Are CNBC Anchors on a Mission Against US Treasuries – A Viewer’s Update

Editor’s Note: This is an article about CNBC and Financial Television media in general.  It is NOT an investment article. No one should NOT invest or consider any investment based on any information contained in or inferred from this article or any portion of  it. All investment decisions or conclusions should be discussed with your investment advisor and should be subject to your suitability requirements and risk tolerances.

Last August, we wrote an article about attitudes of CNBC Anchors towards US Treasuries, the most liquid and most credit-worthy bonds on the face of this earth. The article, titled Are CNBC Anchors on a Mission Against US Treasuries? – A Viewer’s Perspectives, went on to become one of the top 10 popular articles on this Blog.

Today, we provide an update. Allow us to say that a couple of anchors have reduced or eliminated their past bias. Maria Bartiromo has actively found and interviewed real experts who recommend investing in Treasuries. Erin Burnett has begun an effort this week to gently persuade viewers to buy Treasuries.

These are welcome signs but, in the CNBC terminology, these are merely a couple of “green shoots”. The rest of the CNBC pasture remains gray, full of anti-treasury weeds. Read on to see why we think so.

Difference Between How CNBC Anchors Treat Equities and US Treasuries

This year has been a rocky ride for both equities and treasuries. From mid-January to early March, equities suffered a terrible decline. At one point, the S&P 500 index was down 25% for 2009.

CNBC Anchors were distraught and tried to find experts to tell them when the stock market would bottom.

  • Not one CNBC Anchor told the viewers that the sell-off was justified or celebrated the sell-off.
  • Instead, all the guests and all the CNBC Anchors told viewers that the decline was unjustified and the markets were deeply & violently oversold;
  • They all told viewers that when markets get oversold, they eventually bounce upwards.
  • They all told viewers that the violence of the sell-off was in itself a buying signal because of the nature of markets.
  • In addition, they kept telling viewers that as stock prices fall, stocks become undervalued and better buys.

Then one day in March, the stock market bottomed and there was a rush among CNBC Anchors and guests to take credit for calling the bottom.

During the past month, the Treasury market suffered a steep and violent sell-off. Interest rates have shot up and prices of long term Treasury bonds have fallen dramatically and swiftly. 

We notice that the behavior of CNBC Anchors towards the Treasury Bond sell-off has been radically different than their attitude towards the earlier equity sell-off.

  • Most anchors seem to be believe that the sell-off in Treasuries  is a good thing, a righteous action by markets or a bursting of the hated Treasury Bubble.
  • Anchors on shows like Power Lunch celebrated the sell off in Treasury Bonds telling each other and the viewers that the era of risk aversion was finally over. Michelle Caruso Cabrera drew the picture of the yield curve in her infomercial and showed how 30 year treasury rates could go to 6% or 7%.
  • Fast Money Traders*, the wild west bunch of CNBC, got ever so giddy about the sell-off in Treasuries. They celebrated with wild abandon and opined how inflation was a systemic problem for the US Economy. Then they told viewers that long term Treasury rates could skyrocket and stay there for a long time.

As far as we can recall, not a single anchor stepped forward to say what every one of them said about the stock sell-off  – that panic sell-offs become buying opportunities and when bond prices fall, bonds become more undervalued and better buys.

Then on Wednesday, May 27, the CNBC celebration about the bond sell-off suddenly fell silent. Why? Because the stock market sold off that day and it dawned on the CNBC Anchor crowd that if bond prices fall, stock fall prices could also fall. So, even Melissa Lee, the Calamity Jane of the Fast Money Cowboy Spread, expressed worries about rates going up.

Does this serve as evidence that CNBC Anchors are intrinsically biased against US Treasuries? We leave it to our readers to decide.

“Chance Favors The Prepared Mind”

What surprises us is that CNBC Anchors were so surprised about the Treasury sell-off in May. We see them trying everyday to fathom the reason for the sell-off and to concoct new but pacifying reasons for this sell-off.

Readers of this blog are surely not surprised. They have read out article on April 25 titled US Treasuries – Will 2009 Be Like 2006-2008 Or Like 2003 & 2005?

In that article, we pointed out the trading patterns of treasury bonds for the past six years. At that time, Treasury bonds and TLT, their ETF, were sitting on their 200 day moving average. We wrote that day, if the 200 day moving average gets broken decisively, then the Treasury Bond market would suffer a steep sell off until June 2009.

That is how Treasuries had behaved in 2006-2008, the 3 bubble years. In each of these years, the bonds sold off steeply and violently in the May-June period. So, once the 200 day moving average was broken in late April, it was a signal to sell Treasuries or even short them.

2009 – Son of the 2007 Bubble

In our May 9 article The Bubble Is Dead. Long Live The Bubble, we argued that we were seeing a rebirth of the 2007 bubble. The past three weeks have proved this assertion with a vengeance.

  • Oil is up 29% in May and the Commodities index, CRB, is up over 14%, its best month since July 1974. Gold is marching back towards $1,000. US Dollar has been sold mercilessly and US Treasuries have been sold violently. Long only institutional investors (or dumb money) are again investing in commodities as an asset class – the same madness that drove Oil to $147 in the real bubble.
Inflation is back as public enemy Number One and comparisons to past inflation fears are put forth with glee.

  • Melissa Lee compared the rise in 10-year yields to the June 2008 period;
  • This brought back memories of June 2008 when Dylan Ratigan had compared that month to June 2006 as a period of high inflation;
  • Tim Seymour of Fast Money compared the spread between the 2year-10year treasury yields to the October 2003 period.
But none of them stopped to consider or tell their viewers that each of these periods had proved to be superlative buying opportunities for long term treasury bonds.  In fact, in each of the past three years, the Treasury sell-off in May-June was a great buying opportunity with returns exceeding 20% by November-December of the same year. 

But no CNBC anchor disclosed this to their viewers. Do they not know? That is easily fixed. They can ask any Wall Street Trading Desk or they can simply read our blog.

Or is it because they know the history too well? Because they know that while Treasuries enjoyed a huge rally from June to December in 2007 and 2008, the stock markets collapsed.

We wonder whether this serves as yet another piece of evidence that CNBC Anchors are inherently biased against Treasuries.

Why Are US Treasuries So Important?

In our opinion, there is no asset class in America that is as critical as US Treasuries. In fact, in our opinion, US Treasuries are the foundation upon which America’s prosperity rests.

  • The US Economy is terribly leveraged, a fancy word for the bald statement that the US Economy has a huge amount of debt, roughly 350% of its GDP. This debt-ridden economy cannot, repeat cannot, handle high interest rates. This is why, in the past decade including the bubble years, when market treasury rates shot up, the economy slowed down and that created a new bull market in Treasuries.
  • When US Treasuries fall in value, other bonds such as Municipal Bonds and Corporate Bonds fell even faster. Witness the rout in the mortgage market on Thursday, May 27. These bonds are very hard to sell when prices are falling, especially for individual investors. Only US Treasuries can be sold quickly at the market price. So there is no substitute, in our opinion, to US Treasuries for safe income.
  • American households suffer from income stagnation. It is a sad fact that incomes in America have not grown even during the bubble years. Today, the average American household suffers from a shortage of income and a severe cutback in credit. They are in no condition to tolerate a rise in market interest rates. (for more details, see our article America’s Income Problem).
Some day, this will change, some day when the US Economy comes out from its debt burden and the income of the average American begins to rise in a sustained manner.

Secondly, the US Economy needs foreign inflows of capital to survive. The US Treasury market is the world’s safest and most liquid bond market. That is why foreign central banks tend to keep their safe money in US Treasuries. If US Treasuries suffer a sustained bear market, these central banks would pull their monies out like every other investor.

This is why we wonder why CNBC Anchors like Michelle Caruso Cabrera, Sue Herrera, the Fast Money* crowd, (to name a few true anti-treasury “jihadis”) gleefully cry out for long treasury rates to go higher and higher. We simply do not get it. But then, we never could understand the “jihadi” mindset.

Frankly,  in our opinion, being anti-Treasuries at this time is like being against American people and against America itself.

The Equity Cult remains as strong as ever 

It is a sad fact that Americans got caught in 2007 with a large chunk of their portfolio in stocks. These American households saw the value of their stock portfolios cut in half in 2008. This decline will take years to heal, time that middle aged Americans may not have. We expect this to create a Retirement problem in America, if not a crisis.

We believe that the culture of “equities as the best long-term investment” led to this imbalance in the portfolios of American households. The biggest cheerleader of this culture was CNBC, in our opinion. The equity rally during the past three months and CNBC’s euphoria about the equity rally might already have done serious damage to investor portfolios.

Merrill Lynch Economists reported on Wednesday, May 27, that “households are growing increasingly bullish on stocks and increasingly bearish on bonds”. They also reported that the spread between those bullish-bearish on stocks “jumped to 5.0 – the highest since the cyclical peak was put on equities back in October 2007”. In addition, they reported that “the percentage of respondents expecting interest rates to go up jumped to 47.0 in May – the highest since October 2008”, just before interest rates collapsed in November-December 2008.

What Do We Expect from CNBC? – Do the right thing for American Households & America

The rise in interest rates in the past couple of months have given CNBC another chance to do the right thing:

  • To educate the American Investor that buying bonds when rates are high is the right thing to do.
  • To educate their viewers about the virtues of investing in the safest, most liquid bonds on the face of the earth.
  • To educate the American Investor about getting guaranteed safe income.
Then, if 2009 turns out like 2006-2008, CNBC viewers can generate real capital gains for themselves. Now, that is a consummation devoutly to be wished.

CNBC keeps talking about the vast mountain of money ($9.2 trillion by some accounts) sitting on the sidelines that is “just waiting” to get into the stock market (or so say CNBC’s Joe Terranova and many CNBC guests).

Now imagine if just 10% of that money went into safe Treasuries at 3.5%, the entire issuance of the US Treasury for 2009 could be bought by American households. America would not have to depend on China, on Hedge Funds or on any one else. (for more details, see our article America’s Income Problem).

The American household would get a safe income generating investment yielding almost 5% above today’s inflation rate and America would eliminate its dependence on China. That is a true win-win situation for American Households and for America.

If CNBC does not take this opportunity and if CNBC sticks to its “buy stocks – sell treasuries” mission, CNBC could once again damage the American household, America and finally end up damaging itself.

* PS – We do not intend to tar all Fast Money Traders with the same wide brush. Guy Adami and Pete Najarian have been voices of balance & reason. They stay true to the Fast-Quick trading mission of the show. They stay away from the long term anti-inflation Talebani fervor of the “Run TJK” team of Tim Seymour, Joe Terranova, Karen Finerman. We recall that the original Run TMC team never won any title.

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