Editor’s Note: This is an article about CNBC and Financial Television media in general. It is most definitely NOT an investment article. Readers should NOT invest or consider any investment based on any information in this article or any portion of it. All investment decisions should be discussed with your investment advisor and should be subject to your suitability requirements and risk tolerances.
We do NOT include Jim Cramer, Rick Santelli, Larry Kudlow and Steve Liesman of CNBC in the criticism implicit in this article. Both Jim Cramer and Rick Santelli had the wisdom and the nerve to stand up in late June 2007 (during the meltdown of the Treasury Market) and proclaim that Treasuries were a buy. That was both courageous and prophetic. Larry Kudlow has always been professionally honest about US Treasuries and his show is the best CNBC program for interest rates and monetary issues. Steve Liesman does a terrific job bringing viewers information and interviews with monetary experts. To see what we mean, watch his interviews with four luminaries on Friday, August 22 (http://search.cnbc.com/main.do?target=all&keywords=liesman ).
But the rest of CNBC seems to be on an anti-US-Treasuries mission. CNBC’s journalist anchors seem driven to convince their viewers that investing in Treasuries is only for the very risk-averse and that stocks are the only way to invest for higher returns. They try to be fair to income investors by discussing Junk Bonds and Emerging Market Bonds at times. But never US treasuries! Their usual refrain is “why would you possibly lend money to the US Government for ten years at 4% ?” This is a deceptive question because it implies that when you buy a 10-Year bond, you have to hold the bond for 10 years. Treasuries trade every day and trade they do in far larger volumes than stocks.
We went looking for answers from experts such as Dr. Gary A. Shilling and Mr. James Bianco, two exceptional investors and forecasters. Gary Shilling is the President of A. Gary Shilling & Co. (http://www.agaryshilling.com) and James Bianco is the President of Bianco Research (http://www.arborresearch.com/biancoresearch/redirectFromOldDomain.html).
Dr. Shilling was gracious and gave us the historical overview of how Treasuries have often provided higher returns than S&P 500. We were stunned when we saw the chart he provided us. This chart shows:
- If you had invested in “S&P 500 stocks” from July 1982 (when the great long-term stock bull market began) every year until March 31, 2008, you would have received a total return of 13.2% per year and your investment of $100/- would have turned in to $2,431/-; an impressive return indeed.
- If you had invested in “25 Year US Treasury Zero Coupon Strips“ from October 1981 (when the great bond bull market began), every year until March 31, 2008, you would have received a total return of 20.5% per year and your initial investment of $100/- would have turned in to $13,889/- using this strategy; a phenomenal rate of return.
- In other words, investing every year in the 25 Year US Treasury Zero Coupon Strip gave investors annual 20.5% return over the past 26 years while investing every year in S&P 500 only gave 13. 2% annual return.
Annualized Returns Ending 7/31/2008
|3 Year||5 Year||10 Years|
| 25 Year US Treasury Zero Coupon Strip||+ 7.80%||+ 1.91%||+9.69%||+7.24%|
|S&P 500 ||-11.09%||+ 2.85%||+7.03%||+2.91%|
Other treasury bonds and strips have also given investors high returns (Generally speaking, the longer the maturity of the bond, the higher the potential risk as well as return).
Professionals on Wall Street have always known that US Treasuries can provide good returns but the average viewer may not. Perhaps, that is due to the preachings of the Financial Media, like CNBC.
We have remarked in other articles that we watch CNBC for entertainment as well as information. We have compared CNBC with Bollywood in terms of their desire to make the viewers feel happy. (See our articles – “Watching CNBC – A Bollywood Rasik’s Perspective” – July 12 and “CNBC Stars – Bartiromo and Burnett – A Bollywood Rasik’s Perspective” – July 26).
But, we do expect CNBC to be fair in its treatment and broad in its outlook. That is why we do not understand the virtual “jihad” of CNBC Anchors against US Treasuries. Read on and see whether you agree with us:
- Maria Bartiromo is the original star of CNBC. For the past few years, Maria has chanted one mantra “Global Liquidity and Global Growth” or GLG2 as we call it. Now, you cannot be a poster woman for GLG2 and bring yourself to think of simple old US Treasuries as a possible investment for high returns. As a GLG2 believer, Maria seems to think that a rise in US Treasury rates would be a good signal for resumption of global growth. So whenever possible, Maria keeps raising the possibility of Fed raising interest rates. She does not seem to realize what a rate rise would do to the average American family. Watch Maria’s interview with Bill Gross on Friday, August 15 at http://www.cnbc.com/id/15840232?video=824952435&play=1
- Erin Burnett, CNBC’s new star, has also joined this jihad. Not only does Erin talk about Fed raising rates, she seems to suggest that American Economy has become a “whiner” addicted to low interest rates. Erin regularly claims that current interest rates are far lower than they used to be historically. She uses this canard to express her constant refrain that “if mortgage rates were to rise by a couple of percentage points, it would not cause much damage because today’s rates are so low“. This is so crazy that we sometimes wonder whether Erin is going to laugh and tell us that we are watching an episode of “Girls Gone Wild”. Bond experts such as Bill Gross and Paul McCulley of PIMCO have told Erin that she is wrong. But, she seems impervious to reason. A hallmark of a “jihadi” or a rebellion of youth?
- Then we have the two most experienced CNBC anchors at noon – Bill Griffith and Sue Herrera. To us, these two are the nicest people on CNBC. Sue Herrera has been our favorite for years, may be because she reminds us of our favorite Aunt. Bill Griffith, a gentleman, tries to hedge his every proclamation with “right now” as a caveat. With their experience and gentle nature, you would expect Bill and Sue to be knowledgeable and fair. But, they are even more anti-Treasuries than Maria and Erin. The only time Bill Griffith seems to drop his “right now” caveat is when he is talking about US Treasuries. Bill and Sue seem to suggest that people should not invest in Treasuries unless they are running away in fear from the stock market. They express this view constantly without ever pausing to wonder whether this view is true or whether it could be damaging to their viewers.
- Finally, we have Joseph Kernan, CNBC’s main man of the morning. He raised the ante to a new level a couple of months ago, when during his morning show, he rubbed his hands in glee and beamed when discussing the possibility of Fed raising rates.We have a soft corner for Mr. Kernan because he is an ex-broker, one of our favorite professions. He knows what would happen to our economy if the Fed were crazy enough to raise interest rates. But he does not seem to care. A hallmark of a “jihadi” or the obstinacy of a closet “Naderite”?
Unlike the above journalist anchors, the Fast Money traders are professional investors. Surely, they understand that Treasuries and especially Zero Coupon Treasuries can generate fast money.
But, ever since the show began, to the best of our recollection, none of the current Fast Money Traders have ever recommended buying US Treasuries for a trade (with the solitary exception of Eric Bolling, who is no longer with Fast Money).
- Fast Money traders have suggested trades in Gold, Oil, Corn, Wheat and even in TIPS, the inflation-protected Treasury Securities, but
- Fast Money Traders have never ever recommended buying straight US Treasuries, the simplest and most liquid of investments. On the other hand, Joe Terranova, on one occasion, recommended shorting US Treasury Futures, a trade that lost money unless Mr. Terranova covered it very quickly.
Treasuries might be a timely trade for “Fast Money” if Randall Forsyth of Barron’s is correct. He ended his August 18 column “Current Yield” by writing “With credit tight and commodities sliding, inflation is being supplanted as the main economic problem by the U.S.-led slowdown spreading abroad. Only the Treasury market stands to gain from this latest turn.” What does Barron’s know that CNBC Anchors do not?
Listen to us, Mr. Ratigan! Invite Mr. Bianco and Dr. Shilling as guests on “Fast Money” to discuss how to make fast money in US Treasuries. Your viewers would thank you and then, perhaps you could thank us.
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