Snake-Oil Salesmen? Debating the Role of the Financial Media
Published on - March 18th, 2009 (by J.D. Roth) Jim Cramer is the manic host of CNBC’s Mad Money, a television show that offers stock recommendations and investment advice. Jon Stewart is the host of Comedy Central’s satirical news program, The Daily Show. Cramer and Stewart engaged in a war of words recently, which came to a head last Thursday night when Cramer appeared on Stewart’s program.
Stewart’s complaint is that CNBC doesn’t offer financial news and advice so much as it acts as a cheerleader for Wall Street. CNBC sells itself as a network of financial experts, but they were as unprepared as anyone for the economic collapse. And now some CNBC personalities seem to be engaging in brazen hypocrisy, lambasting non-experts (like “loser” homeowners) for not seeing trouble coming.
“Let me tell you why I think this thing has caught some attention,” Stewart told Cramer. “It’s the gap between what CNBC advertises itself as and what it is…[You and I] are both snake-oil salesmen to a certain extent. But we do label the show as snake oil here. Isn’t there a problem selling snake oil as vitamin tonic?”
Stewart grilled Cramer for over 20 minutes on Thursday, asking him why CNBC doesn’t do more investigative reporting, doesn’t ask tough questions, doesn’t raise red flags about companies it knows are in trouble. Here’s one exchange from the unedited video:
Stewart: In what world is a 35-to-1 leveraged position sane?
Cramer: The world that made you 30% year after year after year beginning from 1999 to 2007. And it became very difficult to —
Stewart: But isn’t that part of the problem? Selling this idea that you don’t have to do anything? Any time you sell people the idea that “sit back and you’ll get 10 or 20 percent on your money”, don’t you always know that’s going to be a lie? When are we going to realize in this country that our wealth is work? That we’re workers. And by selling this idea that of, “Hey, man — I’ll teach you how to be rich” — how is that different than an informercial?
Cramer: Well, I think that your goal should always be to try to expose the fact that there is no easy money —
Stewart: But there are literally shows called Fast Money!
Cramer: Well, there’s a market for it, and you give it to them, and I think that —
Stewart: There’s a market for cocaine and hookers! So what? What is the responsibility of the people who cover Wall Street? Who are you responsible to? The people with the 401(k)s and the pensions, and the general public? Or the Wall Street traders?
It’s uncomfortable to watch Cramer take his lumps, but at the same time, the interview is fascinating. Stewart seems to be saying that the people who have been giving financial advice are complicit in the failure of the system. And if they’re not actually experts, if what they’re providing is only entertainment, then their advice is no better than playing the lottery.
Remember: In general, it pays to ignore financial news. Sound investing is based on your personal financial goals and a pre-determined investment strategy. It’s based on time-tested wisdom from actual experts, not on daily updates from talking heads on TV. The shallow, breathless reporting in certain corners of the financial media simply fans the fires of greed. It de-educates.
When you watch shows like Fast Money or Jim Cramer’s Mad Money (or even Nightly Business Report), do so with an active mind. Be critical of the information you hear. Ask yourself what motivation the network and the reporter have, as well as the people they profile and interview. Should you trust a CEO who says her company is doing great? Is short-term market movement really important if you won’t retire for 30 years? When a show recommends a stock, do your own research, and don’t just trust the host.
See also: “Traders Profit Best by Ignoring Most Financial News” from Smart Money.
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What I found interesting, and discouraging, about Cramer’s points in the interview was the kind of “buyer beware” mentality he displayed not only toward his financial advice per se, but also toward the general quality of journalism found on CNBC. Several times he would just shrug and say, “It’s entertainment,” or something to that effect.
But, of course, journalism is not mere entertainment. If it were, the press would not be accorded special rights and protections in the Bill of Rights. Journalism is different from entertainment because it is assumed to serve a higher purpose and to adhere to standards of truth and accountability. When people watch TV personalities on a network that calls itself a “news” network, they expect and assume those standards, and there’s nothing unreasonable about those expectations despite Cramer’s cavalier attitude toward the veracity of the information given on CNBC. If CNBC really is just entertainment, then this, in a way, is really a “truth in advertising” issue.
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To those who claim “Jon Stewart is just a comedy show and advertises himself as such” – I think that that is just a s hypocritical as CNBC promoting their entertainment shows as “news”.
A huge percentage of young America gets their news from the Daily Show exclusively. Jon Stewart does include parody, but he also includes a good deal of analysis. All television news these days is part news, part entertainment. Why shouldn’t Jon Stewart fall under the same scrutiny as, say, “The Today Show”.
While he claims his show is “just a comedy show” – it is clearly more than that. It is a provocative and satirical analysis of world events. (And I love it – watch it every night I am awake that late) But as such, I think he should be just as open to criticism of his bias and his own hypocrisy.
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“Any company that has its foundation in doing something that is really bad for the customer usually doesn’t succeed in the long term.”
Um, hello? Tobacco? Alcohol? Illegal drugs? Gambling? Prostitution?
All this debate about whether Jon Stewart was dodging responsibility with his fall-back “I’m a comedian” position … I think the more interesting question is, why do so many people want things that are bad for them?
People know – one presumes, on some level, they really do know – that being in debt is bad for them. And yet there were actually people using home equity loans to buy stocks. Home equity loans are DEBT.
So yes, one can discuss for days whether News media versus Entertainment media is a valid distinction, or whether News media should publish disclaimers on everything they present, etc etc ad nauseum, but when Cramer said “there’s a market for it” he was absolutely correct. There is a market for junk. Why else is Paris Hilton a “star”?
I think our current national conversation should be more about the whys and wherefores of the junk market (why people buy crap) and less about by-the-second updates on financial/political/whatever activity.
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Stewart took issue with the “losers’ mortgages” statement: How is it that home buyers (mostly average people with no knowledge of the inner workings of finance) are “losers” for believing the financial advice that home prices will always increase, while on CNBC the “experts” had no idea of the coming economic collapse? I’m sure Stewart would have debated this issue with directly with Santelli, but after cancelling the appearance, the Daily Show decided to have fun with the entire CNBC network (Cramer included).
The Daily Show segment showed many clips of erroneous CNBC advice, attempting to point out that they are losers as well. Unfortunately, Cramer took exception to some of the scenes (like where he was recommending Bear Stearns three days before its collapse) and the whole thing escalated, resulting in the Cramer appearance on the Daily Show.
So if you haven’t seen any of the segments, it’s not like Stewart just went out and attacked Cramer. It mostly stemmed from
1. Santelli’s comment about “loser’s mortgages”
2. Santelli’s last minute cancellation on the Daily Show
3. A segment attacking CNBC
4. Cramer’s responses on NBC platforms (he was on the Today Show and I believe the View)
5. The appearance on the Daily Show
The point Stewart was trying to make is that of all people, CNBC (who advertises as “financial news you can trust,” or something to that effect) should have known what was going on — not the “losers” with mortgages.
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While, I agree with Jon Stewart on many levels about this, I feel that going after Jim Cramer is going after an easy target. It is easy because Jim Cramer is so colorful on his show and, to some, annoying. However, his show does contain good bits of general financial advice mixed into the raucousness.
Cramer often has shows dedicated to why people should stay out of the stock market. He gives detailed advice as to who should be trading, and the prerequisites include $10,000 at least in a S&P 500 index fund, various forms of insurance such as long-term disability and health, and no debt. In fact, based off of his advice I have chosen to NOT invest in individual stocks. Of course, he gets it wrong sometimes. And of course, people should listen to his stock picks carefully and skeptically. But based off of his own criteria the only people who should be following his stock advice are people who are already doing well financially.
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The problem I have is a) none of the financial experts of cnbc and elsewhere caught the biggest financial story of their lives. Rather than trying to pick stocks maybe they should have been covering the troubling signs both of the housing boom, the selling of mortgages in Wall street, the overleverages, etc. They weren’t doing their job. Who cares what a CEO said? Where is the independent investigative journalism? And b) not only did they not call it, they may have contributed to the problem both in the general of buy now while it’s hot mentality, and in the specific of giving advice to the general public to “play” and sway the market. It leaves one with the impression there are precious few journalists, investors, what have you who are actually looking out for the average joe homeowner who wants to save for retirement.
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We get the media, much like the government, that we deserve. The reason Cramer is so popular is because THERE IS A MARKET FOR HIM (and a big one at that). I swear we are gluttons for punishment in this country.
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Be critical of the information you hear
This blog’s readers should be critical of what is advocated on this blog:
- dollar-cost averaging
- buy-and-hold (“Is short-term market movement really important if you won’t retire for 30 years?”)
- it pays to ignore financial news
In one blog entry, the author claims “Remember: I’m just an average guy”, and in the next, he’s dispensing investment advices.
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@tlw (#59)
You’re absolutely right: You should be just as critical of the things you read here as the things you read anywhere else.
However, I really am just an average guy, and I make that clear all the time. I am not an expert, and I do not claim to be one. I do not pretend to offer financial advice. I share what I learn and what I do, but that is it.
Yes, people should be critical of dollar-cost averaging (I’ve shared arguments against it), buy-and-hold, and ignoring financial news. However, from what I have read, research support each of these as the most effective strategies. Not always effective, but the most effective.
The three things you cite are three things I believe to be important to investment success based on my reading. But that doesn’t mean that I’m right. You (and everyone else reading this) should do your own research and come to your own conclusions.
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On points of Stewart hiding behind being a “comedian” — Regardless of this being the case or not — Don’t you find it sad that some degree of “hiding” is almost required these days for any journalist to have the freedom to ask tough questions.
I mean really ask — most news shows may ask tough questions, but it is in a way that the interviewee can find a way to dismiss the pointed criticism (usually, with humor).
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Shouldn’t we non-cable-having frugalists not worry, since we’re never exposed to this man Cramer anyway? ;p
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And when JD tells you to “buy and hold”, ignore that advice too!
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@JD – “I do not pretend to offer financial advice.”
That is certainly not obvious to me when reading an article such as “Why You Shouldn’t Keep a Mortgage Just for the Tax Deduction”, until I get to the fine print disclaimer at the bottom of the page (which is almost exactly the same as the Mad Money trailer).
I don’t see any fundamental difference between what you (or any PF bloggers) do and what CNBC talking heads do, so I find your criticism strange. The big media networks have stricter journalistic standards, fact checking, etc.; the PF bloggers have more personal touch. At the end both are thinly veiled entertainment.
And I have no issue with either one.
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Good point, FB. Good point. And believe me: I’m well aware of the thin line I’m walking (or crossing!) here.
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Grouping -all- of CNBC as one monolithic expert is unfair. Cramer sucks, almost all the analysis sucks, yes.
But the “loser” quote was by Rick wasn’t about the homeowners slipping up on some complicated financial topic: they knew that there was -some- risk, or else they didn’t look into it enough by any stretch of the imagination. Regardless, they took on the risk. They should have to eat the risk. THAT is what the quote was about.
Sorry, but yes, they took a risk, and the notion that they shouldn’t pay for it while those who decided to be more frugal should…well, that’s BS. (The policy is — not you, JD. You’re anything but. ;-p)
Yes, lot’s of smart people said that buying a house was “always” great choice. However, anyone who seriously spent a few hours researching “debt” and “financial advice” would have known that the anti-debt crowd existed.
I turned down an opportunity about a year ago that several friends offered me. They bought a house. Even my dad said I was being silly not to chime in and buy. I said no, because debt was too risky — I wasn’t even into personal finance at the time.
Still, even if everyone said something was true doesn’t mean that the people making the choice should be immune to the consequences of the financial risk. Especially not through tons of “free money” that will hurt everyone in the long run.
As far as “financial advice”, Jim Cramer and those similar should instantly resign and apologize. They should also give at least some sort of disclaimer that they are focused on entertainment and hype as opposed to real financial advice.
There’s no telling how many lives they have ruined. It’s sad. Still, Rick Santelli shouldn’t be grouped with them automatically, nor should his political comments be grouped with their financial predictions.
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I think there are a lot of good points in these comments. While the nature of Stewart’s show has been addressed, I do think one point has been left out. His entire show is about using satire as a way to expose hypocrisy, and in that sense, the interview with Cramer was no different. That being said, he clearly has a liberal bias, and it’s quite obvious when he has a guest with views he doesn’t agree with. Of course, he doesn’t try to pass himself off as anything but liberal anyways.
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I thought Steward was brilliant. I think the problem is with using the term investing. Investing is an idea of the past. It implies buying a stake in something that you believe in and want to help succeed both for the companies benefit and your own. In the olden days that is why going long was the only thing thought of as investing. As we recently discovered, people who were long have had twenty years worth of savings wiped out. Even companies like Apple who constantly beat earnings have lost over half their value.
In my view, stock shorting makes the concept of investing a joke. When you short a stock you are not investing in something. You are gambling. Worst you are rooting for the failure of companies and people who really are trying to invest in something. Since that is allowed, the over all concept of investing is gone and we are left with nothing more then gambling.
Another problem is with Brokerages who keep thinking of all these different trading schemes. There only motive is to make a profit off trades and could care less if a market is up or down.
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I may be wrong, but I suspect your not that old. Buying a house has always for generations been thought to be not only the pinnacle of American success, but also one of the smartest investments. The thinking was that real estate values always go up and if you pay off the house before you retire you won’t have payments and if needed you can sell that house to support yourself in a retirement community.
You’re naive to think that regular folks can so easily over come the far more abundant so called professionals advising that buying a house is one of the smartest things you can do even if that is not so. Instead of being so hard on others, you should find yourself lucky enough to have had more foresight then others who perhaps don’t possess then same wisdom as yourself.
Shaun Connell writes, “Yes, lot’s of smart people said that buying a house was “always” great choice. However, anyone who seriously spent a few hours researching “debt” and “financial advice” would have known that the anti-debt crowd existed.”
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Here are the facts:
1)People want to believe there is a way to “beat the market” and Cramer is just another media celebrity willing to serve up his entree of investment junk food.
2) The media will broadcast what increases viewership so they can increase ad rates.
3) Nobody saw this coming as swiftly and as sharp as it came. Though there were many indicators, nobody expected the carnage to be this deep and this wide. There was literally no place to hide except in government bonds. Nobody, especially the media could be faulted for that.
In the end, most financial media teaches people to do what Wall Street brokers have brainwashed people into doing over decades of training. They tell you to watch the markets every day, or every minute in some cases. The best thing that could happen to the stock exchanges is that 1) they move it to someplace remote like Fargo, ND, leaving behind the hyper New York floor traders who think the world lives or dies by their split second decisions and 2) they open the trading floor for one day a week. The markets don’t need to move every second of the day.
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man, it’s a tv show. it’s entertainment. anyone who is taking stock tips from a tv show is probably already late on the money anyways.
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I used to be a fan, but I’m sick of Jon Stewart and I’ll tell you why. He’s a bigger hypocrite than the people he attacks.
In his interviews, he makes very serious, mostly biased accusations against his interviewees. He does this in front of a biased, generally ignorant, cackling and cheering audience. He uses bad words to make himself seem young and hip.
And then, whenever the subject provides any counter to him, he giggles and retreats back to his safety of “Hey hey! This is just a comedy show, this is FAKE NEWS! I make ‘fart noises’.” He attacks, but he’s not willing to put himself on the line. He’s a hypocrite.
That being said, the first segment of his show does have lots of value by exposing the flip-flops of politicians, as well as the fact that most legitimate news is shrill echoing of sound bites.
The interview segment with a friendly subject is fine; the equivalent maybe of Letterman or Leno. But if, during his confrontational interviews, he or his viewers think that he’s some sort of hard-hitting, investigative reporter speaking up for the little guy, then they’re fooling themselves.
Regarding the Cramer interview in particular, which I watched on YouTube, the whole premise that there is this master class of traders and investors and CEO’s that were all in cahoots against us commoners by “stealing our 401k’s” and that is pure hogwash. The idea that somehow CNBC was ALSO complicit in this scam is even more ridiculous. Look at the publicly filed holdings of all the CEOs and top executives of ALL the failed or failing firms. Bear Stearns, Lehman, Citi, AIG, on and on and on. All the executives had huge portions of their own money in company stock, and they didn’t have to do that.
They were stupid yes, but they themselves believed what they were selling; it was a bubble, not a scam.
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Take a look at this Cramer’s recommendation:
http://www.gainerstoday.com/cramer-bear-stearns-Stock-Market-Picks
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how did all of the readers forget Taleb saying “sensible soundbytes” is an oxymoron! CNBC invites its advertisers, sponsors, and holders of their sponsor shows, etc. as ‘opinion leaders’ – and major problems like ‘confirmatory bias makes us watch this junk
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