Wednesday, August 29, 2007

Second-Rate Economists & CNBC

They're at it again!

Yesterday, CNBC featured two little-known 'economists,' one from UBS, another from PNC, who agreed that the US economy is now in danger of a recession. Both solemnly lectured that Fed Chairman Ben Bernanke had better cut the Fed funds rate next month by a quarter-point, or he wouldn't be managing the economy effectively.

Honestly, this kind of thing just turns my stomach. Who do these guys think they are? They are so far from being credible it isn't even funny.

This morning, on CNBC, for the eighteen-thousandth time since the end of July, the anchors are holding a 'debate' among various guests and pundits, as to whether the Fed should cut rates next month. You're not going to hear much else for the next few weeks, until that magical afternoon when the Fed announces its rate action, or inaction.

It seems to always be this way now. If there's anything but blue sky and sunshine in the financial markets or on their horizons, then CNBC spends most of its air time on "Fedwatch," conducting unending discussions, day after day, week after week, as to what the Fed will and should do at its next meeting, and why. Nevermind that there's insufficient data released daily, let alone weekly, to justify this. It's merely 'entertainment.'

However, as Brian Wesbury, a better-known and credible economist, wrote of the business media's tendency to hold pro vs. con on camera "debates," these mistakenly give people the impression that, say, economists are evenly divided on the subject of the likelihood of a recession, when, in reality, they are not at all 'evenly divided.'

In his August 9th editorial in the Wall Street Journal, Wesbury wrote,

"Any reasonable sample of economists these days would include at least 80% optimists. So why all the bad news?"

And, again, this very morning, while listening to/watching CNBC in background, I heard Erin Burnett report that in phone calls she had (Yes! She actually talked to real people- not just regurgitated her own journalistic opinions.) with banking executives around the country, most of them saw no reason for a Fed rate cut.

For what it's worth, Wesbury believes that,

"...people gather knowledge about the rest of the economy, the part they cannot see, from watching news. As a result, it could be that the format behind most business journalism skews perceptions and creates pessimism.....But what seems clear is that in the name of producing an entertaining product, and in an attempt to provide contrasting views, the true consensus of experts is rarely reported."

As I discussed this with my partner the other day, we returned to a topic we've touched on before. That is, when Harry Markowitz developed efficient market theory and the concept of portfolios, he probably never imagined a world in which the white noise would crowd out true information.

Recall, if you will, the world of the late 1950s, in which Markowitz formed his theories. Markets were telephone order-driven, brokerage rates were astronomical, there was no cable television, nor on-going business news throughout the day. With trading so expensive at retail, investment was the order of the day. Computers were non-existent, so forget program trading, too. Most business "news" was just that, and the amount of commentary on it was a lot less than today. Magazines like Fortune, Forbes and Businessweek (if it existed then) held much more sway than they do today.

It's hard to set a hard and fast rule among today's surfeit of business 'information,' but, surely, the babbling of some third-rate economist at a third-tier financial institution hardly qualifies as similar in quality, or, probably, 'information,' next to, say, a Fed president's remarks, or those of a Nobel Laureate in economics. Or the CEO of a well-performing, large hedge fund or private equity group. Not all the utterances we hear on CNBC, booked to fill up air time, are deserving of the description 'information.'

Most of it is, in reality, just noise. Recycled worries and warnings, and hand-wringing by people who, otherwise, would never be exposed to the wide world of business media viewers. Nobody said these guests and commentators are actually credible, or competent.

Yesterday, I actually heard one of the less intelligent CNBC morning anchors say something like,

'well, if bank CEOs aren't believable, don't you have to listen to large company CEOs, who have their ears to the ground?'

My laughter was immediate. CEOs with ears to the ground? You've got to be kidding!

When you hear drivel like that from a CNBC on-air anchor, you know you should heavily discount most of what you hear on the network that is not breaking news, and carefully choose which of their guest pundits to believe.

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