WHY CNBC IS SO VALUABLE by Steven McIntyre and Todd Stein
by Special to DallasBlog.com
Tue, Dec 13, 2005, 12:50 PM
Jim CramerWe decided to tape-record a recent broadcast of Jim Cramer’s Mad Money on CNBC, but not for reasons you may suspect. You see, we would like to show our children & grandchildren one day what a mania really looks like. Until the last year or so, we regretted not saving some of the funky late-1990s Ameritrade television commercials with the nose ringed Stuart talking about online trading. Or another one was the E*Trade ad where two men are talking about investments in a well-appointed office. The older gentleman asks the younger, "Do you have a retirement plan?" The younger, with perfect arrogance, responds with "Get rich, retire at 45". The list is endless and it is fun trying to think back of the public’s infatuation with net stocks six or seven years ago. While the real estate craze has replaced the infatuation with the stock market in recent years, we still like to pop on CNBC at times to see what is being hyped to the general public. After all, CNBC is a profit-seeking business that wants to get ratings – so they are usually a great indicator for "what’s hot" in the investment world as well as overall market sentiment.
We can remember watching CNBC one day in late 2002 when the market was in free fall and the anchors’ facial expressions looked like someone had died. Then they went to their reporter (it was Maria Bartiromo at the time) on the floor of the NYSE and a discussion ensued about the coming long-term bear market. Sure enough, that day happened to coincide with the market forming a bottom. It took a few more months of a sustained rally before the wall of worry had been climbed, but by the middle of 2003, the permabulls on CNBC were back. Those bears claiming that the market was still overvalued were relegated to sporadic appearances on bull-bear debates.
The last two years on CNBC remind us of 1997 & 1998. The extreme bullishness of 1999 has yet to be repeated, but we are coming closer and closer with every broadcast of Mad Money. It is funny to watch the day-trading schizophrenic Jim Cramer take out a knife and repeatedly stab a bear figurine saying something like, "Take that, you bears." Cramer’s show is revealing because his callers seem to exhibit classic herd mentality behavior. Even more illuminating than Cramer’s show are the attitudes of the various anchors on CNBC. Viewers can literally hear the anchors’ groans when oil prices rise or market indices trade lower. When the occasional non-bullish guest is invited on a CNBC show, the tone becomes more confrontational and the bearish views aren’t even considered.
Judging from CNBC, people are again beginning to view stocks as pieces of paper that go up and down, but mainly up. The ones that go up should be bought mainly because they are going up. Little if any thought is given to the underlying economics of the business they are buying. Balance sheets and cash flows are ignored. Beating the whisper EPS numbers and making new highs are considered the real fundamentals. Such a mentality seems much more indicative of a market top rather than a bottom. Valuations at near 20x earnings support that bearish view. CNBC is clearly flashing a contrarian signal just as it did in 2002, only this time it is saying "SELL".