14 March, 2009

Cramer v. Stewart

While incredibly entertaining, I think that the recent back-and-forth (feud? discussion? argument?) between Jon Stewart and Jim Cramer has been problematic for a few reasons.

First, there's no serious treatment of uncertainty by either side. The stock market is probabilistic. Stock picks are just those stocks that the picker thinks are going to outperform the market on average. Some of them will outperform and some will underperform; it's random! This is why letting your life savings ride on one stock (or five) is not such a good idea. Both sides err on this count. CNBC sells Cramer as picking sure things with his trader's intuition and 29 years of experience. In fact, studies have found that Cramer's picks underperform the market on average. (Of course, this is hardly surprising to financial economists, but...)

On the other hand, Stewart "turd mines" a few terrible stock picks and draws the general conclusion that Cramer is a snake-oil salesman. But that doesn't follow from the fact that Cramer made a few terrible picks. It does follow from the studies I mentioned above, but these are never discussed. So Stewart provides the impression that the stock markets are deterministic and if Cramer is providing faulty picks, he must be in on the conspiracy. (Yes, there is the more subtle argument I made above, that Cramer should be up front about the uncertainty involved, but Stewart does not explicitly say this.)

This leads in to a point that Megan McArdle recently made. Stewart defends his turd mining because he claims the Daily Show is up front about it: "that's what we do!" But while the Daily Show is nominally a comedy show, it has a serious amount of real influence. Stewart, when called out on pieces that are plainly lacking in journalistic integrity, whips out the "just comedy" defense with alarming speed. This argument was applicable when the Daily Show was mostly making fun of small towns and people with weird names, but now it's driving a large segment of public opinion. The standard for responsibility should be the amount of real influence wielded, not claims about nominal distinctions between the "real" media and the "fake" media.

So, I don't think Stewart should turn into the BBC, but if he claims that Cramer can't run and hide behind his "entertainment" defense, Stewart should not be able to either.

1 comment:

Cassady said...

I finally got to watch the interview last night, and I wasn't really impressed.

Stewart used it as a chance to showcase himself as more than your average comedian--and he is intelligent and well versed in what goes on in the world (as are, I suspect, his writers)--and Cramer sat there and said, "I'm sorry," and "you're absolutely right." He basically apologized for everything Stewart accused CNBC of and in the end agreed to not have his intro bill him as a sure-fire way to make quick money.

I don't disagree with your analysis at all, I just had hoped for more out of the interview. It was entertaining when Stewart would go on a long rant/explanation of how things ought to work, and the audience, just barely able to keep up, would timidly clap while simultaneously trying to decide if he said something right or funny.