What’s the financial buzz?
My entry today is about Cramer vs. Stewart and what transpired on the Daily Show. It’s been the current rage and water cooler talk in America brought about in part by Madoff’s story that hugged the headlines the past few days.
Who is Jim Cramer? He is the person on Cramer’s Mad Money on CNBC where he provides updates through-out the day of Jim Cramer’s Stock Picks. He also provides recaps from CNBC’s Mad Money, Stop Trading, and the RealMoney Radio Show. He has his stock picks and keeps track of the stock picks so investors can make the right decisions. That’s what he claims.
Who is Jon Stewart? He is a comedian. His show, the Daily Show commands a pretty respectable audience. He is also a TV host, a media critic and a political satirist.
The Basics
Before you can have any appreciation as to what transpired in that episode of the Daily Show, you need to understand some basic reality in stock investing. Let’s start from here.
How do you invest in stocks?
When investing in stocks, here are typical examples on how to invest:
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You go to a bank or to investment companies where you can buy them. In the Philippines you can go to your local banks or investment houses to buy San Miguel stocks, PLDT or Jolibee stocks. No difference of what they do here in America.
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You can also go online. Get a Fidelity Account or a Vanguard Account. That’s what they do here in America. Then, you fund your account through bank transfers which of course can be done online. Now, I don’t know if there are already these types of investing in Manila.
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Majority of those who work with retirement benefits, sometimes they are mandatory, others you join or enroll in the program and a certain percentage is subtracted from your salary. This money goes to a third-party who is your Administrator. Your Administrator has a listing of stocks and bonds where you could choose from. Many times, your choices are only limited to those.
What happens next?
Your contribution (investment) goes into a pot of money contributed (invested) by a number of other investors. This pooled money will now be invested in stocks, stocks that will give you a rate of return on your investments. So, when you say you invested your stocks with San Miguel, that’s almost the same as you loaned your money to San Miguel. They don’t call it loan, they call it investment. But just like loans, you earn interest on your investments.
How do you earn money on investment?
In a perfect, clean investment world, this is what happens.
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Karing Pansit, Inc. is a very popular pansit eatery. So, popular that management wanted to expand. Because they needed money, and they have a business formula that works, they went public. Public meaning, they offered their stocks to the public. This process is called IPO (initial public offering.)
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You and the whole community heard about Karing. That Karing’s business model was good. Stock analysts gave Karing a 5-star rating because they plan to expand in the 7,000 islands and that they were the only Pansit business with that distinct taste advantage that people like. Coupled with good management, a history of prudent expense management, bringing consistent profits, Karing brings in a lot of money to their owners.
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You then bought stocks of Karing and invested $1,000
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Karing then used that money to expand the business. With the expansion, good management, very low expenses, Karing brings in more money to owners.
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With profits earned, Karing declared cash dividends. These cash dividends went to the investors. Because you were an investor, you now have a cash dividend. Remember, with a $1,000 investment, you owned a percentage of the company. Therefore, you own part of those earnings.
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Not only that. Because Karing’s business model was good, reporting profits consistently, the entire population knew about the business and soon everybody wanted to buy stocks. Result? Karing’s stock price went even higher. Why? Because of the demand. In your case, because you bought it earlier, you got it cheap. You’re still a winner.
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Good times, Karing even declared stock dividends. Now your 1 stock became 10. Now, you own 10 stocks. If you sell your stocks now, you gain even more money.
That’s how you earn money in a perfect, clean investment world. Investment that produces goods and services.
The other scenario (which I am also limiting to just three) are these types that sometimes, simply shifts money around. Here they are:
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Ponzi scheme. According to US financial regulator the Securities and Exchange Commission, Ponzi schemes are a kind of pyramid scheme which operate on “the `rob Peter to pay Paul’ principle”. I will not explain this in detail. Most of you already knew this. In a Ponzi scheme, the loser will be the last investors or those investors at the very bottom.
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Companies who have big holdings in subprime mortgages. You could have invested your money in a company that invested heavily in mortgage-backed securities. What are MBS? In a nutshell, you invested in a company that collects mortgage payments. Unfortunately, these homeowners went bankrupt and could not pay mortgages. Therefore, the company who manages MBS don’t have any more money to pay interest on your investments. Please read this entry: Understanding Subprime and the US Housing Market. This will give you a good understanding as to what a subprime is and how it contributed to the financial meltdown.
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You could have also invested in a company involved in CDS, credit default swaps.
Credit default swaps
Here is a very, very good explanation of CDS. I want you all to listen and learn this.
This is video 1:
This is video 2:
The Daily Show: Cramer vs. Stewart
Now, I know these are sophisticated investment topics and terminologies like CDS, but I hope you were able to get the basics of these. So now, let’s get back to the story. Essentially, what Jon Stewart was saying is that – once regular people – or investors like him, part ways with money that goes to investment companies, they don’t know what they do with the monies anymore. As financial journalists like Jim Cramer of the CNBC’s Mad Money, if they can make forecast of the lows and the rallies, why have they not told the viewers the real deal?
Here’s the 1st video.
Here’s the 2nd video:
Financial journalist: Who are they responsible to?
Clearly, for me, Jon Stewart was brilliant in this show by hammering Jim Cramer. But sometimes I begin to doubt if this was just a feud between two TV stars for just another ratings war. Yet, I could not deny the fact that Jon Stewart did brought into us what most of us are asking about. That financial journalists should be held accountable for their reports. As Jon asked Jim:
“Who are you responsible to? The people in the 401ks and the pensions and the general public, or the Wall Street traders?” Stewart asked (adding that most traders are “bright guys” who are “f__ed in all this too”).
Investors are greedy, too!
To me, the whole financial game which is the genesis of all these is how do you convince people to invest in you. And when you get convinced to part ways with your money, you no longer have any idea what they do with your money.
Investors and customers are also guilty of greed. If you were a responsible investor and you are getting 30% or 50% or even 1,000% on your investment, did it ever occur to you to ask how in the world were you getting that ridiculous amount of return on your very small amount of money invested? What kind of golden product your investment is producing? Did you asked? Chances are, there’s probably no product involved because its only about shifting of money from one hand to the other. Let me guess, chances are that you will also remain silent.
Financial journalism and Wall Street greed
It’s not only these financial TV programs that creates hype at top business news channel. There are also blogs that caters to the uninformed investors. All of them were guilty of a lot of failings, shortsightedness and misinformation. Worse, these stories are carried on throughout the business reports, creating more hype. If these are truly responsible financial journalism, why is it that they did not report on what would turn out to be a huge, epic proportion financial meltdown that would affect everyone in the world?
References:
- Jon Stewart
- The Daily Show
- Jim Cramer
- Ponzi Scheme
- Stewart slams Cramer
- High Noon on the Set: Cramer vs. Stewart
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{ 5 comments… read them below or add one }
Buti na lang ang trip ko lang gawin pag nasa makati ako e tingnan lang ang stock market and business reports…
Hanggang dun lang ako. I never dared to invest in stock market. Pero grabe talaga yung kay Madoff. Uber.
Silver´s last blog post..Man in the Dark
[Reply]
reynz Reply:
March 15th, 2009 at 1:37 pm
well, with so many anomalies, stock manipulations, stock gossip either done intentionally to create chaos and induce a sell-out or push a competitor down, all these have contributed really to a lot of investors shying away from the stock market. eh kasi puro lang sila speculations and the movement nung mga pera does not really create any product pero pataas nang pataas ang mga stock value na wala namang kahulugan.
there was this news about china’s asking the US about safeguarding their assets in the treasury. eh biggest investor ba naman ang china. eto ang next drama na prini-predict hahaha kaya nag-issue nang ok lang kayo dyan news si obama kahapon.
reynz´s last blog post..Jim Cramer vs. Jon Stewart: Was CNBC serving the needs of traders?
[Reply]
Silver Reply:
March 15th, 2009 at 2:37 pm
Nabalitaan ko yan mother highness…
China has 700 billion dollars of investment sa government bonds sa US… (I dunno the exact amount ha..)
Parang feeling ko mas safe pa ang pera sa baul ng aking dear old lola…
Mom told me na may practice daw ang mga chinese sa lugar nila. They use to stock the money sa gitna ng house, as in baul in the basement. Kaso lang parang prone sa magnanakaw – pero nonetheless, believe ako sa paghawak ng pera ng mga intsik. They know how the money flows kaya no wonder…masisipag, simple at manyaman sila….hehe
Silver´s last blog post..Man in the Dark
[Reply]
reynz Reply:
March 15th, 2009 at 2:53 pm
that investments eh nakakatakot isipin dahil i’ve read a lot of blogs na ang susunod daw na subprime eh ang treasuries. bakit? i think naisulat ko na to.
bkit nga ba? dahil trillion trillion na ang deficit nang gobyerness namen. saan. saan kukuha nang pambayad sa deficit na yan?
if you remember, i blogged about something na hahatiin na ang amerika. i think yong forecast nung Russian?
reynz´s last blog post..Jim Cramer vs. Jon Stewart: Was CNBC serving the needs of traders?
Silver Reply:
March 15th, 2009 at 3:11 pm
Sa totoo lang, ang sinasabing recession ngayon ay isang wake-up call para sa buong mundo….
Me and my friend discussed a prediction that Japan will collapse as a result of this recession..(and after a few days e lumabas na ang GDP ng Japan e bumaba ng 12.1 percent = kalurkey mode na ito for Asia)…which will have effect sa Asia..Minsan parang ayaw ko ng manuod ng news..hay..
If Iraq is swimming in a sea of oil, then US is currently swimming in an ocean of debts.
Isa lang ang tinuturo nitong recession: it pays to know how to do smart money management..yung tipong simple living and not materialistic ika nga. There is a kind of mentality kasi na inaassociate ng ilan ang success and prestige sa material na bagay pero ang totoo – what defines success talaga is how you accomplished your goals and how did you make a difference sa buhay ng iba..
Silver´s last blog post..Man in the Dark
reynz Reply:
March 15th, 2009 at 4:36 pm
o di ba? that’s one very well written commentary silver hahaha
kung ako pinag-tuturo nang mga readers, buti pa magtayo na tayo nang school.
Hair and Nail Salon School of Earnings.
hahahahaha!
reynz´s last blog post..Jim Cramer vs. Jon Stewart: Was CNBC serving the needs of traders?
Silver Reply:
March 15th, 2009 at 4:46 pm
makapag-enroll nga sa school mo…
hahahaha…
Silver´s last blog post..Man in the Dark
My retirement money aka 401 was managed by a board which was invested in different financial instruments…bonds, stocks, cds, government bonds, etc. kulang na lang ang musical instruments. ahek.
to distribute the risks we used at least four investment banks. a certain month of the year, us poor employees have to choose the investment mix, parang multiple choice ang tanong na may mahigit dalawang sagot. i have never been a speculator for I once was a financial analyst. knowing the details that go into the financial statements and how they can be manipulated by not following the GAAP,
the financial statements can be windowdressed. yon bang susuotan ng magandang damit kahit na hindi naligo at may mga banil sa leeg. nilalagyan pa ng pabango para hindi humalimuyak ang bango kagaya ng Enron at worldcom,.
So ang pili ko bonds. kahit maliit ang bigay na return, sigurado ka naman kasi nga back-up ng CDs kung baga nakainsure.
pag hindi nagbayad yong mga nag-issue ng bonds, ang insurance ang magbabayad sa investment banks kung saan binili yong bonds. kaya kung anuman ang mangyari walang sablay. I was wrong Dear ate Charot.
pero two years ago, nakita ko ag aking retirement fund na dinudugo. Imbes na income ang nirereport sa akin ng investment managers, ay loss. toinkk
nababawasan ang tatanggapin ko pag ako nagretire.hindi na ako makakabili ng Prada, PARADA na lang. hindi na ako makakabili ng Chanel 5. Doon na lang ako sa Quiapo magpapawisik, meron pa ba yon?
ganito rin ang nangyari noon doon sa king isang 401 k sa isang kumpanyang pinasukan ko. huling nakita ko 400 dollars. nilimos ko na lang sa kanila with matching condolence card. tsee.
pero itong isa akong 401 winithdraw kahit hindi pa ako retireable. Naks ng pating, sinampal ako ng penalty, tapos kinunan ako ng taxes ni Uncle Sam. Kasi ang mga contribution sa retirement pay ay based sa gross income kaya wala pang taxes yan at pag ito ay winidraw pag umabot ka ng 59 1/2 years old, libre ka na sa tax. Eh 21 lang ako. ARRAY ,sinong nambatok?
nagsisisi ba ako? HINDI, kasi yong iba na naging biktima dahil ang kanilang pension fund ay nilamon na ng mga kawalanghiyaan ng nasa Wall Street at ang mga financial analysts na kumakanta ng allelujah (ala boy Abunda ba na panay ang publicity kahit ang mga talents niya ay hindi naman magaling). ay nawala na ang kanilang retirement pay. Kung meron man few dollars na lang. Lahat, zero, nada.
Masisi mo ba ako kung tirikan ko sila ng kandilang itim ?
The Ca t´s last blog post..Sleepless Nights and Diabetes
[Reply]
reynz Reply:
March 15th, 2009 at 1:43 pm
sounds like CDS to me. yun bang Company Q will insure Company A sa pinautang nila ki Company B, kaya tuloy tuloy ang bayad ni Company A nang “premium” kay Company Q kahit na walang binigay na pera si Company Q ki Company A, kaya maligaya ang buhay ni Company Q. Ang ginawa ni Company Q, nag-insure nang nag insure nang mga pautang. Oo nga naman. Income stream nya yon.
Pero di sya classified as “Insurance Contract” kaya indi sya regulated nang SEC. Ang problema, trillion trillion ang industry na to.
Kaya, nung bumagsak si Company B, indi nakapag bayad ki Company A, singil ngayon ki Company Q.
Dahil naubusan nang pera si Company Q, dinown-grade ngayon nang Moodys or ratings company.
Dahil dinowngrade sya, naging BB or junk bond.
Nong naging BB at junk, sell out ang investors.
Nong nag-sell out, bagsak si Company Q.
And the cycle continues.
Yan actually ang biggest source nang financial crisis ngayon. It’s not subprime dahil maliit lang ang nacontribute nang subprime sa problema.
reynz´s last blog post..Jim Cramer vs. Jon Stewart: Was CNBC serving the needs of traders?
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o.k mag-co-comment ako dito dahil akoy isang investor din…..hindi ako greedy to make a lot of money, kaya lang dito sa ibang bansa matututo ka to put your money kung saan saang investment dahil mahirap mag trabaho at gusto mo rin na meron kang pera pag ikaw ay nag retire.
pero buti na lang nakakalat pa-unti-unti ang mga ipon ko..iyung retirement money na nasa stock market, iyun ang unti unting nauubos..pero ang perang nasa GIC (heto ang investment na maliit ang kita pero sigurado na hindi mawawala) ay peace of mind ako….meron ding nasa bond(na maliit din ang kita at merong certain years kung kelan mo pwedeng kunin lahat na walang bawas at kuha mo lahat pati interest)….ang mutual fund naman ay talo ngayun dahil bagsak ang market ( dito naman kung kumita ang pera mo …at the end of the year at taxation nag babayad ka ng tax sa iyong tubo…iyun nga lang pwede mong kunin anytime at walang penalty)……dito kasi may tinatawag kaming RRSP…retirement savings plan at pag nag-contribute ka, pwede mong gamitin sa pag pa-file mo ng income tax and tax free…iyun nga lang hindi mo pwedeng kunin ito wait till you are retired…kung kukunin mo ito agad mag kaka-penalty ka at maidadagdag as income mo sa iyung next filling ng income tax. well hindi ako expert sa investment pero as an ordinary person na gusto ring mag hangad ng kaunting ipon sa pag tanda heto lang ang aking naging obserbasyon.
[Reply]
reynz Reply:
March 15th, 2009 at 1:56 pm
wow! very glad to hear bebot! hahaha! lagot ka! now na alam ko yan, makakarating ang news na to sa Surigao, sa Albay at sa Novaliches hahahaha
reynz´s last blog post..Jim Cramer vs. Jon Stewart: Was CNBC serving the needs of traders?
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Very nice article Reynz. Wow, this blog is close to my heart. Sabihin na nating medyo dyan linya ng trabaho ko…hehehe…How I wish I can share pero baka ma-tsugi ang lowla snow mo…
Teka, is it only me who thinks that most of our contributions are ponzi schemes? ^_^
Snow´s last blog post..Bloggery Buzz of the Week (03.15.2009)
[Reply]
reynz Reply:
March 15th, 2009 at 2:51 pm
MOST? hahaha! not all, but i’d say, because of the chunk of the CDS which is a huge stock market in itself Snow, yun ang ponzi scheme, actually kahit na nga yong ibang investment sa gobyerness tsini-tsimis na ponzi. i have to find that link.
but essentially, the basics are: once you made an investment or contribution, the money goes to a particular company and they use that money to expand their business, generating products and services that is being sold, generating income to the owners and investors. that’s how you invest and earn investment in your money, the basic, raw way.
the other side? eto na yong dark corners. one of those? CDS. credit default swaps. let’s say you invested your money ki Company X. Company X earns money by insuring debts.
So the companies insured pays company x monies that their income and then you get your share.
Kaso, Company X tradings are not regulated kaya tuloy tuloy ang insure nya kahit wala nang pera to allot kung sakaling machugi nga ang inin-sure.
Guess what, eh nabangkrap ang ininsure. Di nakabayad. So bayad sya ngayon (X) di ba? Guess what, sya naman ang nabangkrap.
What happened to you as an investor? Ubos pati na-save mo and invested with them. Un ang cycle.
reynz´s last blog post..Jim Cramer vs. Jon Stewart: Was CNBC serving the needs of traders?
[Reply]
Snow Reply:
March 16th, 2009 at 4:11 am
Yep, there was a nasty rumor that government contributions are a big ponzi scheme.
disturbing nga talaga.
Snow´s last blog post..Bloggery Buzz of the Week (03.15.2009)
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Lintek na investment na yan, grrrrr! Yoko ng pag usapan yan, yoko na! Mabuti pa nung nasa Pilipinas ako, paluwagan lang ang alam kong salihan, di pa ako nalugi kaso nga lang piktapos mong sumahod, napakasakit ng mag ambag kuya Eddie!
[Reply]
reynz Reply:
March 15th, 2009 at 4:40 pm
what i learned was that, me mga paluwagan den ang mga vietnamese. pero teng! kahit na paluwagan, me mga buwaya den hahaha
in Philly, nakailan na bang Pinoy ang nakausap ko na there used to be some paluwagan dun, mga mag-kakaibigan and then tanong ko lang kung ba’t natigil. ayun, itinakbo daw nung isang contributor hahahaha paka-sweldo, umuwi nang pinas at wala na silang balita. hahahaha
reynz´s last blog post..Jim Cramer vs. Jon Stewart: Was CNBC serving the needs of traders?
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