Last week, I was lucky enough to have an article of mine published on Yahoo! Finance. I wrote “Put Your Rally Caps Back On: 5 Reasons the Long-Term Bull Will Resume” to offer my five reasons for being bullish right now on the US equity market. After reading the comments I feel like I’ve just been bitched out by Gordon Ramsey!

Interestingly, my article was met with a backlash as about 25 people vehemently disagreed with my conclusion. While many just called me an idiot some offered their arguments. Rather than jump into a fray on the site, I thought I’d take some of the comments and respond to them in my own forum so I have control over the content and it doesn’t just degrade into name-calling. I have clearly underestimated the level of bearishness as people legitimately think I’m insane for having hope and believing in this recovery, albeit a slow one. Anyways, here’s a few comments, there’s plenty more but I thought these were worth responding to in order to spell out my line of thinking.

DonK: “This guy is dreaming! The earnings reports from all companies are fake. Earnings were achieved by layoffs, salary reductions and other cuts in expenses. A true recovery will happen when employment returns.”

Fake is a very weird way of describing the beginnings of a cyclical recovery in private sector earnings. All recoveries must begin with cost-cutting and productivity enhancements. Yes, hiring must pick up in the long-term but any investor should realize that they will have missed a huge chunk of gains if they wait to invest until then. Speculators are never paid by investing when the outcome is obvious, they must believe when others do not and ultimately be right.

Roscoe: “This guy is either drinking way too much of the Wall Street koolaid or trying to conjure up sell points for a rally. Either way, file this one in ‘C’ for cheerleading section along with the daily diatribes from Wall St cheerleader Larry Kudlow on CNBC.”

Cheerleading? I was just short as I described in the article. And what’s wrong with being a cheerleader? I always liked those pom-poms though you probably wouldn’t want to see me in a skirt! Alligator alligator, eat ‘em up!

Just Me: “WHERE IS THE JOB. This article is @#$%!!! Give us JOBS and we might consider reading an article like this.”

I wish I could give you a job, seriously. Being unemployed is an absolutely awful situation but investors must realize that jobs are a lagging indicator. The equity market can rally even with a slow economy because corporations can grow earnings rapidly despite slow overall growth in the short-term. Businesses are slow to fire and even slower to hire employees. But that dynamic flexibility is what makes the capitalist system the most adaptive and typically quickest to recover from slumps.

Long Island Jack: “Wall St. has become a joke. Over reaction to both good and bad news is driving the market. There will be plenty of both for months to come. There is nothing in sight to drive the US economy back to where it once was. Until there is we can’t have a true bull market, just a lot of runs, up and down, with traders trying desparately to time both sides.”

It is foolish to ignore the incredible recovery in corporate revenues and profits. High volatility is a result of uncertainty and these have been uncertain times but that is precisely why investors have the potential to make money. When others panic and you can keep your eyes on the long-term picture, there is opportunity. GDP numbers have been encouraging with 3.7% growth in Q1 and Advance readings showing 2.4% growth in Q2. Yes, the government has played a big role in this growth but the business outlook is picking up and thawed credit markets will go a long way to fueling future investment.

Adaml: “Was this the same guy that wrote a convincing argument about Elvis been alive on the National Enquirer?”

Now that’s just an awesome comment!

Mao: “I don’t buy these arguments…

1. Earnings are growing: Compared to what? The disaster of last year or the real growth phase of 2006-07?
2. Commodities are strengthening: Sure, but not because of US demand… buying US stocks won’t give you the gains of emerging markets
3. GS and BP have stabilized: Sure, remember Nikkei post 1990 crash? That is where we are heading due to lax fiscal policy and persistent debt…”

Yes, earnings are growing sequentially. Remember, the US equity market is still 29% off October 2007 highs so we’re not comparing to 2006-07. The relevant comparison is sequential in deciding whether to make an investment today or not. Commodities are strengthening because of increased demand. Most large and many medium-to-small companies in the US are global and will benefit even if the demand is not coming out the US. GS and BP stabilizing is a clue to a major catalyst to the downside subsiding in the short-run. This is simply a timing mechanism. Everyone is on the Japan train but we are a much larger, more resilient economy.

Bill: “Considering stocks are nominally back to where they were in 1997, and much, MUCH lower in real terms thanks to currency devaluation, I’m not sure which “long term bull” you’re referring to.”

Typically a greater than year long rally of 80%+ would qualify as a long-term move. It is definitely in vogue to talk about the lack of returns over the last decade but we’re talking about a highly anomalous time in history.

The technology boom in the 90s created such incredible advancements that I believe we have not scratched the surface of what’s possible particularly with the internet. And, the last two years have been harshly cleansing of the entire private sector and corporations are emerging much leaner and meaner. Massive productivity improvements, high cash levels, a hungry workforce and the massive technological power created in the last two decades could lead to some of the greatest economic growth we’ve ever seen. Sure, this may sound like nonsense but how come we never have anyone tauting the highly optimistic scenario? Only doom and gloom gets airtime.

Disclosure: Long SPY.

Friday’s GDP number has generated quite the mixed response from analysts.  Two common trends however shed some important light on the true nature of the recovery from the credit crisis: business investment has rebounded robustly, while consumer demand remains tepid.  Why is this important?  Well if you watch Larry Kudlow and his cohorts everyday, he would have you believing that what is troubling about this recovery is the LACK of business investment caused by a hostility from Washington towards the business community at large.  Meanwhile, the real stories continue to be the productivity gains following the financial crisis, and the continued deleveraging of the US consumer.

The Rhetoric:

As the market was plunging during the second quarter, the volume of the rhetoric increased exponentially: business investment is the missing link, or so the story went. Not only was business investment the missing link, but the lack thereof was directly attributable to government policies.  The overhang of potential regulator reforms with fin-reg, the oil drilling industry, and cap-and-trade, allegedly left businesses unwilling to invest.  Steve Wynn went as far as suggesting that China’s politics and policies are better than the US.  Realign the incentive system and lo and behold, all would be well.  Or so the story goes.

Reality:

In reality, things are not quite as they may seem.  These policy arguments do not align with the underlying economic reality.  As Barclay’s Capital observes:

“While strong gains in business investment, inventories and imports are supportive of a backdrop of improving domestic demand, the weak trajectory of consumer spending held back growth in the first half of 2010…. [emphasis from original]“

Contrary to the rhetoric, the true problem for the economy in the second quarter was not a lack of business investment, but rather, a lack of end demand.  Business investment itself was rather strong.  As Donald Marron points out:

“Business investment in equipment and software (E&S) grew at a 22% pace, thus adding about 1.4 percentage points to overall GDP growth….And business investment in new structures recorded its first gain in two years….

Despite solid growth in disposable incomes–up 4.4% adjusted for inflation–consumer spending grew at only a 1.6% pace.”

What it comes down to is that businesses will invest when and where it will lead to tangible gains.  Incentive need not come from the government.  Even in the harshest of regulatory environments (which is not present in the US), businesses will invest IF AND ONLY IF it will lead to a tangible change for the better in their bottom line.  Without the opportunity for profit there is simply no reason to invest.  The lack of opportunity clearly comes far more from the sluggish uptick in consumer spending than it does an unwillingness on the part of businesses to invest.  Unless businesses can sell more of their products to consumers, there is simply little reason for them to invest in increasing their manufacturing capacity or in hiring new workers.

The point of this writeup is not to take issue with any particular policy position, but to focus investors on the real, subtle and emerging trends in this economic recovery.  An underlying theme that has been lost amidst the financial crisis is the rapid technological advancement in technology, particularly with regard to Cloud Computing–the virtualization of access to technological infrastructure and software.  It has been a consistent theme on this blog to point out reinvestment in the technological infrastructure. and have discussed this theme with particular attention given to EMC (NYSE: EMC), Intel (NASDAQ: INTC), and Microsoft (NASDAQ: MSFT).

Clearly the GDP report provides the context necessary to understand the impressive rally in Cloud Computing stocks like EMC, VMWare (NYSE: VMW) and NetApp (NASDAQ: NTAP) during the past quarter.  Companies are willing to invest in such products because they generate tangible productivity gains and these productivity gains translate directly into improved earnings.  We all know that lower costs have gone a long way to helping corporate bottom lines; however, it’s easy to attribute the full extent of these lower costs to elevated levels of unemployment.  As is often the case, that is but one component of a much larger story.  Innovation has been a major driving force behind the productivity gains that are leading to the improving earnings landscape in corporate America.

Disclosure: Long EMC and VMW

C-suite sources at corporate conglomerate GE tell me that a “Big shakeup” is coming at the company’s media subsidiary CNBC. Following a dismal quarter during which CNBC watched 28% of their viewers upgrade from hitting ‘mute’ to pressing ‘off’, Six-Sigma aficionados at 30-Rock (the building, not the show) ran their Japanese-style efficiency programs. The results included some of the following strategic changes:

• Self-proclaimed entertainer and Starbucks junkie Jim Cramer will be encouraged to take a deal as the replacement for infomercial legend Billy Mays. The popular Mad Money slot will be replaced with a new show called, Thoughtful Investing. The show will be hosted by Minyanville CEO Todd Harrison.
• Permabull and free-market extremist Larry Kudlow has been traded to FOX for a few unnamed fourth-round draft picks. He will be replaced by economic realist Barry Ritholtz. Ritholtz is the CEO and Chief-Strategist of FusionIQ as well as the sober voice behind the most popular single-author finance blog The Big Picture.
• Argumentum ad hominem debater Dennis Kneale will lose his nearly unwatched WWE-style shout fest with bloggers. Six-Sigma experts concluded Kneale’s audience was 90% bloggers, which makes the show more of a televised online chatroom than anything remotely resembling financial media. The Six-Sigma folks also spent 2.3 minutes determining that 0.000000000000001% of Kneale’s audience of bloggers actually converted to customers for CNBC advertisers in Kneale’s slot. Kneale will be replaced by up-and-coming CNN Money reporter Poppy Harlow who will host a show reporting on real issues unfolding within the economy.
• Squawk-Box farts Joe Kernen and Carl Quintanilla will jump from the sell-side to the buy-side as head publicists in the PR group at Charles Schwab.

Despite dropping an incredibly overdue nuclear bomb at the most-muted television station in the world, reporters David Faber and Maria Bartiromo will remain at CNBC. The two journalists will now be allowed to reach their potential like Lebron James did once the  Cleveland Cavaliers brought in a worthy supporting cast.

As with all stories at CNBC, this one is “Breaking-News” and like their website always notes, “(story developing).”

For those who did not read the category for this post, this is a satire.

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Silly for more satire? Try these posts:

John Stewart: Dykstra Got the Sign to Steal

AIG: Writing Stories About People Who Play “It” Safe

General Motors: Truth in Advertising Campaign

Napoleon's Sudden Overthrow

The Information Age has been forging a coup d’etat on the Old World Order in financial media. For example, television personalities like Jim Cramer (Mad Money) cannot escape their dismal track record as it’s posted in real-time by hordes of bloggers. However, we didn’t always have this level of transparency, and we have hardly reached the Holy Land where all “experts” are held completely accountable for their picks.

One of the things I like most about StockTwits is the meritocracy aspect. If you are a good trader or investor, people will follow you. If you suck, they will not. If you are extraordinary, the founders of StockTwits — Howard Lindzon and Phil Pearlman — will be calling to add you to their Recommended List. Simple, yet valuable for both “experts” and “followers.”

However, the mainstream media is less rigorous about who uses their megaphone. For example, Larry Kudlow was bullish about the economy until only recently. That means the celebrity economist on CNBC was not qualified enough to know the credit and housing bubbles would crush the global economy (or, he is an ideologue, which again means he is not qualified to report the news or give unbiased advice). Should he have a key show slot on the most popular financial television network?

Another interesting example is Peter Schiff at Euro Pacific Capital. First, Peter is an incredibly smart guy (and I don’t know him personally). However, top indie blogger Mike Shedlock at Mish’s Global Economic Trend Analysis brought to light some very important evidence proving Peter’s media personality (i.e., “expert”) was completely not correlated to his investment returns (i.e., reality) in a buzz-worthy article entitled, “Peter Schiff Was Wrong.” So, why is Peter still one of the most popular contributors to Seeking Alpha? Why is he still a go-to guy at the major financial media outlets? Basically, he will lose your money as fast as billions of other idiots, except he happens to speak as well and persuasively as a top white-shoe attorney or salesman.

I asked Mike Shedlock what happened with the Peter Schiff incident. He replied, “Schiff refuses to debate me or discuss with me. I offered to have it taped, and if he did not like it [the interview] it would not air. He even refused that.” If Peter has a valid defense against Mike’s evidence, he should present it. If he cannot defend his record, then he should sink to the bottom of the meritocracy.

A similar incident happened between CNBC host Dennis Kneale and popular indie blog Zero Hedge. I have written extensively about this issue, but the point I want to make is Dennis and his producer disingenuously represented an invitation to debate the founder of Zero Hedge, Tyler Durden. In this case, Dennis, while on his boob-tube bully pulpit, ranted that Tyler refused to come on-air to debate Dennis about the value of bloggers and independent journalism (which, apparently, Dennis despises). However, Tyler posted the email exchange with the CNBC producer proving that it was Dennis who chickened-out of an honest debate.

I would also note that game-show host and self-proclaimed financial expert Ben Stein uses YahooFinance and, until last week, the New York Times to destroy middle-class portfolios. As Barry Ritholtz at The Big Picture eloquently said, “The commentary he [Stein] produced at the Times was amongst the most irresponsible, poorly researched, and just goddammed wrong stuff ever to grace the business pages of the Grey Lady.” Is it any wonder these media outlets are losing market share as fast as record companies?

What is going on? This is clearly the way the Old World Order of media has abused it’s opponents and competitors for centuries. But we are now living in an age when every statement can be researched with a few clicks. We can obtain direct responses from anyone without relying on major media outlets to force-feed us heavily edited and manipulated information. So why do these media goliaths continue insulting our intelligence and laughing at us by calling their misinformation and entertainment “news,” “objective,” “fair and balanced,” or “trustworthy”? Because we still point our eyeballs and ears toward them (which they in turn sell to advertisers)!

Rather than stage a scene from the movie Network and start pointlessly screaming “I’m as mad as hell, and I’m not going to take this anymore!” — which clearly did not work because these issues existed when the movie released in the ’70s and nothing has changed — I think we need the passion of the open-source movement to finally break the camel’s back.

Recognize these?

First, we need a website which tracks the picks of everyone who promotes investments on TV or in one of the major print publications (including blogs). These people should get easy-to-understand ratings for their accuracy. For example, if someone’s returns are on par with the S&P 500, they get a C. If they are worse, the grade is worse. If they are better … well, you get the picture. Since we’ve all been to at least elementary school, we understand how this system works. You want to follow the students of the market who are getting A’s and B’s, and avoid those who might be better at something else.

Second, we need to stop patronizing entities which cause us to lose money. If Kudlow or Cramer didn’t get you out of the market before the first cracks turned into earthquake sized-gorges, stop watching their shows and buying their books. If you keep your financial television network on mute, turn it off so they will stop counting you as a viewer when all you want to know about is breaking news (which you can get from a thousand sources on the web without all the extra crap). If your investment mentor, newsletter service, or money manager does not post their picks and returns, cancel or fire now. If we vote with our wallets, transparency will become the rule rather than the exception.

There are a few other solutions to this issue, like our inaugural First Amendment Awards for Outstanding Journalism. We will be sharing additional solutions soon as we ramp up at Wall St. Cheat Sheet to put our money and energy where are mouth is. We hope some of the new projects we launch will add value to investors and traders, and over time our value-add will start a positive feedback loop.

Have hope and take action! We believe we are living through the dawn of a new business cycle during which new leaders will emerge in media while old dinosaurs will get buried if they don’t shape up incredibly fast (See: “CNBC Slides as Viewers Get Crunched“). As a counter-cultural icon once said, “Turn-on [your brain], Tune-in [to reality], Drop-out [of the culture of misinformation and manipulation]” … but he forgot to add, “Drop-in to the New Media Order where Honesty and Trust are our greatest assets.”

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Check out the our First Amendment Award winners:

First Amendment Award for Outstanding Journalism: Best Book Bailout Nation

First Amendment Award for Outstanding Journalism: Best Blog Zero Hedge