Here in the wee hours on the United States West Coast, the house is, like most
of the Pacific shoreline at this time of day, quiet, as if enshrouded in a
gentle San Francisco bay fog, but I lie awake. My brotherhood in the worldwide
guild of financial market professionals means that my body has automatically
awoken me early for but one purpose - to see what kind of mood Nouriel Roubini
is in today.
CNBC usually moves the news fairly quickly. Is he happy? Then, "buy, buy, buy;
mortgage up everything you just bought and buy
some more." Is he sad? "Sell, sell, sell, everything - except the late Louis
Rukeyser's bear market favorite investments of choice, corrugated tin and
shotgun shells."
A young man is interviewed about Dr Roubini's mood. " I found him happy, but
with a twinge of fleeting introspection as he reached for his orange peel,
maybe a bit of lugubriousness when he chose the Sweet 'n Low over the Equal."
Yes, the obsession with Roubini is now so great that they're interviewing the
barista, who obviously is brewing coffee only until he gets a starring role on
a reality TV drama, who poured the now famed economist's morning moccachino.
Nouriel Roubini, is, of course, the former Bill Clinton era official at the
International Monetary Fund and White House Council for Economic Advisors, who,
after taking a faculty appointment at New York University's Stern School,of
Business, made predictions in 2005 and 2006 that many feel presaged the current
global economic crisis.
Just as the bubble was bursting, in a September, 2006, address to the
International Monetary Fund, Roubini predicted a "global hard landing" arising
from out of "a glut of housing stock" leading to a "US housing bust". Roubini
said that, even if the US Federal Reserve Board did cut interest rates that
year, the US would not avoid a recession.
For the most part, Roubini does not receive his accolade for the extent of the
damage he was predicting, but their timing. In actuality, many of his 2005-2006
era predictions have turned out to be spectacularly understated.
But not all the predictions of the Man Who Saw were golden. The US Fed would
not ease for another year, yet the stock market kept rising, until October
2007. Anybody shorting the stock market immediately upon hearing Roubini's
initial predictions would soon see his brokerage's margin call desk number
flashing hard and often on his caller ID.
Perhaps most importantly, there is nothing in any of his increasingly
Nostradamus-like black vaticinations that would indicate he had any special
talent or insight that last spring allowed him to possess prior cognizance of
2009's most impressive, and potentially most profitable story in the markets -
the huge rally, up 61% in the case of the US Dow Jones Industrial Average, in
world stock averages that followed the market bottom this past spring.
Still, in much the same way old-time newspapermen treated ink and newsprint,
modern editors are handling Roubini with electrons. Google News reports 1,600
references with his name over the past 30 days, many with ledes such as "The US
and the global economy will experience massive deflationary forces through
2012" or "Market surge heading for big fall, says Roubini", or "Roubini: Many
Jobs Gone Forever". Particularly interesting is Roubini's frequent presence on
the Page Six celebrity gossip page of Rupert Murdoch's New York Post, or on the
web pages of the New York celebrity interest /stalker site, Gawker, most often
in club attire along with pretty, shiny young nubile things on each arm -
obviously, his graduate assistants taking all the time necessary to deal with a
problem student.
Playing the part of Robin, the Boy Wonder to Roubini's Batman, is one Meredith
Whitney, up until last February a bank stock analyst at Oppenheimer, and since
then the principal at the investment advisory firm that bears her name. Much
like the American baseball player Bobby Thomson, who lived a life of fame
wholly on the basis of one home run hit in the 1951 playoffs, Whitney arose out
of the media analyst mush on October 31, 2007, with a call on Citigroup.
Back then, the economic crisis was still new, and with the Federal Reserve only
then beginning its rate cutting program, some were calling for the worse to be
over fairly quickly.
Not Meredith Whitney. She predicted that Citi's massive size - at the time it
was the world's largest financial institution - and its supposed superior
management competence would, in the final analysis, not protect it from the
worst of what was then just the subprime mortgage crisis.
The veracity of the call cannot be challenged; a year later, Citi's stock was
trading under US$10, to eventually bottom out at under $1 a share in March this
year. Citi has managed to rally back towards $5, but only because the market
has come to look at Citi as a basically government-owned enterprise, implicitly
backstopped by a federal government guarantee should the market threaten it
again. (See Clippers
kept happy, Asia Times Online, August 26, 2009, for an account of the
"too-big-to-fail" implicit guarantee given to Citigroup and other large
financial institutions.)
Taken by themselves, Roubini and Whitney, or, as they are sometimes called,
"the Professor and Maryanne", (after two characters on the 1960's era US CBS
Network comedy, Gilligan's Island) provide a key component of the
financial media's coverage of the crisis - these are the town-criers of doom.
In this, the pair essentially becomes today's Elaine Gazarelli, made famous
with a seeming prediction of the 1987 stock market crash, after which little
was heard from her again.
"Repent, for all is lost" is their message, one they are used to proffering;
more importantly, one that the public expects to receive from them. As Whitney
herself has admitted, the demands of her manufactured media identity, the
flaxen-locked, blue-eyed uber-bear, mean that, to make her voice heard and
recognized above the media din and fog her predictions must always be more
conspicuously and outrageously bearish, from first calling for Citi's demise to
now calling for trials and tribulations for the entire banking and financial
sector.
Much like itinerant preachers of the Old West selling the devil and damnation
from a buckboard in each successive dusty Western town, the blurring of the
message between information and entertainment compromises both.
But if not for the uber bears, what message might the financial media be
offering? This might be even more scary than a lipstick-smeared Roubini, for
without them, the field would most likely be left clear for the assault of the
field mice, the attack of the clones, otherwise known as the brokerage
industry, sounding the charge for the advance of its armies of soda-fountain
commanders turned stock brokers and account executives, let loose onto the
public to persuade them to buy stock.
After the fever of the high-tech stock bubble broke in 2000, many observers
looked about to try to assign some form of blame or responsibility for the
collective madness that had caused so much hurt. Much opprobrium soon fell on
the financial media, particularly American cable station CNBC, which earned the
derisive moniker "Bubble TV" from hedge fund manager William Fleckenstein in
his 2008 book, Greenspan's Bubbles: The Age of Ignorance at the Federal Reserve.
It was a hard charge for the network to deny, for its signature programming up
to the bursting of the dot-com bubble was a morning screamfest heaping Olympian
accolades on dot-com fly-by-nights that would be gone long before the rock wall
in the company breakroom was ever used.
After the dot-com break, and the brief early millennium bear market, CNBC tried
to go straight with more sedate programming; the problem with that was that
more sedate programming wasn't all that attractive to viewers, and thus, to
advertisers. When the great real-estate bubble started to puff as America came
out of recession in 2002, they were ready to go at it one last time.
CNBC's custom was to push stocks, not real estate. That function was provided
by the real-estate coverage in the general media, most often presented by
real-estate agents who never told the public that they made more money when
people bought real-estate dear than when they sold it cheap. Most prominent
among these was Barbara Corcoran on the NBC-TV morning show Today.
Corcoran, who founded her own upscale real-estate brokerage in the 1970s, seems
to have adopted a philosophy that only on days ending with "y" is it safe to
buy real estate.
But over on CNBC, they saw what the marriage of real estate and leveraged,
collateralized finance was doing to the bottom lines of the financial industry,
and they loved every single minute of it. From the market bottom at the end of
2002 to the bank stocks top in the spring of 2007, both Bank of America and
Morgan Stanley outperformed the S&P 500 by almost 30%.
And so began the adoration, the idolatry, the reverence, the worshipping of
former Bear Stearns CEO Jimmy Cayne's bong pipe as a graven image. Why
shouldn't the average investor have believed that the good times would have no
end; if anything, the media message seemed to be that a new, more enlightened
species had landed on earth, and were most magnanimously volunteering their
outer worldly money management skills in order to educate and better the poor
human race. (See
Justice on Comedy Central, Asia Times Online, March 18, 2009).
And the industry knew full where to water the green shoots of hero worship. In
2007, a Citigroup vice president bounced the staff who rode the company private
jet to a conference in Beijing in order to give CNBC's Maria Bartiromo a
private ride back home over the Pacific. For those yanked from the luxurious
accommodations on the private jet, it was "please raise your tray tables and
return your seats into their full upright position".
So there's the current state of the media presenting financial news in much of
the capitalist world, Scyllas and Charybdises delivering reliably consistently
and inaccurately either morose or merry commentary. In my time in this
business, I've discovered that sometimes it's good to be a bear, sometimes a
bull. To be consistently one of the other means you are volunteering to play
the role in the human drama of the broken watch. Unlike a fully working watch,
one that can be relied upon to tell the correct time, the broken (analog) watch
is only right twice a day.
The real problem with financial news is that it has been allowed to develop and
exist with a totally different purpose and format than other news - as
illustrated by the feared, neuron-smashing broadcast slogan of "news you can
use".
It would be unthinkable if general purpose news stories about the dangers to
children of the H1N1 swine flu ended with recommendations on which
pharmaceutical companies to invest in, but this is par for the course with
financial news.
Likewise, it would be considered the most egregious of bad taste to follow
coverage of a highway bridge collapse disaster with tips on shorting
construction stocks, but with three cable business networks (CNBC, Fox Business
and Bloomberg) in a market space that can probably only support one, you gotta
know that, if a another space disaster happens during market hours, you can be
like the proverbial Gordon Gekko in 1987's Wall Street, proving your
"ethical bypass at birth" by being "on the phone 30 seconds after the
Challenger blew up, selling NASA stocks short".
In a democracy, the purpose of the media is to effectively inform the public on
current issues so that they can fulfill their charge to rule by making informed
electoral decisions for the benefit of all. If you're a US right-wing supply
sider, and you're wondering why your perfect US large capitalization stocks are
essentially unchanged over the past 13 years or so, perhaps that's the reason -
that the core philosophy of the supply side, that the rich can prosper with
well-chosen investments while the poor and middle classes are slowly bled
white, isn't, over the long term, worth anything near a tinker's damn.
Instead of looking for the next hot bear hand to make you rich with global
option shorts payable like Midas' slot machines upon the next financial
collapse, maybe the financial media should not feed the wild bull or rampaging
bear. Instead, they should provide sound advice on how finance-dependent
economies can avoid blowing any more bubbles.
I'd set my alarm clock for that, but I'd probably already be awake, waiting to
see how Roubini's demonstrations of risk arbitrage worked with those two hot
Columbia grad students studying evolutionary biology.
Julian Delasantellis is a management consultant, private investor and
educator in international business in the US state of Washington. He can be
reached at juliandelasantellis@yahoo.com.
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