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From NewsLink, Vol. 5, No. 1, Fall 2000
Howard Kurtz is the media reporter for the Washington Post and the host of CNN's weekly program, Reliable Sources. He is also a popular mass-market author. His inside look at President Clinton's “propaganda machine,” aptly named Spin Cycle, was a New York Times bestseller just as Monicagate was warming up. But there's more to Kurtz than the stroke of luck that found his book released during the biggest Presidential scandal of recent time. As one of the nation's foremost observers of media behavior, Kurtz possesses an uncanny ability not only to choose a hot topic but to get to the heart of the matter.
More important, over the course of his career, Kurtz has developed a reputation as a trusty night watchman over the struggle between the press and elected officials to shape the news cycle.
No administration has spun the news cycle as effectively as the Clinton administration. Through controlled leaks to the press, stonewalling and neat packaging, the President, with the press drawn and quartered, managed to retain popularity during a damaging personal scandal.
Keeping score in the world of politics and the press is easy, says Kurtz. That's because there's a line of credibility. Reporters are bound to maintain distance from the subjects they cover, notwithstanding recurring charges of media bias. But the world of business journalism is different. No such accountability exists. With The Fortune Tellers, a readable fast-paced work, Kurtz charts new territory. Here the spin cycle is never-ending – thanks in part to the ascendancy of the stock market, the Internet-empowered individual investor and the proliferation of high-fever-pitched business journalism. “In this overheated environment, the degree to which basic facts can be massaged, manipulated, and hyped is truly troubling.”
This brave new world of over-hyped stocks, Internet-dot.com companies, and newly-minted billionaires is aided and abetted by instant television coverage and the Internet. CNBC, CNNfn and Bloomberg tickers on computer screens in the workplace are proof that stock picking is a popular pastime.
In this new world of quicksilver capitalism, where players seek to exploit the stock market (often unsuccessfully) for immediate short-term advantage, the old rules of market prudence for the less sexy long-term investor no longer dominate. Today reporters covering the market are snappy, topical, and, unfortunately led by the tail. They also face new deadlines based on Internet time.
That's because momentum and program trading require an all day, up-to-the-minute news cycle. In this scenario, the chattering classes of reporters, CEOs, brokers and analysts are only too eager to feed the beast. “Journalism serves as a vast echo chamber for rumors ... that have an electric impact, jolting some stocks and short-circuiting others ... Money managers, bankers, and brokers provide a steady stream of self-serving tips about mergers, alliances and deals that often fail to materialize.”
Naturally the money managers and brokers have the upper hand over the journalists they feed. But more specifically, Wall Street analysts are feeding more than just the journalists. They are promoting the accounts of brokerage houses that employ them. These underwriters of new initial public offerings stand to make millions promoting favored stocks.
Thanks to electronic day trading, the individual investor is now a key player, left to find sense among the white noise coming from televisions and computer screens. Analysts have become such promoters and marketers of their wares that they hardly ever recommend selling stocks. After all, how can you short a stock if no one's buying? “Analysts used to make three kinds of recommendations: buy, sell or hold. These days no one suggests selling a stock until it is nearly worthless,” notes Kurtz. This is hardly a breezy dismissal. Kurtz quotes the work of the only iconoclast in the book, Mark Haines, a CNBC veteran, who found that in 1997, of the more than 15,000 opinions uttered on Wall Street, less than half of 1% were involved in a recommendation to sell any stock. Only recently have financial news programs asked their guests to disclose holdings or partnerships with the firms they promote.
To hear Kurtz tell the story, one is led to believe that these individual investors are at the mercy of “market movers” and carnival barkers who are able to divine the code of the street. Movers and shakers such as Maria “Money Honey” Bartiromo of CNBC, hedge fund manager James Cramer of the now faltering TheStreet.com and analysts such as Henry Blodgett of Merrill Lynch are ascribed too much power to predict markets. Baritomo's 9:27 a.m. reports before the market bell, have, it turns out, little predictive power in a downturn. Cramer, straddling the blurry line between money manager and journalist, is now diminished. And Blodgett, noted for the comments he made in running up Amazon.com, seems less of a prodigy now that tech stocks are out of favor.
Kurtz is wise enough to know that regulating a service industry that's partly predicated on the fruits of the First Amendment is a tough call. Individual investors, now empowered with too much information, will have to sift through it to protect themselves. Caveat emptor.
In contrast, a new SEC rule, Regulation FD, restricts the amount of information CEOs can “leak” to selected analysts. While not a topic of Kurtz's study, Regulation FD most definitely will make the analyst's job harder. Regulation FD could mean less information for everyone, including the kind of information that's needed to verify genuine earnings estimates. Already some CEOs are talking less.
But Kurtz appears to have a better answer: With the power of new technology comes the need for individual responsibility. “The fortune tellers, in short, will always be with us. Those who blindly follow them have no one to blame but themselves.”
NewsLink is the quarterly newsletter of the Beacon Hill Institute for Public Policy Research at Suffolk University. © 1996-2000. All rights reserved.
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