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Freaked Out Friday - Has CNBC Gone Too Far?

CNBC has now gone way too far!

Using their first amendment shield to shout FIRE in a crowded theater, CNBC began stampeding investors out of the market at 3pm when they decided to have a temper tantrum as the Senate had the nerve to approve financial reform, which will hopefully stop CNBC's advertisers from screwing people over quite as hard as they have in the past. Note on the video, the Dow was at 10,209 at 3pm and then just watch the market move while they speak - what power!

They say with great power comes great responsibility but what do we do when it is wielded irresponsibly? Bob Pisani reports from the floor (where he's "in" with the traders) and tells you "The Germans are going to vote tomorrow on whether or not they even want to support the Greek package." This is total BS as Angela Merkel's coalition controls 332 of the 622 seats in the Bundestag, their lower House of Parliament and this is considered a done deal. What the EU is worried about is the meeting of the EU finance chiefs AFTER the vote (CNBC doesn't even give you this news) where officials will discuss proposals to better coordinate national budgets and may address unilateral German limits on government bond trading.

I will give Bob a 1 out of 10 on this one because he got the words "German" and "vote" correct but the vote is on a bill that bill allows loans of as much as $184 billion from Germany to backstop the Euro and has nothing to do with Greece, who already got their money on the 18th. Note how the moment Bob talks about an upside, Maria (who has someone whispering in her ear) cuts him off and spins things into a downward spiral talking about risk coming off the table and Roubini predicting doom (what else is new?) with, she emphasizes, "a 20% correction in the next several months from THESE levels."

Just to keep track of Dr. Doom for those of you who don't follow him:

Now I love and respect Dr. Roubini, this is not about him, this is about understanding that his consistently gloomy views on the economy make him a tool that is used by the MSM to create a panic when they need one. The reason I make a bad television guest is you never know what I'm going to say. How do you "slot" me if you don't know which side of the debate I'm on? As my readers know - I'm on the side that makes money! TV audiences don't want a flip-flopper - they want a guy they can label "DOCTOR DOOM" and have him come on TV and say "DOOM." It's the same thing my kids expect when they see their superhero cartoons - where's the catch phrase that identifies their characters?

Next up (3:01:34 pm - this may take a while!) is Scott Wapner who says "It's de-risking across the board... and we can't do anything about it." Sharon says June crude is below $65 a barrel but doesn't explain that this was expiration day for June and oil was being dumped by idiot amateur speculators in a panic as often happens when oil falls in prices and they realize they can't afford to roll the barrels to July nor are they in any position to accept delivery. July crude touched $69 yesterday, we went long at $70 and got out at $70.85 so thanks Sharon, for being such a reliable corporate tool!

Brain Shackman (3:03:19) says: "It's not about a flight to safety, it's about a flight to liquidity... what you see is people wanting to get to cash." Gee, it's a little late now, we went to cash at the beginning of the month, thank goodness! The funniest thing to me is Sharon pointing out how thinly traded Platinum and Palladium ETFs are and how retail investors poured into them this year and now they are trapped like roaches (see my classic "Roach Motel Theory"). What's funny is it was CNBC's constant cheerleading that drove those investors into these brand-new, untested and unwise ETFs. I warned against betting against the dollar with commodities last November (and congrats to all the UUP players!) and got incredible amounts of hate mail from gold bugs and other commodity lovers. Gold bugs are still winning as my $1,150 top for gold was shattered....

Speaking of tools, notice Rick Santelli (the guy who was outraged that the government would subsidize "the losers' mortgages" with his money and effectively kicked off the Tea Party movement) blames the regulation of Wall Street on the Dow's drop, not their ridiculous broadcast. That becomes this GE-owned(a financial that was bailed out) network's theme for the rest of the hour. I said to Members that Lloyd Blankfein was probably on the phone to Obama at the same moment saying "Watch what happens when I press this button - Muhahaha…" This was perhaps, the most coordinated arm-twisting of our government I've ever witnessed. The passage of the regulation bill was never in doubt, this "market disapproval" is simply the disapproval of the guys who make the market, not the poor schlubs who try to invest in it and would like to have a slightly more level playing field.

Of course CNBC isn't done there, right after that little warm-up, they release Doctor Doom himself, slotting him in for a 6-minute segment and if you watch this video, just note how Maria spins every statement that's made to hit her (GE's) talking points. Anthony Scaramucci comes on at 3:37 to say that Hedge Fund managers are not happy about the government getting involved in the markets and Maria spins it down and down and down. Scott Minero (1:46 on this segment) has great advice, saying "sell volatility," which is what we do at PSW - he was the best guest of the day! Still, a very gloomy pair...

Where I think CNBC went right over the line, where they began shouting FIRE in the crowded theater, was 3:45 when they introduced the "Fast Money Final Call" saying: "FEAR taking over Wall Street with markets continuing to sell off, out next guest says the markets are in a wholesale de-risking stage. So how can you PROTECT YOURSELF in these uncertain times?" And what does Brian Kelly have to say to help CNBC viewers?

You get to cash, you sell what you can on any rallies - even sell it now today. I mean were in a stage here where everything is selling off. There's a global risk reduction going on and the one thing that tells me that today, that this is more than just Europe - look at the Euro rate today, it is up now, yet the equity markets are down. Something's changed, everybody's taking risk off. As an individual investor you should take risk off, you should get to cash and, as a more aggressive investor, you can be short this market.

Brian goes on to talk about slowdowns in China and Brazil and lots of other terrible things that would scare anyone to death and he explains we are in a global sovereign de-leveraging. The host then says (and I wish I was making this up) "The markets entering full correction mode... Plus, he's the top-ranked chartist over the past 30 YEARS and he says it's time to SELL, SELL, SELL." That is the CNBC Fast Money Final Call - Cash out, get short - on a day when the market is completing a 10% correction.

I can't believe this is the same station that couldn't find a single bear to put on the air three weeks ago! That was when I got fed up and we went to cash as I warned at the time (with a picture of a roller coaster): "Attention ladies and gentlemen: The stock market will soon be leaving the station, please secure all personal items, pull down the safety bar (our Disaster Hedges) and keep all body parts inside ride at all times... Since our biggest weekend fear is financial panic in Europe, our cash US dollars will become more valuable in a crisis and if the market drops, all the better as we can ride back in and do some bargain hunting." Well, in a way we should be thanking CNBC for giving us these great buying opportunities (we had upside, well-hedged trade ideas on over 25 blue-chip stocks for Members this week already) but that's kind of like thanking Osama Bin Laden for getting us a good deal on a Battery Park City apartment - it's just too creepy!

Just like any good terrorist organization, CNBC preys on your fears and manipulates your emotions to achieve their political ends. Unlike Bin Laden, unfortunately no one is trying to put a stop to CNBC!

Spending the majority of the last hour of a stock market session presenting nothing but negative news and having the guest on "The Final Call" look right into the camera and urging "individual investors" to liquidate their holding, even at the lows of the day is NOT journalism, is it?

So we are now in full panic mode and there's not a bull to be found and this morning (8:30) the futures are off another 1% and the game has gone from roller coasters to limbo - how low can we go? We'll discuss this over the weekend but I was, and still am, looking for key support at these levels but, as I said yesterday, we're hedged to a 40% drop so our actual "best case" is another big leg down from here to 8,650 on the Dow. I don't hope it happens much the same way don't hope my home burns up so I can collect my fire insurance but, on the bright side, we do get lots of cash at the bottom and the ability to build a brand new portfolio just the way we like it. We did this back in the last crash (and boy was CNBC wrong then too!) and we're ready to do it again if we have to but, for now, it's good to have a little perspective:

What's this? It's the QUARTERLY chart of the S&P 500 for the past 10 years. If you are a LONG-TERM investor, then you should be looking at LONG-TERM charts - that just makes sense, doesn't it? We felt, for many reasons, that the run up to 1,200 came too quickly and wasn't pricing in risk so we lost interest in buying stocks. Now risks are being priced back into the market and we're getting, not so much a correction as a proper price adjustment to more rational levels. What we're hoping for (and hedging for) is a period of HEALTHY consolidation down around these levels that give the global economy time to recover and, more importantly, adjust to the new paradigms.

We may drop all the way back to 800 (head and shoulders fans) and that will give us a HUGE buying opportunity, which is why it's critical to stay MAINLY in cash and scale into long-term positions, taking advantage of the fear premium we are able to sell the the CNBC crowd. If you are worried about positions you currently have and you didn't partake in our "5 Plays that Make 500% if the Market Falls" on April 28th (which was a Members Only post at the time), then you can still set up protection for a fall all the way to 800 on the S&P like the following:

  • Buy SDS Sept $29 calls for $8.25

  • Sell SDS Sept $36 calls for $5.25 (net $3)

  • Sell SDS Sept $30 puts for $2 (net $1)

That puts you in the $7 spread for a net cash outlay of $1 ($10 in margin, which can be cut to $5 by spending .35 on the $25 puts) and SDS (an ultra-short on the S&P) is CURRENTLY at $35.77 so your $1 outlay on the spread is CURRENTLY $6.77 in the money. This isn't even a play on the S&P going down, it's a play that pays you if it doesn't go up! This is how we are able to buy with confidence at PSW. Commit $5,000 to this position and you get $35,000 back if the market doesn't go up. Then we can buy 500 shares of BA at $62.40 and sell the Nov $62.50 calls for $8 and the Nov $55 puts for $5 and that puts us in BA for net $49.40 ($24,750) and, if BA ends up below $55 in Nov, another 500 shares will be put to us at $55 for an average entry of $52.25 ($55,250). If BA is below $55, it's a good bet the S&P will be below where it is now and you will be $30,000 richer so you are covered owning BA all the way to $22.25 - THAT'S what I mean when I say we're buying stocks!

I will be laying out many of these hedges for our Members and, of course, doing some bottom fishing today, just in case everything is all better next week. If it's not, we're ready to get a bit more bearish for the next leg down but please folks - don't panic!

Have a nice weekend,

- Phil


Anonymous said...

Poor baby sounds like someone is long the market. Fire ? CNBC is all about Green Shoots, I thought I heard good place to buy today from Herrara and Matheson head cheerleaders! Santelli tells it without the green shoot spin, you know, how adult traders want their business news. You also forget that Santelli has been on the same page for a long time, and right as rain too! He also tried to warn people when Bush was in office about what may well be around the corner. ( on youtube, Hello!) It just fell on your deaf ears. I totally agree with Rick about housing (then and now... most people do), as I just received a offer from Chase to refinance my home @ 125% of its value, here we go again, the big bad banks are making me refi.. Your blog readers should watch Santelli. Better luck trading next week, sounds like you rely on it!

Anonymous said...

CNBC is a trader's network. It's about financial reporting, not economics. You're right about the German vote being a nonstory and about Roubini being a tool. I always wonder: when the market is tanking, and the institutional players come to CNBC's studios and preach to buy this and buy that, WHO THE HELL IS SELLING THEN? If they're all buying, who's taking the Dow down a thousand points in less than a month on insane volume? And on Friday, when the markets gap lower and the same institutional players are coming on and telling viewers to derisk and move to cash, WHO SUBSEQUENTLY TAKES THE DOW UP 300 POINTS? I'm baffled by the guy before me's comment. To me it sounds like you're doing exactly the right thing - i.e. the exact opposite of whatever CNBC's guests tell you to do.

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