... in my opinion, this is the most accurate analysis of CNBC that I have seen ... and exactly why I have CNBC on in my office all day ... without any sound ...
Ken Wilson
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... from Barron's ... Monday, March 18, 2002 Happy Talk at CNBC by Phil Demuth
Its analysts are always upbeat; its anchors don't probe
The brainy Ron Insana. Genial Bill Griffeth. Lovable Maria Bartiromo. These CNBC anchors present themselves as serious journalists, impartially reporting the business stories of the day. Do these nice guys and dolls really have more in common with Ronco's Ron Popiel, hawking his Pocket Fisherman and In-the-Shell Egg Scrambler?
To find out, we examined CNBC on January 23 during trading hours, from opening bell to closing gavel. It's a day in advance of Fed Chairman Alan Greenspan's testimony before Congress, with the trading light and the market treading water.
CNBC brings on 24 guests this day to opine on various companies and market conditions: CEOs of Fortune 500 corporations; fund managers who oversee enormous assets; securities analysts in shirtsleeves who stand in busy offices, surrounded by quote machines and TV monitors. Yet on a day like every other, when there are as many people selling stocks as buying, these experts are almost to the man bullish. Astonishingly, not one person says to sell stocks, recommends bonds or real estate or advocates keeping your money in the bank.
When CEOs come on to talk up their companies, they can rely on CNBC's reporters teeing up their bullet points. Staples' lame duck, Tom Stemberg, is not asked about Staples' strip-mining America's forests. Instead, he is given free airtime to expand on all the exciting new ways Staples is serving its small business customers. He tellingly concludes his interview, "Thanks for all your help, guys." Note this is not how interviewees sign off on serious news programs like 60 Minutes. [Dow Jones, which publishes Barron's, is a co-owner with NBC of CNBC's television operations in Asia and Europe and provides some news content to CNBC in the U.S.]
Pfizer CEO Hank McKinnell delivers a panegyric about his stock, down 9% over the previous year. What about the new competition Pfizer's alpha drug Viagra faces? Says McKinnell, "We think great companies are not made in spite of competition, but they're made because of competition." He is not asked to explain how the loss of Viagra's monopoly will improve Pfizer's earnings. Instead, CNBC's Martha MacCallum gives him a cheery goodbye, "Congratulations on a great quarter!" Yet Pfizer has only met analysts' expectations, not exceeded them.
After Boeing CEO Philip Condit talks unchallenged about the strength of Boeing's portfolio of businesses (Q4 earnings down 80%), analyst Chris McCrey, of Deutsche Bank Alex. Brown, reports Boeing is "a good news/bad news scenario." What's the good news? "The doomsday scenario forecast after Sept. 11 hasn't come about." It is good news to this industry analyst when a company doesn't go out of business.
Wall Street research analysts are supposed to protect the stockholder by taking a critical look at companies. Instead, as everyone except the folks at CNBC knows, analysts are co-opted by company public-relations departments. A recent study showed that analyst Buy recommendations outnumber their Sell calls by a 72-to-1 margin. CNBC packages an analyst's blurb as news, when it's really just another ad. The analysts' utterances are treated like prophecies from the Delphic oracle.
Only two of 13 analysts make any kind of disclosure: One does not own stocks he covers; another says his firm does not do investment banking with the companies he's promoting.
This editorial and ethical Grand Canyon does a tremendous disservice to CNBC's viewers. CNBC needs to disclose the financial stake each analyst's firm holds in the stocks they recommend. Do analysts get a bonus from the investment department for sales generated by their recommendations? What perks do they receive from the companies they follow? What is the analyst's education and training in finance and economics? What percentage of each analyst's recommendations are Buy, Hold and Sell -- and what are the criteria for each? Importantly, if someone had followed this analyst's advice in the past, how would those investments have fared?
Without this kind of background check, CNBC could be sticking analysts in front of the cameras who until recently were attributing billions of dollars in market capitalization to startups with no earnings and no business plans. We might be listening to someone who was bullish on Enron or Global Crossing, even as these stocks spiraled into bankruptcy.
One of the major themes of the day is that stocks are down, therefore, stocks are cheap. The fact that stocks are still selling at all-time highs compared to their earnings goes unmentioned. Guests and anchors never weigh stocks as an asset class against alternative investments like bonds, cash, or real estate, and rarely do they measure stocks against each other.
Novellus Systems' CEO Richard Hill assures the audience that a stock beaten down like his has nowhere to go but up. Tellabs CEO Richard Notebaert explains the secret why. "The second half of the year starts to brighten up." He adds, "We are on our way."
The recovery hypothesized for the end of this year is a certified check that savvy investors are cashing at their brokers today. How fortunate that the future never throws us a curve. If all these people can see a year into the future with such aplomb, one wonders how their companies got into so much trouble in the first place. Here CNBC trespasses on the airwaves of the Psychic Friends Network. All that's missing are the hugs.
This basic human inability to know the future is why every mutual-fund prospectus warns that past performance is no guarantee of future returns. On CNBC on January 23, this turns out to be a good thing.
Jim Schmidt manages John Hancock's Financial Industries Fund. The fund, which charges a 5% load, is down 18% for 2001 -- a full 14% below its category average, according to Morningstar. None of this is disclosed to CNBC's viewers. Is Schmidt contrite, sheepishly advising investors to redeem their shares since their money would be safer in a mattress? Not a bit. He has three stock tips, with still more are available online at CNBC's Website.
Liberty Growth Stock Fund's Erik Gustafson also presents his stock tips with a straight face. His fund, which charges a 5.75% front load, is down 30% over the previous year. On the other hand, Pioneer Funds' Mark Madden's Emerging Markets Fund (5.75% load) is only down 16% over the past 12 months. He feels that emerging markets have done so poorly over the past decade that they are bound to go up.
Why isn't there is a uniform disclosure of fund managers' track records, both absolutely and relative to appropriate benchmarks? How would we know if any of these fund managers is using the cameras to talk up a stock, only to go back to the office and dump it on credulous viewers? Why don't the anchors ever probe the wisdom of these stock tips, euphemistically called stock "picks," on the air?
The stock tip is the basic quark-like particle that is the building block of CNBC's news day, the teleology toward which every interview tends. Legg Mason strategist Richard Cripps delivers the party line when he proclaims that it's a stockpickers' market right now. "Index fund owners will be the most frustrated investors. You're going to have to be much more active to produce good results," he says.
One only needs to buy the S&P 500 Index to outperform most active managers (as research demonstrates), so why tune in for CNBC's daily hat full of stock tips? CNBC is a player's club where relentless stock buying is a matter of character. Index fund owners are passive. People who sell stocks in the face of massive declines are weak sisters who lack fortitude to stay the course.
For every buyer, there must be a seller. If CNBC is going to pepper viewers with a breathless barrage of stock tips, they should balance these with an equal number of sell advisories. That would be news. As it stands, stock tips are cast into an intellectual vacuum. All opinions have equal value and coexist in a context of no context.
For example, on January 23 analyst Cai von Rumohr of SG Cowen tells us he thinks it's time to buy defense stocks. His observation is buttressed by the argument that we are at war and that there will be a need for more defense spending.
No one suggests to viewers that von Rumohr's tip is a banality that was priced into the market back in September. Chartist John Murphy, of Murphymorris.com, says it's time to buy Kellogg, adding, "In good times and bad, people have to eat food." The market presumably priced this aperçu into Kellogg around 1922.
Under the TV lights, even Wall Street Journal reporter Doug Sease reduces himself to the level of a tipmeister, recommending three tech stocks in today's segment of Sleeper Stock Picks. Yet Sease's recent book, Winning With the Market, specifically warns that speculating on hot stocks can be disastrous, and counsels investors to stick with Index funds and avoid the brokerage industry entirely.
There's a special report on that darling of CNBC, the Nasdaq -- off 60% from its bubblicious highs. Soundview Technology's Arnie Berman assures us there's "no froth in the Nasdaq now." How about earnings? J.P. Morgan's Scott Williamson speaks of "cross-node capacity utilization improvement" and "migrating fabs to reduce geometries" in the semiconductor sector.
When UBS PaineWebber's Art Cashin observes that the market has been trading in a range for months while valuations remain stratospheric, he's dismissed with jokes about his hair.
CNBC is a giant infomercial masquerading as a news channel. Business news is larded with stock tips, but it is never made clear where objectivity leaves off and the happy talk about stocks begins. The problem is compounded by a complete absence of follow-up, debate or a perspective balanced by principles of finance, and the inexcusable lack of disclosure of the interests and track records of all parties involved.
It's simply not enough for CNBC to tell viewers that General Electric is their parent company, as if this revelation dissolves all ethical issues and absolves them of responsibility for shallow journalism.
CNBC is often compared to ESPN, but it's really more like the Home Shopping Channel -- without the integrity. The Home Shopping Channel does not pretend to do anything other than sell you merchandise, and unlike CNBC, it gives you your money back if you aren't satisfied.
With ratings down about 20% from the same period last year, CNBC's reporters have been cast in the overt role of pitchmen. In one scary spot reminiscent of Orwell and Huxley, CNBC's David Faber explains how the world has actually become a safer place since September 11. "We know who our enemies are now, we've identified them, and we're going after them. Many people think that makes this a less risky world, and that's been reflected in
the performance of the stock market." In other words, War is Peace.
And the network's tagline reads: "CNBC-Business for the New World." For business journalism, make that a Brave New World.
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