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November 6, 2000

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Eyes on the Wise

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Subject:  Let's do Better than CNBC
Author:  Lokicious

Like Foolish Tom, I am appalled, though no longer surprised, at the low quality of business reporting (I won't deign to call it journalism), especially on talk-shows, such as CNBC (or Wall Street Week, for that matter). Some of us were taught to write and think in the days before sound-bites, innuendo, and bluster substituted for in-depth research and fact-checking. But let's face it, if CNBC wasn't a gossip show for finance voyeurs, no one would watch it. We can keep track of the overall market, particular stocks, press releases, and news wires more efficiently on the web than on the tube, and we can find deeper comments on almost any discussion board (even ones full of garbage) than the superficial, smug remarks of pop-star "analysts."

There are many things good business journalists could, and should, do:

1) Investigative journalism. Investigative journalism is not the same as pretending you're Mike Wallace and asking uninformed questions of CEOs in a nasty tone of voice. Investigative journalism involves finding out the facts behind something that is potentially dangerous or illegal, but hidden from view. For example, I'd like to know if there really are cells of paid "bashers" hired to drive down stock prices. Isn't this illegal? If not, why not? Are brokerages involved? Why isn't the SEC going after these folks instead of 15 year-old pump-and-dumpsters?

2) In-depth features on important issues. Instead of providing superficial "explanations" for day-to-day market events ("tech stocks are down because investors are concerned the economy is slowing down," "tech stocks are down because investors are concerned the economy isn't slowing down"), usually without any sense of time-depth (we don't even get told that a stock price that went up 10% today was down 10% yesterday), journalists should explore underlying causes and potential enduring effects.

For example, is "over-valuation" a serious problem that poses long-term risks for the broad market or particular sectors (notably tech), or is it simply that there's now proportionally a lot more money invested in stocks (i.e., in the past the market was "under-valued"), so valuations can remain high indefinitely, as long as investors don't take more money out than gets put in? If the latter, what will happen when "baby-boomers" retire and need to use the money from their retirement funds? This kind of reporting would involve long, sophisticated discussions with several high-caliber economists of different views, which would require a good understanding of economics and an ability to report these views clearly and accurately. You can't just ask for a 5-second opinion.

Or, to take another example, what is really causing increased volatility and what are its potential long-term consequences? No, folks, it is not caused by penny-ante day-traders. Journalists have to have the brains, guts, and integrity to look at the actions of aggressive mutual funds and their attempts to compete for enormously high returns by "momentum trading" instead of investing. I'd like to know whether the lack of tax consequences (i.e., not having to pay short-term capital gains taxes) in retirement funds is fueling this trading. Instead of getting sound-bites from some Wall Street know-it-all who says no-big-deal or from a money manager who is bragging about his gains as if he were a clever investor not a well-heeled trader, I want to hear what real economists think the effects of volatility will be on investor confidence (i.e., will sober investors rethink how much money they want to keep in stocks) and on companies' ability to plan and grow when their market cap can get cut in half in a day, even though there are no changes in their business fundamentals. A topic like this needs at least a week's worth of lengthy feature stories.

3) Critical examination of Wall Street fads. Journalists should look at what sectors are hot (and not) and question the validity of Wall Street's band-wagons. Because Wall Street has a herd mentality (we should speak of bulls and lemmings, since down-markets are stampedes just as much as up�bears are smart loners, not herd animals), it is hard for brokerages to buck a trend. Last year, when there were inflated expectations for wireless (in the near-term), journalists should have asked hard, informed (not just snide) questions. Right now, I want to know who is going to buy palm-sized computers after the novelty factor wears off? What, exactly, are their uses? Do we need expensive calendars and address-books? Who requires access to data in their pocket (I can tell you that the screens are too small for patient-records and data-bases for physicians)? Useful journalism is more than after-the-fact reporting that earnings are less than analysts expected. Journalists should challenge the assumptions of "analysts" (and point out their mistakes).

4) Careful research into new technologies, business models, and markets. Good journalists have expertise in certain areas and know how to use this expertise to provide insights into emerging areas unfamiliar to the rest of us. Someone with the appropriate knowledge can help us understand the possibilities and difficulties of trading with China, beyond telling us the obvious. Or with technology, a journalist should be able to translate difficult engineering and scientific concepts and jargon into plain English, without missing important nuances. I recently heard a superficial news report on fuel-cells, after having just read a thorough piece on the topic, and the differences were striking. The news report made it sound like profitable fuel cell vehicles are just around the corner and investors should be expecting quick returns. The magazine-length piece (in Technology Review) looked at what will be available in the near future (not much), reasons why hybrids are problematic, difficulties with gasoline and methane based hydrogen fuel-cells, etc., before suggesting that we will have hydrogen-based fuels for hydrogen fuel-cells, once the engineering gets good enough (not soon).

Business journalism should provide accurate information on breaking news from reliable sources. It should give us a leg-up on investment research. It should make us more knowledgeable citizens of our nations and the world. Mostly it doesn't.

Quite frankly, as a long-term investor, I can't imagine why anyone would watch CNBC, since we're supposed to believe gossip only affects stock prices in the short term. Day-traders and CNBC make a good marriage. I guess I'm just an old prude, but when I do feel a desperate need for day-time voyeurism, I'd rather get my kicks watching Maury "console" teen brides he's just informed, "for their own good," their hubbies are cheating on them than listen to someone drone inanities in front of rolling numbers.
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