Investing

Return to Article

Kass: The Media's Muddled Message

Doug Kass

"The real news is bad news."

-- Marshall McLuhan

As McLuhan writes in The Gutenberg Galaxy: The Making of Typographic Man, communication platforms of all types (print, Internet, television, etc.) exert a gravitational effect on cognition and in the formation of opinion (on the human sensorium).

Throughout yesterday, media commentators and guests (on multiple occasions) expressed the view that the American consumer was growing accustomed to $120 oil. ("Getting used to it" was the most frequently used term.) Ergo, the doubling in the price of certain energy product prices over the last year would have little consequence or threat to the markets and on the world's economies.

From my perch, the world's equity markets will require stable to lower energy and commodity prices in order to launch a new advance. Thus far, slowing U.S. and European economic growth have failed to affect these prices, but cost push and demand pull inflation will no doubt contribute to a lengthier (and possibly deeper) economic slowdown.

The best outcome would be, coincident with disappointing European economic news, an ECB rate cut, which could lift our currency and depress the price of crude oil. The most painful way toward lower energy prices would be a more substantial global recession.

No doubt many of the same commentators who stated the case that investors are "getting used to" the high price of oil, also made some of the following (erroneous) statements over the last few years -- clichés that are used so often that investors run the risk of becoming anesthetized to their possible effects:

• Home prices will never fall (said repeatedly two years ago). Look out above, home prices are falling.
• Don't fight the Fed (said repeatedly over the last several decades). Sometimes, like in the last nine months, it does pay to fight the Fed.
• The cash on the sidelines will provide fuel to a new bull market leg (always said). There is always tons of cash on the sidelines.
• Citigroup C, at $53/share, is inexpensive at only 12x earnings (said last year repeatedly). Last sale? $26. Res ipsa loquitur.
• Bank stocks and government-sponsored agency stocks have strong dividend support (said last year repeatedly). Bank dividends have been slashed throughout the year -- Fannie Mae FNM just cut its dividend this morning.
• The housing and credit crises are over (said frequently recently). The housing depression and the seized-up credit markets remain problematic.
• As night follows day, the financial writedowns will become financial writeups over the course of time (said with regularity recently). As my Grandma Koufax would say, "Dougie, we shall see what we shall see."
• Buy stocks in the long run (always said). Stock markets have historically gone through decade-long periods with no price appreciation.

I often hold to the polar opposite views of some of my best friends, including Sir Larry Kudlow and Jim Cramer, but I think they agree, as William Blake wrote, "Opposition is true friendship."

Yesterday, Joe Kernen, who is generally fair and even keeled to me, launched some rather bitter personal remarks about me and toward short sellers on CNBC's "Squawk Box." (Jim "El Capitan" Cramer defended me.) I will take the high road, but Joe's remarks made it clear that some members of the media believe that contrarian and/or non-bullish thought (no matter how well reasoned) has no (or has only a limited) place on the air. Skepticism is all too often deflected by an ad hominem attack, which is unrelated to the naysayer's actual reasoning and logic.

Indeed, at times, it seems as though many in the media believe that it is the media's political, economic and stock market views, not the content they carry, that should be the focus of what is delivered to viewers. How else to explain the predominance of bullish commentators and the absence of contrarians or skeptics in the media these days and, for that matter, most all days?

In a recent column, I amplified some of the above thoughts and suggested six questions that every host on CNBC, Bloomberg and Fox Business Network might ask the money managers they interview in order to get a proper perspective and explanation of their views. (Importantly, these questions should apply to both bulls and bears):

1. What is your investment mandate?

2. Do you have the flexibility to raise or reduce the cash component of your portfolio? Can you go short? Can you use margin?

3. What was your cash position two years ago, what was your cash position one year ago, and what is your cash position today? And why were your cash positions at those levels?

4. If you are bullish now, have you ever been bearish? If you are bearish now, have you ever been bullish?

5. How have the deteriorating/improving economic conditions and worsening/ improving profit picture affected your market and economic views?

6. What change in conditions from current expectations would lead to a further change in your market views?

As McLuhan related in Gutenberg Galaxy, "There can only be disaster arising from unawareness of the casualties and effects inherent in our technologies."

Doug Kass is the author of The Edge, a blog on RealMoney Silver that features real-time shorting opportunities on the market.