03/18/2010 05:12 am ET | Updated May 25, 2011

Media Madness

We all say and do stupid things at times that bear little semblance to reality. And at times that surely includes the media.

I, for one, thought sheer lunacy had struck the financial media when someone told me some time ago that CNBC commentator Larry Kudlow had actually predicted the Dow would hit 50,000 by 2020. But I later wrote that forecast off -- for which Arianna Huffington recently and justifiably took Kudlow to task -- as one of those isolated moments of media madness.

Apparently, I was wrong. It seems it wasn't an isolated case. Media madness in the financial arena seems to be spreading. Recently, the usually reliable Fox Business Network served up another incredulous dilly -- a segment featuring stocks "you can hold forever."

The inference was clear: in the midst of all the unknowns, uncertainty and risk in the current financial arena, Wall Street is offering a select number of equities that you simply can't afford to pass up because they're all sure to go up if you just buy and hold on.

The network never said it directly, but in actuality its "hold forever" thesis signals the creation of a totally new dimension in the equity market, one in which losing money is supposedly passé and in which you are now assured of pocketing a profit if you simply have patience.

You don't believe it, right? Me neither. But don't tell me; tell those exuberant folks at Fox.

Who knows? If Fox is right, though, namely the ability to now buy non-losing stocks, Kudlow's Dow prediction could be on the low side. Maybe instead of reaching 50,000 by 2020, we could see 100,000.

Rounding out these nutty views was an assertion on MSNBC's Morning Joe, one of my favorite TV a.m. shows, that "there are no more bubbles."

What century is MSNBC talking about? Certainly not the present one. I see bubbles galore, and I'm sure I'm not alone. One that comes immediately to mind is the well-publicized looming crisis in commercial real estate, an area rife with the prospects of severe financial losses -- what with massive amounts of vacant office space and America's shopping streets and malls littered with closed stores.

Making matters worse, bank loans backing much of this real estate are being done so at substantially inflated values. That should lead in time to substantially more bank write-offs and that, someone at MNSBC should recognize, is what bubbles are all about.

Likewise, residential real estate, despite some recent signs of improvement, has not yet shrugged off its bubble image. Why not? Because more than a million abandoned and foreclosed homes are still in need of buyers. Further, that number figures to grow even bigger, given the large numbers of resets in the wings of adjustable rate mortgages at higher rates and an ongoing level of high unemployment.

Last year, total foreclosures ran 3.9 million. That high level, so goes some forecasts, should remain intact or run even higher in 2010.

Yet another potential bubble centers on prospective sovereign debt defaults in Europe following debt woes in Greece and Dubai. Fitch has already cut Greece's sovereign debt rating and there are fears we could see more of the same for such countries as the United Kingdom, Spain and Portugal. What's more, given our worsening financial mess here, the U.S. can by no means be ruled out as a legitimate candidate for a debt downgrade. Talk of such a possibility has already cropped up in credit circles.

In this context, Michael Larson, the associate editor of the Safe Money Report newsletter in Jupiter, Fla., warns of what he views as another ominous bubble -- the danger of sizable losses inherent in the trillions of dollars invested in corporate bonds and corporate bond funds.

In recent years, investors, starved for higher yields and anxious for safety, fled into such fixed-income investments.

The problem, as Larson sees it, is that "the U.S. is overspending, overborrowing, has accumulated large deficits and has no plans to get things under control. We're doing the same thing," he said, "that drove Greece over the edge."

As such, he's convinced it's only a matter of time before the bond market rebels against the Administration's nonsensical fiscal and monetary policies.

It all adds up to what Larson warns will be a major crisis in 2010 -- sharply falling bond prices, leading to rising rates, which will derail housing. "Our last crisis was the mortgage crisis; our next one will be the bond crisis," he said. "We're already seeing failed Treasury auctions and we're apt to see more of them."

As of now, 10-year Treasury rates are in the high 3s. By year end, he looks for them to be about 5.5% to 6%.

Larson figures the stock market, thanks to the benefits of the stimulus package, a pickup in housing and the likelihood of some better jobs numbers, should rack up about a 15% increase in the first half. But due to his bond expectations, he sees all hell breaking loose in the second half, with stock prices tumbling inn reaction to his projected bond bust.

His recommended strategy: "I would ride the momentum of the stock market for now, but keep an eye on the exit door and run for cover when you see Treasury auctions performing poorly again."

And what happens if someone holds an adjustable rate mortgage? "They should refinance yesterday," he said.

High up on his list of favorite investments this year is a trio of foreign markets, notably Brazil, India and China, whose respective GDP growth rates this year are respectively pegged at 5%, 7% and almost 9%. In contrast, the U.S. is expected to show growth this year of around 2.5%.

He also feels "you can short almost anything in the bond market" (a bet the price will fall), especially Treasury and junk bonds."

Many people, Larson noted, laugh off the idea that the U.S. will have problem selling its debt. Many of these same people, he added, would have also laughed you out of the room two years ago if you told them home prices would fall 30% (which they did).

I think," he concluded "the laughing days are now over."

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