Even if you know CNBC only as an occasional stop while channel
surfing, you've probably heard of Rick Santelli. Reporting from
the Chicago Board of Trade, Santelli covers the not-too-exciting
world of U.S. Treasuries price and rate movements. But Santelli's
fame has exploded over the past five years along with his
ever-vigilant drum beating over inflation fears due to our debt
and deficit. His 2009 rant against "subsidizing loser's
mortgages" has been credited with starting the Tea Party.
There's just one problem: He's been consistently wrong for
nearly half a decade.
Constantly musing over each basis point movement and economic
data point that "proves" his version of events and downplaying
those that don't jibe with his thesis, Santelli falls into a
dangerous form of bias we 're all prone to.
'Is some of your anger confirmation bias?'
On July 14, all that came to a head in an amazing minute of
television. In a panel discussion on CNBC that included
ReformedBroker.com's Josh Brown, Santelli, and fellow CNBC
reporter Steve Liesman, Brown posed a rather simple question: "Is
some of your anger confirmation bias?" Santelli yelled, "I was
right," and that's when Liesman stepped in:
It's impossible for you to have been more wrong, Rick. Your
call for inflation, the destruction of the dollar, the failure
of the U.S. economy to rebound. Rick, it's impossible for you
to have been more wrong. Every single bit of advice you gave
would have lost people money, Rick. Lost people money, Rick.
Every single bit of advice. There is no piece of advice that
you've given that's worked, Rick. There is no piece of advice
that you've given that's worked, Rick. Not a single one. Not a
single one, Rick. The higher interest rates never came, the
inability of the U.S. to sell bonds never happened, the dollar
never crashed, Rick. There isn't a single one that's worked for
They both can't be right, can they?
A little history here -- this isn't Santelli's first rant. As
previously mentioned, his epic 2009 rant is the stuff of legend.
He followed that up with - as Mr. Liesman addressed - constant
warnings of rapid inflation, devaluation of the dollar, and
higher interest rates. Rarely a week goes by for Santelli without
warnings laced with inflation buzzwords - Weimar Republic,
Argentina, and various banana republics are a few that come to
This steers investors toward gold, perhaps through the
SPDR Gold Shares
, and a short treasury fund, like the
ProShares Short 20+ Year Treasury,
versus the market return one would have gotten by investing in
the S&P 500 through the
SPDR S&P 500 Fund
. For a starting point, we can use the date of Santelli's Feb.
19, 2009 rant.
|SPDR Gold Shares
|Price: Feb. 19, 2009
|Price: July 28, 2014
|Pct. Gain (Loss)
|Value of $10,000 investment
*Adjusted close includes dividends
So if you chose investing in gold over shorting the U.S.
Treasury, congrats - or something like that. You actually ended
up making money. You've made nearly 36%, or roughly 6.3% a year -
but you are trailing the market in this case by a whopping 164
Shorting Treasuries appears to be one of the worst things you
could have done during this five-year period - not only would you
have lost nearly half your portfolio, you would have missed out
on nearly tripling your money. What's good for TV may not be good
for your portfolio.
About that confirmation bias
This is not an indictment of Santelli nor an article telling you
he doesn't know what he's doing. He's quite accomplished and has
spent his entire career understanding the markets. So, I hope
it's safe to say we're all in agreement that he knows what he's
And that's how insidious confirmation bias is. Start with a
strong emotion or feeling - many times politically biased. Add in
a social media environment that only confirms your views. Then,
surround yourself with colleagues who believe in only what you
believe -- in the video, you can hear Santelli's colleagues
cheering him on. With that, you have the makings of confirmation
And it can cost you -- as shown in the example above,
inflation scaremongering and confirmation bias would have made
investors miss out on the best bull market in decades. And, in
this particular example, it would cost investors anywhere from
$16,400 to $24,300 on a $10,000 investment.
So the lesson for investors is rather simple: Be objective;
don't be like Rick!
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The Biggest Lesson From the Rick Santelli Rant
originally appeared on Fool.com.
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