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Four Things You Need to Know: Media Complacency and the Pending Financial Armageddon!


What you need to know (and what it means)!

1. The sell-off from the perspective of financial media: "It's not that bad... but we're keeping our fingers crossed!"

There are two possible reasons why the financial media isn't stomping the panic button over this week's return to volatility. (1) We're cheerleading, bubble-heads or (2) it's not that bad.

Option 1 is a much longer essay and the suspicion here is that reader's opinions are already locked-in, one way or the other. So, in the time-honored interest of avoiding that which is unpleasant, let's very carefully consider number 2: How bad, really, was the market drop on Tuesday?

Top Single-Day DJIA Declines of the Last 10 Years
Date % Decline Notes
10/27/97 7.2% Circuit breakers triggered
9/17/01 7.1 Post -9/11
8/31/98 6.4 LTCM
4/14/00 5.7 *pop
7/19/02 4.6
9/20/01 4.4
8/27/98 4.2
9/3/02 4.1
3/12/00 4.1
9/27/02 3.7
3/7/00 3.7
10/12/00 3.6
3/24/03 3.6
8/4/98 3.4
2/27/07 3.3 "The worst day of the last 4 years!"

Tuesday's drop in the Dow was the 15th worst sell-off since October of 1997. Of the 14 worst percentage drops in the Dow in that time: Two came in the immediate wake of the 9/11 terror strikes, four came during the historic bull-run of the late 1990's, four came in 2000 during the deflation of the late 90's bull-run and four came in 2002 or 2003, during the current bull market.

See a theme there? Neither does the financial media, actually, but we're certainly trying to find one. Once we do, you can be absolutely certain that we'll run a multi-part Special Report on that theme until long after viewers have become violently, painfully sick of hearing about it.

2. The Sub-Prime Mess: Not Quite Ready for Prime Time

The most likely candidate for giving the media a nice, sticky, "theme" on which to hang our breathless coverage is the ongoing sub-prime lender fiasco. To become a Prime Time story, the debt mess simply needs to start impacting name-brand companies, rather than relatively obscurely known lenders of No Money Down loans.

Towards that end, General Motors (GM) yesterday announced that it will delay the filing of its annual report until mid-March as the company tries to decipher its exposure to sub-prime delinquencies involving the General Motors Acceptance Corp. According to the Wall Street Journal and Lehman Bros., write downs of sub-prime debt could cost GM $900 to $950 million in the first half of 2007.

It's still not quite exciting enough to be easily translated into television ratings magic, like, say, Anna Nicole or Britney. To get that type of Pop, Sub-Prime lending would need to take down someone sexy, along the lines of Google (GOOG) or Steve Jobs. Still, sub-prime lending practices starting to threaten GM, a company that actually sold its GMAC division nearly a year ago, is a good start. It puts sub-prime at least on the radar of media's attention, and that's something.

Think of sub-prime lendings impact on GM as akin to Ashley Simpson's nose-job; it doesn't in itself get sub-prime on the Larry King Show but it makes it worth mentioning on a slow news day.

3. American Financial Idol!

In his always-worth-reading annual letter, Berkshire Hathaway (BRK.A) CEO Warren Buffett discussed his search for a replacement for himself as CEO of the company.

"Hmmmm" you're thinking if you're anything like me, "Warren Buffett is a super rich guy. What's more, he said right there on page 3 of this year's letter that he doesn't like to work very hard ("For me, Ronald Reagan probably had it right: 'it's probably true that hard work never killed anyone- but why take the chance?'"). I'd like to be worth billions, famous and semi-idle. How can I get this gig Warren is talking about?"

Hang on there, Croesus, Warren has some catches. He is looking for:

1. A smart person ("Hey, I play one of those on TV!")

2. Someone genetically programmed to recognize and avoid serious risks, including those never before encountered... ("Hold on a minute, I've got to get my son to stop trying to stab a pot of boiling water with the knife I left on the floor... now, what was that about genetics?")

3. Independent thinking, emotional stability and a keen understanding of both human and institutional behavior ("This sounds AMAZING so far... I'm getting giddy, Giddy, GIDDY!")

4. Someone who will stay in the job, even though he or she could leave and make more money elsewhere ("Wait a minute... what's this 'elsewhere' Mr. Buffett is talking about? That sounds more up my alley...")

4. Elsewhere!

Tonight's MegaMillions jackpot drawing is worth an estimated $276 million.

No positions in stocks mentioned.

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