Saturday, September 10, 2011

The CNBC Chop Shop

One of the first mistakes a novice trader will make is turning on CNBC looking for stock tips. After all, those slick Wall Street-types in the suspenders and expensive suits being interviewed on live television by those pretty reporters must know more about the market than a mere beginner, right?

Well they do. But not in the way you think. Their expertise is not in knowing the direction a stock will take -because not a soul alive knows that for certain- but in how to manipulate the media and small investor so that they find bagholders for the securities in which they make a market.

In gambling terms, Wall Street firms are the equivalent of "The House". Their version of a rake is called the spread. They make a killing whether you win or lose. And they love starry-eyed beginners who have visions of yachts, trophy wives and early retirement in their eyes. The way they generate more fees and find fresh bagholders is through hype and greed.

This is where CNBC comes in. Wall Street and CNBC have a symbiotic relationship: Wall Street needs an outlet to promote its securities and services and CNBC needs targeted ad revenue. Both have a vested interest in generating a bull market, since trading volume and financial television ratings are significantly higher in prosperous times.

As a result, CNBC has almost no news objectivity. Maria Bartiromo hitches rides on lavish CitiGroup corporate jets. Corporate CEOs like the since disgraced Angelo Mozillo of Countrywide are fawned over like golden idols. Bullish Wall Street analysts pumping their stocks are treated with the utmost reverence. Governmental officials like Hank Paulson, who also have a vested interest in bull markets and bubbles, were never pressed even as they lied through their teeth about the housing contagion. On the rare occasion a bearish guest appears, such as the proven-correct Peter Schiff, they are openly mocked.

Listening to CNBC, in any way other than as a contrarian indicator, will torpedo your account. If you had listened to CNBC over the years you would have bought tech stocks at the very top of the bubble in early 2000, bought homebuilder stocks in the summer of 2005, put a buy order on Dow 14,000 in 2007 and sold short when analysts turned bearish in March 2009 at Dow 6,500.

Do yourself and your trading account a favor and tune out the CNBC and Wall Street spin. Rely on your own research and common sense when trading. Seek out knowledge not hot stock tips. All the "booyahs!" you shared with Jim Cramer over the years won't mean a thing if you're broke.


  1. Great post + following. I agree about CNBC although am not as cynical about them as you. Actually CNBC ratings are the highest when the market drops because everyone wants to know what the heck is going on.

    I love your blog, am reading all your posts.

  2. Thanks Max! Being the first poster and follower, I owe you a beer! I'm glad you are enjoying the blog so far. Great handle btw.

    Re: CNBC. I do stand corrected. Its viewership declined in the recession after the Dotcom but during this crisis it has increased.