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November 22, 2005

Does Barrons interview touts? Tues., Nov. 22, 2005, 8:41 AM

John from VA wants to know if I think some of the experts who are interviewed in Barrons try to pump stocks they own?"

That's a loaded question. I could say: John, Is the Pope German?"

John goes on to say, I used to think that most money managers are careful to not do that in Barrons, but the 11/14/05 issue has me wondering. In that issue Joseph McNay states that "Google, frankly, is cheap" (page 36). I'll give him the benefit of doubt, but in general, do you think Barrons tend to have more straight-arrow opinions than most other sources? Thank you."

The subject of touting, i.e., focussed communications in media, is so broad, it is impossible to give a brief answer. I thought a lot about it this morning because I think we are in a phase of the business cycle (the Distribution Zone") where touting is always a problem.

What is touting? I take it basically as selling something, whether it's an opinion or a product or service. If it's a product or service, then I suppose touting carries the connotation of something underhanded or illegal or against rules and regulations.

With respect to giving one's opinions, we are entitled to the right of free speech, within limits. This gives me the chance to say that I don't wish to use this blog to libel Barrons or anybody for that matter, at least not write negatively without proof of some kind to support my opinions.

In the case of Stelco, I have written that the insiders are crooks because I have offered evidence to support my opinion, and asked for proof to the contrary. None comes because, as I see it, there is no support. If there were, I'd change my opinion, and apologize.

Parties with a hidden agenda at Stelco (including non-stakeholders) took a viable going-concern into a bankruptcy process where those insiders stood to benefit at the expense of others. For no explainable reason, the Stelco shareholders are having 100 pct of their stake eliminated. As evidence I show that despite unbelievable restructuring" burdens put on the company, Stelco subsequently enjoyed the best six quarters of profitability in its storied history. And the bankruptcy process was fought, not endorsed, by all stakeholders " bondholders, shareholders, creditors and employees. I hold up this case as the standard of corporate fraud in the history of Canada. And the bankruptcy judge is now trying to (and will) rule that shareholders will lose 100 pct of their equity but can't sue anybody, including him, for any reason. It still curdles my blood that this judge can, in the midst of what even he calls crucially important legal proceedings, decide to go off on a big game safari in Africa, and show us the gall to hand write his legal findings on the back of the African hotel stationery, and file them with the court on his return! I have a strong opinion about these kinds of things.

So, back to Barrons; I feel they have some of the best reporters and writers in the industry. If there are some bad apples, show me an organization that doesn't. Even Cramer was kicked off CNBC for being a bad apple" before returning to the Big Apple, supposedly as a good apple".

But, as I understand it, Cramer got outed by a former staff, which goes to show that touting is difficult to do in the sunlight. Clearly Barrons operates in the sunlight while discussing matters of money, which is the focus of many eyes.

If there is a financial incentive, touting is almost always a group thing. For every extra person involved in a touting episode, the risks of being discovered increase ten times, at least. For this reason, many get caught. In the 1980's, a lead writer at the Barrons sister publication Wall St. Journal, Foster Winans, was outed by a partner". He was charged and convicted.

I think the Winans case is an interesting one for those who are interested in the subject of touting, however it is practised. The U.S. Supreme Court has made the law quite clear.

I think what's happening today is that personal values and standards in broadcast communications (i.e., one to many) have declined a little, but information is also disseminated further and faster, so that the persons and organizations involved in touting are being discovered more easily.

For example, with the recent Barrick bid to acquire Placer Dome, I noted immediately that the stock price chart looked suspicious. Three days later, prosecutors stepped into the fray.

But regulators cannot do it all for us. First, we have to take personal responsibility for understanding what is being communicated to us, and if we are interested we need to do some homework called due diligence. If we don't like it, it's up to us to pass. If the material is offensive, it's up to us to comment, and, if we feel it affects the general public, we need to share our views with others, so that other people don't get conned.

After all, the tout is broadcasting, using the broadcast communications medium, but we, the recipients, now enjoy a new communication medium, which is the digitally based many-to-many communications web. For example, look at the TouchGraph GoogleBrowser representation of the BillCara.com web.

All communications are now subject to virtual reality, and the sociological implications are deep. Now when I want to communicate something I see in the market, I have the knowledge that I could have up to 300,000 hits in a day. Within a year that could be 3 million because my web is quickly being weaved around the world.

I don't need Barrons to do that for me. Really, how big is Barrons?

The world is no longer physical. It is no longer analog. It is no longer dominated by broadcast. We have to adapt.

As to Touting"; no matter how you define it, it is broadcast. And, depending on how you define it, it is an offence to society. But now we have the tools to recognize a problem, and deal with it.

As to the Barrons article, I didn't read it. As to Google, the investment merits are debatable.

My view is that GOOG is lacking sufficient reward potential relative to the risks involved to cause me to be interested as an investor. But when I hear somebody express a view different than mine, I just put it down to a difference of opinion. No big deal.

Here's where I make a difference.

If a person expresses the same opinion more than once " like I do with Stelco " it's important to either tune out or try to understand why.

For example, if I hear Cramer continue to hammer away at GOOG just like he did with Sears Holdings, Constellation Brands, and a number of others, I try to listen to his arguments. Sometimes I conclude the person is right, sometimes not.

It's kind of hard calling somebody a tout just because they hammer away at something.

But often I see a pattern of organization, as I do with some of the same Canadian Royalty and Income Trusts being constantly promoted by certain U.S. newsletters. That's selling.

I have been known to send along some of these examples to the regulators. Why? Because a pattern of organization, when it comes to recommending securities, can be defined as trading in securities" " a term under the securities rules and regulations that requires sales registration.

So, if I can't find evidence of registration of any kind, I'll send off a note to the regulators, asking if I'm missing something obvious. Usually they take action. You ought to do the same, because if enough of us send off notes of concern to regulators, more action will be taken.

Getting back to Barrons; yes I believe they interview touts. But, do they do it often? I doubt it. It's a good publication " within the realm of broadcast media, which is built on the advertising business model.

It's up to us to decide if the material they broadcast is of interest to us, and if it is a value add or offensive to us. We are the judge.

Posted by Posted by Bill Cara on November 22, 2005 08:41:40 AM | Category: Blogging World

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