Bull!
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5. By the end of 1995, equities trumped real estate as the investment of choice, for the first time since the go-go market of the late sixties and early seventies. In 1995, Federal Reserve data showed that the value of household stockholdings outweighed the value of home equity, rising to $5.5 trillion, compared to $4.2 trillion in home equity. The data, which comes from a Federal Reserve survey, was reported widely. See, for example, Suzanne Woolley, “Our Love Affair with Stocks,” Business Week, 3 June 1996.
6. Edward Yardeni, “Portfolio Strategy,” Deutsche Morgan Grenfell, 27 January 1997.
7. “News in the Age of Money,” Columbia Journalism Review, November/December 2000, 19.
8. Richard Russell Dow Theory Letter, 20 December 1995.
9. Elizabeth Sanger, “The Money Channel$Financial News Is Hot,” Newsday, 3 December 1995.
10. Charles Fishman, “The Revolution Will Be Televised (on CNBC): Don’t Touch Your Dial! CNBC Has Become the Live Feed of the New Economy,” Fast Company, 1 June 2000, 184.
11. Pablo Galarza, “Inside the Box: Squawk Box Has Brains, Beauty, Wit—and an Audience of Fanatics. This Is a Stock Market Show?” Money, 1 July 1998, 116.
12. Tim Jones, “Behind the Scenes at CNBC, Hard News—With a Dash of Sass,” The Chicago Tribune, 18 October 1998, 1.
13. Charles Fishman quotes Haines saying that his job is “to figure out if they’re lying” in the sidebar to “The Revolution Will Be Televised.” Haines made the remark about “making them squirm” in “20 Most Wanted,” Entertainment Weekly, 16 July 1999, 33.
14. When Haines interviewed Ariba CEO Keith Krach in October of 2000, Haines ended the interview saying, “Well, can’t argue with the numbers. They look terrific. Thank you very much, sir.” (Mark Haines and Eric Gustafson, CNBC/Dow Jones Business Video, 19 October 2000.)
15. For Haines’s interviews of Lay and Skilling, see Mark Haines, “Enron—CEO—Interview,” CNBC/Dow Jones Business Video, 27 October 2000; Mark Haines, Jerry Klauer, “Enron President and CEO Interview, CNBC/ Dow Jones Business Video, 17 April 2001. Despite repeated requests, CNBC refused to comment on Haines’s disclosure regarding his ownership of Enron shares.
16. Byron Wien, interview with the author.
17. Charles Fishman, “The Revolution Will Be Televised” (sidebar).
18. Jonathan Weil, interview with the author.
19. Steven Lipin, interview with the author. See also Anita Raghavan and Steven Lipin, “Going It Alone: More Companies Shun Investment Bankers, Do Their Own Deals,” The Wall Street Journal, 6 March 1996, A1.
In January of 1996, Lipin probably annoyed other members of the financial community by coauthoring a Journal story that threw a spotlight on how “dozens” of companies—ranging from IBM and AT&T to General Signal Corp., McCormick & Co., and Borden Inc.—were using supposedly “one-time” write-offs to fudge their earnings. (“Are Companies Using Restructuring Costs to Fudge the Figures? A Repeated Strategic Move Makes Future Earnings Seem Unrealistically Rosy—The Role of Elsie the Cow,” The Wall Street Journal, 30 January 1996, A1. See also Chapter 16 [“Fully Deluded Earnings”] on “one-time” write-offs.)
20. In June of 2002, Faber broke the news that WorldCom would be restating earnings on Business Center, CNBC, 25 June 2002.
21. Herb Greenberg, interview with the author.
22. “Asleep at the Switch? Media Correspondent Terence Smith Explores How Business Reporters Largely Missed the Impending Implosion of Enron, the Largest Corporate Bankruptcy in U.S. History,” The News Hour with Jim Lehrer, 19 February 2002.
On The News Hour, Faber claimed, “Enron is a special case. It was not disclosed. It was not there for us to see.” But in June of 2002, when asked whether he didn’t wish that reporters had dug more deeply into WorldCom’s finances, Faber once again blamed his audience: “You know, I’m not sure that we can really place that great a blame on journalists for somehow failing to find these things out. I think a lot of them were being brought to light to a certain extent, at least in terms of questions being asked, and investors at that time, they were just giddy. They didn’t want to know—they didn’t want to hear about it…don’t think the attention span of the viewing and/or reading public was particularly long or large for those kinds of stories. It didn’t seem to really hit with the public that was, at that point at least during this period in time very giddy.” Howard Kurtz and Bernard Kalb, “Corporate Stars Lose Luster,” Reliable Sources, CNN, 29 June 2002.
On Squawk Box, Faber attempted to find good news in the Enron story. As late as October of 2001 he suggested that Enron’s problem was only one of credibility, or a “perception of weakness” that could be dispelled by a new bank agreement: “And finally on Enron. We’ve been reporting it all morning, Joe and myself, talking about Enron. Haven’t heard yet, but expectations were, from people familiar with and close to the situation, that Enron would announce this morning a new bank agreement for either $1.25 billion or as much as $2.5 billion.
And that certainly should go a long way to calming any fears of liquidity problems and the like at Enron. Really, what it is still is a credibility problem, though we should point out that the counter parties that trade with Enron in the key energy trading part of its business, continue to do business with it. Many of them have come out and said we have no problem with Enron, but they would like to sort of create a fortress balance sheet, completely eliminate this perception of weakness and, as well, perhaps bring in a well-known equity investor to also sort of add another stamp of approval. That I have heard they have not yet been able to secure. But we’ll see about the bank financing. [Emphasis mine.]” David Faber, reporting on Squawk Box, CNBC, 31 October 2001.
23. “Asleep at the Switch?”
24. Charles Fishman, “The Revolution Will Be Televised.”
25. Charles Fishman, “The Revolution Will Be Televised.”
26. This is how Kernen described his method of selecting the winners and losers. See Charles Fishman, “The Revolution Will Be Televised.”
27. Rick Marin, “Wall Street Babylon,” The New York Times, 27 February 2000.
28. Interview with the author. The study was done by an independent consulting firm.
29. Susan E. Kuhn, “How Crazy Is This Market?” Fortune, 15 April 1996. Meanwhile, “The boomer obsession with stocks and investing has made mutual funds as much a part of the prosperous American family’s profile as sportutility vehicles and golden retrievers,” Kuhn reported, capturing the era in a sentence. According to the Investment Company Institute, about one-third of all Americans own mutual funds.
30. Dave Kansas, “New Economy: A Dot-Com Editor Sheds His Five-Year ‘Co-coon,’ and Looks at How Journalism Has Changed in the Age of the Internet,” The New York Times, 16 July 2001.
31. Dave Kansas, interview with the author.
32. Bill Fleckenstein, interview with the author. Fleckenstein comments on CNBC’s coverage of quarterly earnings reports, and CNBC producer Bruno Cohen’s reply appeared in Jim Rutenberg, “CNBC Struggles Even as Financial News Abounds,” The New York Times, 29 July 2002.
33. Richard Russell’s Dow Theory Letter, 15 February 1995. See the introduction on the market’s long-term trends.
34. See, for example, Ed Wyatt, “Will Fund Investors Prove to Be Faithful or Fickle,” The New York Times, 6 October 1996, for a timeline showing flows into equity funds that goes back to 1965. The table was headlined: “Lest We Forget the 70’s.”
35. See Chapter 1 and the chart “The Market’s Cycles.” See also Barton Biggs, “Are Stocks Everyone’s Best Friend?: A Report on Returns from a Variety of Investments,” Barron’s, 23 March 1992.
36. Ed Wyatt, interview with the author.
37. Jonathan Clements, “Vanguard Founder Blasts Funds’ Focus,” The Wall Street Journal, 16 May 2000.
38. Ed Wyatt, interview with the author. There is some evidence that by buying last year’s best fund, an investor can catch a tailwind, though the timing can be tricky—an
d the momentum may last only for a year. See Chapter 10 (“The Information Bomb”). Meanwhile, investors held funds for an average of 2 1/2 years—losing the advantage of the momentum effect.
39. Bill Fleckenstein, interview with the author. Fleckenstein made his initial comments, and Cohen replied in a New York Times article: Jim Rutenberg, “CNBC Struggles Even as Financial News Abounds,” 29 July 2002. Just 10 days later, CNBC announced that Cohen had been fired. Dan Cox, “CNBC You Later—Biz News Head Cohen Booted Amid Falling Ratings,” The New York Post, 8 August 2002, 27.
40. Frederick J. Sheehan Jr., “Quarterly Market Review and Outlook,” John Hancock’s Asset Management Services, 2 January 2001.
41. Howard Kurtz put the number at $300 million in “Risky Business,” The Washington Post, 27 August 2000, WO8.
42. Interview with the author.
43. James J. Cramer, Confessions of a Street Addict (New York: Simon & Schuster, 2002), 61.
44. James Cramer, “Investor Nirvana,” Worth, May 1997.
45. Chris Gessel, “Investor’s Business Daily.”
46. William Powers, “Nothing to Tout About,” The National Journal, 14 April 2001.
47. William Powers, interview with the author.
48. Powers made the remark in a column that asked “the question that floats over the Enron story like a big, silent blimp: Where were the journalists? We are talking, after all, about a huge public corporation, one that was required by law to release reams of data about itself on a regular basis. While top Enron executives appear to have worked hard to conceal the company’s true financial condition, the public record has long contained hints of trouble. They were exactly the kinds of hints that journalists are supposed to be good at noticing: numbers that didn’t quite add up, vague references to odd-sounding business arrangements.
“But in order to see them, you had to be looking hard. To get at their meaning, you had to be willing to dig.” William Powers, “Late to the Party,” The National Journal, 19 January 2002.
49. Jonathan Weil, interview with the author.
50. Susan E. Kuhn, “Market Mania? How Crazy Is This Market? Stocks Are Wild,” Fortune, 15 April, 1996, 78; Gretchen Morgenson, “Reality Check: What Could End the Bull Market? A Crash in Tech Stocks. Don’t Rule It Out,” Forbes, 27 January 1997, 42.
51. Dave Kansas and Jonathan Weil, interviews with the author.
52. Mark Hulbert, interview with the author.
53. Dr. Richard Parker, a fellow at Harvard’s Joan Shorenstein Center, noted just how the business of financial journalism had grown from 1992 to 1997, and how important advertising dollars from financial service companies had become in “The Revolution in America’s Financial Industry: How Well Is the Press Covering the Story?”
“In striking ways, this growth of ‘personal finance’ journalism has transformed business reporting and newspaper business sections, with several important implications for financial institution coverage,” Parker said. “For one, it has brought insignificant new advertising revenues to papers across the country. Along with computer-related advertising, financial services advertising has grown fastest among national business-section advertisers over the past 20 years—and now accounts for 30 percent of national newspaper ad revenues.
“Advertising spending by financial service companies offering non-FDIC-covered products alone has risen from $359 million in 1992 to $869 million in 1997,” Parker noted, citing New York–based Competitrack, Inc. for his numbers. See “Money, Markets and the News: Press Coverage of the Modern Revolution in Financial Institutions,” a symposium held at the Joan Shorenstein Center of Harvard’s John F. Kennedy School of Government, March 1999.
54. Mark Hulbert, interview with the author.
55. A. J. Liebling, The Press (Pantheon, 1981), 6. See also Thomas Frank, who quotes Liebling in One Market Under God (Anchor Books, 2000), 310, in his discussion of “Triangulation Nation: Journalism in the Age of Markets.”
56. Richard Russell’s Dow Theory Letter, 20 December 1995.
57. In an interview with the author, Sloan shared his draft of the speech.
58. Allan Sloan, interview with the author.
59. Allan Sloan, “Baby Berkshire Frenzy May Reflect a Market Gone Mad,” The Washington Post, 14 April 1996.
60. Warren Buffett, Chairman’s Letter, Berkshire Hathaway 1995 Annual Report, 1 March 1996.
Of course, a rising tide lifts all boats, but Buffett changed “boats” to “yachts” in a reference to the title of the 1940s book Where Are the Customers’ Yachts? Or A Good Hard Look at Wall Street, by Fred Schwed (John Wiley & Sons, 1995). The title was based on a question that came up when J.P. Morgan was showing a client the yachts in the marina of the New York Yacht Club. Many of the owners were investment bankers. “But where,” asked the client, “are the customers’ yachts?”
61. Warren Buffett, Chairman’s Letter, Berkshire Hathaway 1995 Annual Report, 1 March 1996. In the annual report, Buffett also reported that Berkshire was using stock to make acquisitions.
62. Allan Sloan, “Is It Time to Face Up to the Bear Facts?” The Washington Post, 16 April 1996, D03.
63. Allan Sloan, “Is It Time to Face Up to the Bear Facts?”
CHAPTER 10
1. Peter Bernstein, interview with the author.
2. For an original, provocative discussion of how modern technology aims at destroying time, see Paul Virilo, The Information Bomb, trans. Chris Turner (London: Verso, 2000).
3. Martin Whitman, interview with the author, and Martin Whitman, Value Investing (New York: John Wiley & Sons, 1999), 82–96.
4. David Tice, interview with the author. See Bill Alpert, “Payback Time: After Taking a Licking, David Tice’s Prudent Bear Fund Bounces Back,” Barron’s, 7 September 1998, 22.
5. David Tice, interview with the author. See also Chapter 2 (“The People’s Market”) and Tice’s testimony before the Capital Markets Insurance and Government-Sponsored Enterprises Subcommittee of the House Financial Services Committee on June 14, 2001. The 57-page transcript is available on Nexis, copyright, the Federal Document Clearing House.
6. Jeff D. Opdyke, “Heard in Texas: Hot Texas Stocks? Here’s a Cooler View,” Texas Journal (WSJ), 8 June 1994, T2.
7. Jeff D. Opdyke, “Heard in Texas.”
8. Sunbeam-Oster Report, Tice Associates, December 1996.
9. See Jonathan Laing, “High Noon at Sunbeam: Does Chainsaw Al Have a Truly Revived Operation—or Something Else—in His Sights?” Barron’s, 16 June 1997, 29.
10. “Dunlap Makes Plans to Shine Up Subeam,” Chicago Tribune, 24 November 1996; Michael Martin, “Sunbeam Plugs into Overseas Market,” International Herald Tribune, 13 November 1996; “Sunbeam 3Q—Better Times Seen Ahead Under Dunlap,” Dow Jones News Service, 13 November 1996; “Sunbeam Profit Seen on Slimmer Product Line,” National Post, 30 December 1997.
11. “Goldman Ups ’97 Net View,” Dow Jones News Service, 13 November 1996.
12. Herb Greenberg, “Against the Grain Short-Order Request: Sunbeam Is Toast,” Fortune, 28 April 1997, 398.
13. Jonathan Laing, “High Noon at Sunbeam: Does Chainsaw Al Have a Truly Revived Operation—or Something Else—in His Sights?”
14. In July 1997, Greenberg repeated his warnings in “Short Positions,” San Francisco Chronicle, 24 July 1997; and in the spring of 1998, when Sunbeam was trading at $57, Barron’s again raised a red flag. Jonathan Laing, “A Return Visit to Earlier Stories: Into the Maw: Sunbeam’s ‘Chainsaw Al’ Goes on a Buying Binge,” Barron’s, 9 March 1998, 13.
15. Henry Goldblatt, “First: Viewers Are Bullish on CNBC When the Markets Go Nuts, Ratings Soar,” Fortune, 29 December 1997, 52.