidance can be useful, they are just as often taken by surprise, faked out by the market’s
twists and turns, their pile of research and lifetime of learning suddenly rendered irrelevant.
They talk to each other, milk each other, belittle each other, desperately searching for
someone who knows just a little bit more about the stock that everyone will be buzzing about
tomorrow. They are modern-day fortune tellers, promising untold riches as they peer into
perpetually hazy crystal balls.
Still, they wield great influence. In a confused world where everyone is jockeying for
advance intelligence on what to buy or sell, information is power. The ability of a single
analyst to drive investors in or out of a particular stock, once his views are amplified by the
media echo chamber, is nothing short of awesome. Some reporters, to be sure, manage to
ferret out useful stories amid the blurry landscape. But there is no real penalty for being
wrong; the journalists, the commentators, and the analysts blithely chalk up their mistakes to
the market’s unpredictability and quickly turn to the next day’s haul of hot information. It is a
mutual manipulation society that affects anyone with a direct or indirect stake in the market,
which is to say nearly everyone in America.
Ever since the southern tip of Manhattan became a fledgling financial center in the 1790s,
much has hinged on the speed of information. The original brokerage houses had to be near
each other so that messengers could race back and forth with the latest prices. Before long,
men with telescopes and flags stood on hills and buildings so they could relay information
by semaphore code between New York and Philadelphia. The launch of Samuel Morse’s
telegraph in 1844, followed by the invention of the stock ticker twenty-three years later,
proved ideal for rapidly transmitting data around the country. The New York Stock Exchange
installed its first telephone in 1878. Over the next century, radio, television, fax machines,
and computers each kicked the financial markets into new and ever-faster territory.
Over the past generation these changes, and the evolving culture of financial news, have
been nothing short of startling. In the first weeks of 1971, Irving R. Levine, returning from two
decades of overseas reporting, had lunch with NBC’s Washington bureau chief to figure out
what he should do next. Levine wanted to cover the State Department, but only two
backwater beats — business and science — were available. He chose business news, a
subject deemed so specialized that no other network had bothered to assign a full-time
correspondent.
The bow-tied Levine would offer pieces to NBC Nightly News when the monthly figures on
unemployment or inflation were released, but the producers were rarely interested. “It’s not a
story,” they would say.
In those days, when most American households considered the stock market foreign terrain,
the business world was covered largely for insiders. The Wall Street Journal was a
single-section newspaper. Business Week, Fortune, and Forbes were generally considered
trade publications. There were no computers in the office, no cable television, no programs
devoted to business. It was, Levine realized, a third-tier assignment.
Things began to change on August 15, 1971, when Richard Nixon stunned the nation by
imposing wage and price controls. Now the Todayshow wanted a weekly spot from Levine.
The Arab oil embargo of 1973 and the federal bailout of Chrysler in 1979 also boosted the
visibility of business news. Louis Rukeyser launched his PBS program Wall Street Week, and
the birth of CNN in 1980 produced the first nightly business report on national television, Lou
Dobbs’s Moneyline. Levine began getting invitations from business groups for paid speeches.
He was summoned back from Denver, where he was giving a speech, when the stock market
plunged by 22 percent in October 1987. Financial news was now indelibly part of the media
mainstream.
By 1989, Levine was such a recognizable figure that the network begged him to become a
contributor to its new cable business channel, CNBC. There was no money in CNBC’s
meager budget to pay him, but Levine reluctantly agreed to do a weekly commentary.
Several years later, as CNBC became more glitzy, the straight-arrow Levine found himself
abruptly disinvited. Soon afterward, he retired from television.
The business world of the twenty-first century moves with a lightning quickness that would
have been unimaginable when Irving R. Levine entered the fray: online investing, global
trading, an increasingly volatile stock market. And the media play a vastly more important
role in pumping and publicizing the money machine. In the 1980s, an entrepreneur named
Michael Bloomberg made a fortune by sending out streams of complex financial data and
news reports through leased computer terminals that became mandatory on trading floors
and in newsrooms.
Online news operations like TheStreet.com and CBS Marketwatch.com, and investor chat
rooms on such Websites as Yahoo! and Silicon Investor, exploded in the late 1990s. In fact,
the money and media cultures have reached a grand convergence in which corporate
executives boost their companies by trying to steer the nonstop coverage, while news outlets
move stocks with an endless cascade of predictions, analysis, and inside dope.
Nearly everyone, it seemed, was paying attention. A decade ago, those chronicling the ups
and downs of Wall Street spoke to a narrow audience compromised mainly of well-heeled
investors and hyperactive traders. But a communications revolution soon transformed the
landscape, giving real-time television coverage and up-to-the-second Internet reports
immense power to move jittery markets.
This mighty media apparatus had the ability to confer instant stardom on the
correspondents, the once-obscure market gurus, and the new breed of telegenic chief
executives. CNBC was now as important to the financial world as CNN was to politicians and
diplomats, and like Ted Turner’s network, it had the power to change events, even while
reporting on them. This was America’s new national pastime, pursued by high-powered
players and coaches whose pronouncements offered the tantalizing possibility that the
average fan could share in the wealth. Like the fortune tellers of old, they gazed into the
future where unimaginable riches awaited those who could divine the right secrets.
The fortune tellers began 1999 bursting with confidence. The bulls had been running strong
for four years, the Dow improbably surging from 4,500 to over 9,000, and that doubling of
investor wealth tended to obscure the mistakes of the media and market gurus. Everyone was
making money and feeling good. Of course, any other business with such an erratic track
record would have felt a bit humbled.
The Dow’s nearly 2,000-point decline the previous August and September had sent much of
the media into growling bear mode. “The Crash of ‘98: Can the U.S. Economy Hold Up?”
asked Fortune. “Is the Boom Over?” wondered Time. Walter Russell Mead wrote in Esquire
that if the world’s economic ills reached the United States, “stock prices could easily fall by
two-thirds — that’s 6,000 points on the Dow — and it could take stocks a decade or more to
recover.’’ In the same issue, writer Ken Kurson declared: “This market will crash hard and stay
crashed.”
Only it didn’t. In an extraordinary turnaround, the Dow was back above 9,300 before
Christmas. The warnings of a few weeks earlier quickly faded. Optimism was again all the
rage. The commentators and the Wall Street analysts were back on the bandwagon.
Yesterday’s blown predictions were fish wrap. Back in the summer of 1997, Money had used
big red letters on its cover to scream: “Sell Stocks Now!” The Dow was at 7,700; anyone who
had taken Money’s advice would have missed another year and a half of a spectacular bull
market. All that counted in this hyperventilating atmosphere was: What’s the stock market
gonna do tomorrow? And how can I get in on the action?
Everyone, it seemed, was playing the market, from the New York hairstylist who kept a
twelve-hundred- dollar quote machine next to his barber’s chair to the day traders at the
computer-equipped Wall Street Pub in Delray Beach, Florida, to the retired bureaucrat
buying on his home computer through E*Trade. Some folks were becoming millionaires,
others losing their student loans and second mortgages. There were 37,129 investment clubs
in the country, compared to 7,085 in 1990. More than $230 billion a year was being
invested in stock mutual funds, compared to less than $13 billion in 1990. Nearly half of
American households had some stake in the Wall Street boom, either through 401(k) plans or
fund shares or hastily acquired stocks. Some eleven million people were trading online, a
phenomenon that was less than three years old.
But more than mere money was at stake. The market was now an integral part of American
pop culture. All the cable news channels now displayed little boxes at the bottom of the
screen showing the latest score of the Dow and the S&P 500 and the Nasdaq Composite,
whether the president was being impeached, or bombs were falling on Baghdad or
Belgrade. In New York, the 11:00 PM newscast on WCBS-TV provided updates on the Hang
Seng, the Hong Kong stock market, right after the murders and fires and rapes. Mobile
phones on airline seat-backs flashed liquid-crystal updates on the Dow and the Nasdaq.
Vanity Fair featured stock guru Abby Joseph Cohen in a spread on hot commodities, along
with Lexus LX 50 and thong underwear. Sam Donaldson kept CNBC on in his office. Don
Rickles and Lily Tomlin did TV ads for Fidelity Investments with superstar strategist Peter
Lynch.
Basketball coach Phil Jackson pitched the online brokerage T.D. Waterhouse, while Star
Trek’s William Shatner hawked the discount services of priceline.com . Barbra Streisand and
the “Fonz,” Henry Winkler, searched for promising Internet firms, and found that their
celebrity helped them to obtain stock at an insider’s price. Mike Doonesbury, the comic-strip
character, launched an Internet IPO that soared and crashed. Time asked porn star Jenna
Jameson for her stock tips. The New York Observer found a woman who listened to stock
reports on her radio headset while making love to her husband.
Howard Stern mused about buying a stock, touting it on the air, waiting for the price to surge,
and flipping it for a quick profit. Wall Street was hotter than sex in the sixties, disco in the
seventies, or real estate in the eighties. And that meant the market soothsayers were
reaching a wider audience, a voracious audience, each day.
No matter that some of these prophets had been spectacularly wrong. Barton Biggs, a
veteran sage at Morgan Stanley Dean Witter, had warned in the early days of the Clinton
presidency, back in 1993: “We want to get our clients’ money as far away from Bill and
Hillary as we can. The president is negative for the market.’’ The Dow had risen nearly 8,000
points since Biggs uttered those words. But he remained one of the most quoted strategists
around.
Every so often, some trader whispered the truth. Ted Aronson, a Philadelphia broker who
managed more than $2 billion, admitted to Money magazine that he invested his own
family’s money in Vanguard index funds because, with their automatic-pilot approach and
rock-bottom costs, they almost always beat the managed funds. But few others publicly
acknowledged that most mutual funds were laggards, and the media outlets peddling
financial wisdom had little reason to encourage them.
The endless swirl of market advice was built upon the notion that a get-rich-quick scheme
was always just around the corner. An exploding number of mutual funds — from 2,599 in
1993 to 5,138 in 1998 — beckoned from every stall in the media marketplace. The
magazine covers of early 1999 fervently hawked such wares. “The Best Mutual Funds,” said
Business Week. “Best Buys,” said Forbes. “The Best and Worst Mutual Funds,” said
SmartMoney. “Secrets of the Stock Wars,” said New York magazine. “Hot Picks from America’s
Best Analysts,’’ said Money.
But the advice proved ephemeral. Moneymagazine had run its annual cover story on a
dozen hot stocks in 1992. A year later, only one of the previous year’s dozen had made the
list. And by ’95, not one of Money’s previous forty recommendations had made the cut. Each
month, each week, the media needed something new to sell, and Wall Street operators were
only too happy to comply.
The thriving casino in the narrow streets of lower Manhattan created a hunger for
information and a growing belief that amateurs could gain access to sensitive data as quickly
and as thoroughly as big-time institutional traders. The explosion of financial intelligence
itself became a growth market for the media, and for professionals determined to influence
the media. One result was the spectacular rise and huge cult following of CNBC, whose
programming consisted mainly of middle-aged white guys in suits talking about market
trends.
A network such as CNBC, or a magazine like Fortune, or a newspaper like The Wall Street
Journal, needed a steady parade of experts, analysts, and wise men to fill air time or column
inches and convey the appearance of authority. It needed a nonstop flow of tips, touts, picks,
and pans to lure consumers with the idea that they just might get in on the Next Big Thing
But the whole contraption resembled a house of cards, a sustained illusion that both sides
had a vested interest in perpetuating. Much of the media hype surrounding the stock market
was essentially an orgy of pontification and speculation that pretends it is possible to know
the unknowable. A single Wall Street analyst, his voice amplified by the media megaphone,
could send a stock soaring or sinking with opinions that might well turn out to be wrong. A
columnist could goose a company’s stock with takeover talk that often proved to be nothing
but gossip. While vast sums were riding on the latest pronouncement from the fortune tellers,
they often had blurry tarot cards and cloudy crystal balls.
Nearly nine out of ten fund managers failed to beat the Standard & Poor’s 500 in 1998, the
culmination of a five-year trend; 542 even managed to lose money. Yet they were still
trotted out by the press as the purveyors of financial wisdom. A boring, buy-and-hold strategy
generally yielded greater profits over the long run than trying to time an unpredictable
market. But admitting the fact would hurt the industry’s quest for new investors and the
media’s quest for new readers and viewers. So everyone played The Game.
Few paused to notice that those dishing out the advice often had a vested interest in the
outcome. Outright corruption was rare; the most notorious case involved R. Foster Winans of
The Wall Street Journal, who had been sentenced to prison in 1985 for selling advance
information from the influential Heard on the Street column he helped write, in exchange
for his share of $30,000 in payoffs. Yet the web of incestuous relationships was in some ways
just as troubling.
Market gurus touted stocks in which their firms were heavily invested. Brokerage analysts were
under internal pressure to be upbeat about corporations that might hire their houses for
investment banking services; a few had even been fired for their pessimism. Fortune, Forbes,
Money, SmartMoney, Business Week, Barron’s, CNBC, and CNNfn made media stars of
brokers whose investment companies they courted for lucrative advertising.
“PETER LYNCH & Friends uncover the BEST STOCKS to buy now,’’ blared the cover of
Worth magazine; inside was a full-page ad for Lynch and Fidelity. This was hardly surprising,
since Fidelity owned the magazine.
“Mexican Stocks May Finally Look Appealing,” said the Journal’s Heard on the Street
column. Who said so? Eduardo Cepeda, managing director of J.P. Morgan in Mexico City,
who declared that “it’s time to buy at least a few top names in Mexico.” And his firm would
be happy to sell them.
In Business Week’s Inside Wall Street column, Gene Marcial was bullish on Inktomi, a
software provider whose stock had just dropped 20 points because Microsoft was phasing out
its Internet search engine service. “Is it downhill from here?” Marcial wrote. “No way, say
some pros.” One of the “pros” was John Leo, head of Northern Technology Fund, which, the
column noted, owned Inktomi stock and was buying more.
Seth Tobias, head of Circle-T Partners, used his slot as guest host of CNBC’s popular
morning show Squawk Box to talk up AT&T and MCI WorldCom as companies that were well
positioned to benefit from the Internet boom. They are, he added, “our largest holdings.”
Conflicts seemed to be lurking everywhere. When mutual fund manager Garrett Van
Wagoner appeared on CNBC’s Street Signs in January 1999, he touted an online company
called OnHealth Network. Its stock, which had opened at 8 1 /4, surged as high as 21 7 /8
before closing at 18 1 /2.
Anchor Ron Insana had prodded Van Wagoner into admitting that his company owned more
than 10 percent of the shares, but that didn’t seem to matter to those bidding up the stock.
Insana was furious when The Wall Street Journal discovered weeks later that OnHealth had
sold Van Wagoner Capital Management a big chunk of stock in a so-called “private
placement” for just $5.50 a share, a fraction of its market price. Van Wagoner, who now
owned 16 percent of the company, insisted that there was nothing wrong with telling CNBC’s
viewers what he liked. "
Reprinted with the permission of The Free Press, a Division of Simon & Schuster, Inc., from
THE FORTUNE TELLERS: Inside Wall Street’s Game of Money, Media, and Manipulation
by Howard Kurtz. Copyright © 2000 by Howard Kurtz. |
