Thursday, April 21, 2011

Bad Financial Thinking On CNBC This Morning

There are really only two free choices for business television channels on cable of which I am aware- CNBC and Bloomberg. Fox Business News seems to be among a premium channel group on my service, or simply unavailable. After this morning's fiasco on CNBC, I'm viewing Bloomberg as potential alternate or main viewing choice in the morning.

With Becky Quick and Joe Kernen away for several days, the morning CNBC on-air team was basically non-existent, as far as business acumen and understanding goes. Carlos Whathisname is on Squawkbox for minority color. He asks softball questions, looks incredulous at every answer, and tries hard to swing most conversations to liberal viewpoints.

To fill in for the missing persons, the networks clueless economics reporter, Steve Liesman, and retired mutual fund manager Gary Kaminsky were pinch hitting. I had some comments on a recent post chiding me for criticizing Liesman as being a moron and an idiot. What I'm about to relate should satisfy that reader, Lisa, and others, that my choice of terms regarding Liesman was neither accidental nor wrong.

This morning's discussion on CNBC disappointingly returned, over and over, to a 'debate' between Kaminsky and Liesman regarding companies which both grow income, buy back shares, and pay healthy and/or increasing dividends.

Kaminsky was a well-regarded fund manager at Neuberger Berman for several decades, and, we learned a few months ago, did not come to the field by accident. His father was also a fund manager, which probably helps explain the son's ability to vault into a large-scale management capacity. Kaminsky co-hosts a noontime program with David Faber, on which he largely makes sensible comments. Though he's not immune to occasionally narrow-minded pursuits of questionable points. Unlike more general business analysts, fund managers tend to adopt a style which can limit their ability to consider alternative viewpoints.

Thus, Kaminsky lauded Travelers posting good earnings, buying back its shares, and paying dividends. The typically wrong-headed Liesman began bleating that if he invested in a firm, he wouldn't want his money back. A fair paraphrasing of Liesman's rant is,

'When I invest in a company, I'm giving my money to the CEO. I trust him. I want him to invest that money, not give it back to me.'

After perhaps the third round of pointless discussion on this point, which both parties mentioned they were continuing off-camera on commercial breaks, Kaminsky inadvertently displayed his ignorance, saying to Liesman,

'You're an economist,' rather than having a business background.

But Liesman is not an economist. He's a journalist who likes to believe and pretend he is an economist. With former Fed board member Rick Mishkin as a guest host this morning, Liesman tried to shout down and over the Columbia professor during another discussion. Liesman literally would not shut up, obviously believing his uneducated, ill-informed views were more important than those of a former Fed senior official.

Kaminsky and the CNBC economics reporter must have wasted about ten minutes of air time on a conversation that wouldn't merit mention in most undergraduate finance courses.

For the record, empirically, Kaminsky, while not completely correct, is much closer to the truth than Liesman.

If one wishes to own equities with consistently superior total returns for at least a year, income growth fueled by revenue growth is desirable. Whether that is dividended or not is not too material if the company is growing. Share buy backs, however, tend not to be associated with long term equity market outperformance.

Kaminsky's beliefs notwithstanding, a company that shrinks its capital base isn't a good candidate for long term profitable growth.

As an investor, you don't want your investments misspent by corporations once they've saturated their primary product/markets. Thus, dividend growth and/or share buy backs signal the beginning of the end of consistent, reliable profitable growth.

But Liesman is wrong to decry dividends, per se. When I have owned a consistently-superior performing equity that paid dividends, I viewed those cash payments as providing more funds for subsequent portfolio expansion. Anyone so stupid as to think that dividends from a growing company constitute an unwanted problem has no business being on a business-oriented cable news network in the first place.

After listening to this pointless discussion on CNBC for far too long this morning, I thought about how badly managed the morning lineup is, that they can't manage to sustain the loss of two anchors without degenerating into meaningless babble.

Bloomberg isn't sounding so bad right now....I may miss Rick Santelli......

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