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Warren Graham's Legal Blog: OLE, EL TORO!
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Location: New York, New York, United States

I am a practicing lawyer who lives and works in Manhattan, and specializes in Bankruptcy, Corporate Restructuring and Creditors' Rights, Commercial Litigation and Real Estate Law. I grew up in the New York City Area, and am a graduate of the University at Buffalo (B.A. 1976) and Fordham University School of Law (J.D. 1980). I have a wide variety of interests, but am particularly interested in history, politics, economics/finance and religious affairs, and am a frequent writer on a variety of those topics, and others. On a personal note, I'm a 54 year old man, married for 27 years, with two daughters, ages 24 and 20, respectively. Legal topics of interest may be found on my blogsite, http://warrenrgrahamlegal.blogspot.com, while non-legal commentary may be found at http://warrenrgraham.blogspot.com. The content of these sites will be centralized and easily accessed locations for both legal and non-legal analysis and commentary, as well as a description of my legal practice for clients and potential clients. Keep checking back, as I expect the content to change and grow regularly.

Monday, August 27, 2007

OLE, EL TORO!

I am certainly no expert on bullfighting, and have no real wish to become one. Despite those who laud it as a legitimate expression of a certain weltanschauung, and its accompanying culture of machismo, I find it hard to watch, as the outcome is inevitable and cruel. What I know on the subject (which may or may not be accurate), is derived primarily from having read some Hemingway and watching the film Blood and Sand repeatedly (more for my appreciation of Rita Hayworth, than of Tyrone Power or of the bullfighting scenes, truth be told).

Most of the cheers in the bullring are, of course, reserved for the bravery and skill of the matador, but there are occasions in which the bull is deemed to be an exceptionally worthy adversary, and is accorded noisy accolades by an appreciative crowd.

Just the opposite is true on Wall Street, and on the airwaves of its most ardent cheerleader, CNBC. In those precincts, the bull and only the bull is celebrated. Try to imagine a world (at least since the days of JFK) in which the major news reporting organizations did everything possible to extol the virtues of government policy, and to squelch any hint of dissent. Unthinkable? Repressive? Un-American? In fact, many have argued (this is a subject for another article, and not this one), that the mainstream media, which sees its role as the Public’s watchdog, is, therefore, nearly always hostile to the incumbency.

For those who have a hard time accepting the prospect of such obeisance in media, I invite you to sample a few hours of the daily fare on CNBC (which, although in my judgment, the most egregious of the business-reporting media, is not alone in its role of hyping the bull).

On a typical day, the morning shows open with a discussion of the current status of stock futures. If they are ahead of “fair value,” all is right with the world, since it augers a strong open. If not, the hosts of those shows either downplay that news, or almost literally try to coax them up, by pointing out those reasons why the market should be going higher. This very morning, for instance, a guest pointed out that she thought the chances of a recession had been increased by the recent market turmoil and credit crunch. After chiding her for “introducing the ‘R’ word” into the discussion, the host, Mark Haines took issue with her assertion that consumer spending would likely suffer, since, he said, the consumer sentiment index (which had, at that hour, not yet been released), would show consumer optimism. He based this on the “consensus” of experts. Under pressure, this guest backpedaled and suggested that the recession (if there was to be one) would be short and mild. Whew!

It must be said that, at the same time CNBC reports the tribulations of the sub-prime mortgage market and the damage it has done to what is “otherwise” a very healthy economy, it continues to provide an advertising forum, both on television and on its website, for companies advertising low cost, easy credit mortgages. Those are the same genre of companies that are being accused of having made predatory loans to innocents, and cajoling them into either buying homes they could not afford, or refinancing to cash out their equity for a variety of purposes.

On today’s website, in his feature “Trader Talk,” Bob Pisani talks about what’s pressuring the markets today, and argues, in essence, that all such negativity is misplaced. After listing all those criteria, such as reduced consumer spending, falling housing values, problems in the financial service industries, Pisani says that “all is not doom and gloom. The key (says he) is to look at the data the right way.” After all, a weakening economy, less consumer spending (unlike Mark Haines, Pisani believes that “consumer sentiment” is unimportant. Only “consumer spending” matters), declining home prices and downgrades of brokerage stocks all have a silver lining: a more accommodative Fed. Taking that argument to its logical conclusion, of course, would suggest that a depression would be REALLY EXCELLENT for low interest rates!

Later this afternoon, after the market closes, and we hear the closing roundup, we can expect to be treated to the whimsical musings of Larry Kudlow, whose insipid mantra “I’m for a strong America” calls for an analysis, to quote Cher Horowitz in the film Clueless, akin to “searching for meaning in a Pauly Shore movie.” Until a few weeks ago, Kudlow shut down every guest who dared express a negative point of view, by inanely going on about our Goldilocks Economy (not too hot, not too cold, but just right!). I haven’t heard that expression recently, but I’m not fretting, because no matter what, Kudlow, for one, is for a strong America!

Follow that up with an hour of “B-B-B-Booyah, Cramer!” and, well, you get the point. At one time, I thought Jim Cramer was an insightful and brilliant trader. According to the most recent Barrons, however, Cramer’s record, based on his stock picking in recent days, was worse than an indexed mutual fund. That’s not so important, though, because one’s stock picking record should be measured over many years, and Cramer’s is fine. The problem is that his persona has become a caricature, and what with his sound effects, and ranting manner, it’s hard to take him seriously.

A fundamental part of the problem may be found in CNBC’s selection of guest commentators on its news segments. The vast majority of those commentators derive their (very high) incomes, either directly or indirectly, from the sale of securities. Although most financial services companies are careful to separate the sales/investment and research aspects of their operations, the financial gurus trotted out by these companies are paid in salaries plus bonuses. Their bonuses, of course, are, in large measure, determined by the profitability of their sale/research divisions. These folks are anything but stupid and they realize this. Hence, I believe that nearly all the guest commentators have, to a greater or lesser extent, an axe to grind. Over the past few weeks, for the first time, business news outlets broke their tacit vows of silence, to discuss, openly, the horrifying prospect that Manhattan residential prices, after years of incredible speculative frenzy, might be due for a correction. And who did they trot out to discuss this? Barbara Corcoran, the dean of high-end Manhattan residential brokerage, who has made a fortune in this ever-increasing wonderland of multimillion dollar condominiums built, it appears, mostly for hedge fund wunderkinds. Barbara Corcoran is to Manhattan real estate, what Abby Joseph Cohen is to the stock market. It’s ALWAYS the right time to buy, and everything will ALWAYS increase in value. This type of “reporting” might be likened to a news outlet which wanted to report on dentistry, but rather than book a dentist, it interviewed only the Tooth Fairy. “Yes, sure the teeth fall out (I imagine the guest saying), but its really good news, not bad news, because they were going to fall out anyway, they fall out gradually, and you get paid every time!”

The result of all this is that much of the business-reporting media has become almost a propaganda mill for Wall Street and for a rising stock market. Its reportage is often little more than spin. This is not its stated mission or its brief, and the point of this piece is to suggest that more attention be paid to objective business news gathering and dissemination.

If the folks at CNBC are fans of undomesticated animals, it might do them well to recall that the bear is one, too. And it has feelings. Anybody remember Winnie the Pooh? The Care Bears? The poor hungry baby bear who was left with no porridge because that nasty Goldilocks took another spoonful every day on Kudlow’s show?

There are people (a minority, to be sure), who are short the markets. Moreover, there are {gasp} benefits to a falling market. Opportunities are presented to buy into equities at more favorable prices. There is a greater impetus for entrenched management to build up businesses through increased sales and product enhancement, instead of spending its spare currency on zero sum game activities such as share buybacks and taking companies private. Declining home prices provides opportunities to more potential homeowners to gain their share of the American Dream.

The gist of this is that it seems to me that a media outlet purporting to report business news ought to do just that. I don’t say that the reportage should be dry and without any entertainment value. After all, ratings are the mothers’ milk of any television media outlet. Ratings for business news are, of course, always better in a frothy and rising market, when every pushcart vendor has a portfolio that he can discuss in detail, but that does not mean that the bad news should be censored or even downplayed. Yet evidence of bias for the bull is omnipresent on CNBC and everywhere on many of its fellow business news outlets. Poor bear! Unloved and unappreciated.

People who know me might well say that I have an axe to grind, too. They are certainly right, but as I am not being paid for writing this, and CNBC is not inviting me to be its guest anytime soon (especially now), I feel quite free to exhibit my prejudices. Oh, and by the way, in my defense, I’m for a strong America!

Warren R. Graham
Copyright 2007

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