"The Dow is trying to stage a recovery here."
That's what I heard an anchorperson say on CNBC around 9 a.m. Monday (noon Eastern time). It was as distilled an indication as one could want of why no normal investor should be anywhere near the financial news network during frenetic trading days like this.
It came as no surprise that many viewers' attention was riveted on CNBC on Monday, given the breadth and severity of the stock market decline Friday. But the remark pointed to one of the problems with CNBC as a source of financial information for the average investor. Personifying the financial markets as entities with will or desire, like human beings or dogs, will inevitably lead investors astray, especially on days like Monday when what appear to be cataclysmic events might prompt the easily spooked into stampeding for the exits.
Yet it was the theme of CNBC's coverage all day: "Stocks staging a stunning comeback," declared anchor Amanda Drury around 1:45 p.m. Eastern. A few hours later, one of her colleagues, sounding like a play-by-play announcer at the World Cup, announced that the Dow Jones industrial average were "trying to recover from an early 1,000-point plunge."
The truth, obviously, is that as the reflection of millions of individual investment decisions along with algorithm-based trading, the markets don't "stage" anything. Viewing the trading day in the same terms as the running of a horse in the Kentucky Derby or a ball club aiming for a Wild Card berth is a fundamental error. (In the event, the stock market disappointed itself Monday, "staging" several efforts to recover but ultimately closing with a loss of 77.68 points or nearly 4% in the Standard & Poor's 500 Index and 588.47 points, or more than 3.5%, in the Dow industrials.)
One can't exactly blame CNBC for hyping stock market moves. The channel has to fill 13 hours a day with live market advice. It can't possibly hold an audience for long swaths of that time without injecting drama into the proceedings, no matter how artificially. Its impulse is to give even viewers with no stake in the outcome a rooting interest in the numbers snaking across the screen. They'll share the thrill of victory as the indexes climb back toward the green, and the agony of defeat as the effort falls short. CNBC learned a lot from sports broadcasts, and why not? I may not care about the Pittsburgh Pirates, but I'm a sucker for late-inning rallies.
But that's just one of the issues with CNBC. The continuous stream of market analysis pumped out at viewers inevitably cancels itself out. Shortly after noon Monday (Eastern), CNBC presented an analyst with "10 reasons why the S&P could continue its big sell-off." About two hours later, it was hyping another guest predicting a "17% rally by year-end." Anyone who studies and reports on the capital markets knows that you can find a credible prognosticator with seemingly sturdy credentials to predict anything. But what is the average TV viewer supposed to make of a presentation that adds up to zero?
As we observed a couple of years ago, the true nature of CNBC is fundamentally misunderstood, often by its own personnel. CNBC isn't really a news service for average investors, though that's how it markets itself. It is and always has been a service for traders, who share few characteristics with investors.
Traders have very short horizons, need to move fast, and often don't make their decisions on corporate fundamentals like balance sheets, cash flow and the potential for profit or loss, but rather on technical indicators like momentum and chart patterns such as "head-and-shoulders." That's why so much of the CNBC daytime broadcast is devoted to analyses that value investors consider to be voodoo and why so much of its commercial inventory is bought by charting services.
Jon Stewart missed this point in his celebrated "Daily Show" takedown of CNBC and its star personality, Jim Cramer, back in 2009. Stewart ridiculed CNBC for recommending on one day that viewers buy, say, JPMorgan stock and a few days later that they sell it. For investors this is terrible advice, but for traders it's perfectly rational.
The hypercaffeinated Cramer is the quintessential trader, though he seems to have moderated his schtick somewhat since being upbraided by Stewart. (Except on his post-closing daily program, "Mad Money," which is all about trading.) Appearing onscreen with Drury at midday Monday, he wisely counseled viewers to think in the long-term: "It's time to look at your children's funds, it's time to look at your 529 [college savings] plans," he said.
But the trader in him couldn't be contained for long, as he pitched a series of individual stocks that happened to have taken a tumble over the last few days. Then, nodding toward investors who might be sitting on a cash hoard, he advised, "maybe you put a quarter of it to work in the last half-hour" of the trading day. For an investor with a long-term horizon, jumping into the market with a substantial stake based on a single day's action is questionable advice, at best.
Not everyone on CNBC guzzles the trader's Kool-Aid. The dependable economics reporter Steve Liesman reminded viewers of something that should be on a permanent crawl across the bottom of the screen, that "the stock market is not the economy." He added that "big downdrafts in the past have usually come along with already weak economic growth rather than ahead of [it]." This is true: blowoffs of the magnitude of last week's action often presage bull markets, not the opposite.
Given the cable TV ethos of attracting viewers by any method, no matter how gaseous--this also must be why Donald Trump gets all that airtime on CNN--there is no hope of turning CNBC away from its habits of cheerleading market rallies and hand-wringing over sell-offs. It may not be useful investment advice, but it is television.
As I set down these words, the market close is about 90 minutes away. The Dow is attempting to stage a comeback but it's falling short, and it's regrouping for another run at a breakout. I'm told that China is weighing on the market, but also that it has little to do with the American economy. One analyst on CNBC has assured me that oil has further to fall, although it may already have reached the bottom. This is good for the world economy, but it may be bad. No doubt, to find clarity from CNBC I should tune in on Tuesday.