Rick Santelli of CNBC has called for a Chicago Tea Party, a revolt by taxpayers against a government stimulus package that may reward some irresponsible folks for their behavior. Jon Stewart invited him to appear on The Daily Show, but Santelli canceled. Hence, the Daily Show staff prepared a little tirade against Santelli and CNBC for missing the whole market implosion.
So much shouting! Of all the political revolutions coming out of Illinois right now, Santelliâ€™s Tea Party is a strange one. Most folks in Cook County could take paying more in Federal taxes; weâ€™re ticked off about the county board president, elected under questionable circumstances, finding great jobs for his relatives. The foreclosure rate here is relatively low, too, so itâ€™s not like mortgage restructuring offends frugal Chicagoans the way they might upset the frugal in Phoenix.
Santelli covers the derivatives markets. With derivatives, there is a loser for every winner. Because many people buy derivatives as insurance, they are okay with taking small losses on the exchange instead of large losses outside of it. Hence, options and futures traders are no more affected by this market mess than they are by any other bit of news. Whether the news is good or bad, some win and some lose, and those who lose more than they win quit. Itâ€™s likely that Santelli and his friends on the floor arenâ€™t suffering the losses that other investors are. I know some people who work at a futures trading firm here in Chicago, and they are so relaxed right now itâ€™s almost scary.
But hereâ€™s what Stewart missed: CNBC is entertainment. Jim Cramer is a comedian. Rick Santelli is an actor. All financial news happens too fast for professional investors to rely on the media. If you read about it in the Wall Street Journal, itâ€™s too late to make a trade; investors pay good money for Bloomberg boxes so that they can see the news as it happens. Small trading rooms will sometimes keep CNBC on in the background, more for the activity than for the insight, the same way that I like to go to sleep with the TV on when Iâ€™m alone.
But, but, but, you might be saying, some of the stock ideas from CNBC make big money! Of course they do. In theory, the investment markets are efficient. In theory, securities prices reflect the amount of risk that they have, so in theory, you could pick stocks by throwing darts at pages of the Wall Street Journal. (If you read the Journal online, you might want to use spitballs instead.) So, of course some stock pickers and some investment styles are going to be right on occasion.
Because picking stocks works almost by random, you canâ€™t easily beat the market. You can save yourself a lot of money and headache with index mutual funds. But itâ€™s not sexy! Everyone wants to brag about stock picks at cocktail parties. If you say â€œEh, I canâ€™t figure out, I just buy Vanguard Index Trust,â€ youâ€™ll seem unsophisticated, even if you really are making the smart move. Well, most of the time.
Most professional investors do not believe that markets are perfectly efficient, especially in the short term, but they usually agree that over the long run, prices go to appropriate levels. A lot of money can be made or lost while waiting for efficiency to kick in. And, as much as they hate to admit it, most professionals underperform the market.
I was once a guest on CNBCâ€™s On the Money, Dylan Ratigan version,, to talk about Hedge Funds for Dummies. It was fun, and Iâ€™d go on again if a booker happens to be reading this. (Iâ€™d go on the Daily Show, too, and I promise not to stand Stewart up if he invites me.) It was a remote feed from a production house in Chicago. My son, then in third grade, came down with me and drank root beer while watching the proceedings in another room. Jim Cramerâ€™s show came on before On the Money, and my boy was a little freaked to watch a grown man talking about investments while throwing around pizza slices and smashing pizza boxes. What was his mother getting into?
I donâ€™t know that Cramer cared about the prospects of Yum Brands as much as he seemed to, but it made for good TV. Picking stocks is good TV. Explaining the ins and outs of efficient markets theory is not, alas. But call me, Comedy Central or CNBC, and Iâ€™ll try.