The CNBC-PZE Fiasco

It's a fun game, this stock-market malarkey. You watch CNBC, see a talking head recommend a stock ticker symbol, and then jump onto your computer to execute the trade. It's so easy! And, for all that investors are continually advised not to act like brainless lemmings, that's exactly what seems to happen.

You want proof? Check this out.

CNBC has, over the past couple of weeks, suddenly discovered an obscure Argentine energy stock called Petrobras Energia. On December 28, it ran an interview with fund manager Ken Heebner, who said that he really liked energy stocks in general, and Petrobras in particular. Except that the chart that CNBC ran to accompany the interview showed not Petrobras shares, which trade under the ticker symbol PBR, but rather those of its Argentine subsidiary, Petrobras Energia, which trades under the ticker symbol PZE.

That day, volume in PZE, which is normally around 360,000 shares, spiked tenfold to 3.6 million. Quite impressive for the quiet week between Christmas and New Year.

CNBC did acknowledge the error, but apparently it now had PZE on the brain, because the Argentine company was then featured on Jim Cramer's show on Monday, where the madman said that it was an "underexposed Latin American energy stock that could be poised for big gains". Apparently he was believing his own hype: three days previously, in a call-in segment, he'd told a caller that PZE was a great way of playing Brazil, despite the fact that PZE has a separate listing largely because it's not a Brazil play. "You should buy this stock. I got to tell you, I like Brazil so much," he said.

And on the same day that Cramer was plugging PZE for a second time, CNBC had Ken Heebner on for a second time. You're going to love this: he recommended Petrobras again, and CNBC showed a stock chart of PZE again - exactly the same mistake that they'd made less than two weeks previously.

PZE shares spiked up on Tuesday as result - just in time to receive a simultaneous double downgrade on Wednesday from the rather sensible analysts at Bear Stearns (BSC) and Citigroup (C), who had seen the stock rise 30% on buying by CNBC-addicted sheeples, and who couldn't believe their luck in being able to get out at a ridiculously high price.

Thus did PZE fall 15% in one day on Wednesday, and it was falling further yesterday, as well.

Now to be fair, CNBC isn't the only media company to make this mistake. Forbes did it too, in November, but not in the context of a stock pick: it was writing about pipe manufacturer Vallourec, and said that it made pipes for Total, Exxon Mobil, and Petrobras, giving the wrong ticker symbol for Petrobras. That's no big deal.

What's truly ridiculous is the fevered atmosphere on CNBC, where viewers get so caught up in the rush of ticker symbols coming at them from their television that they don't even stop long enough to notice that they're actually buying an Argentine company when they thought they were buying a Brazilian company. And now Fox Business has started competing with CNBC, one has to assume that CNBC is going to become even more breathless and shallow.

The PZE fiasco might be an extreme example of what can result, but be assured that every time you buy a stock which was featured on CNBC, you're acting in tandem with some very, very foolish investors.

Comments

[EL-GRECO]

I'm glad you brought this up because clearly channels like CNBC promote the short term view and are probably most useful to day-traders. Clearly, CNBC had a key role in the Nasdaq bubble hype 7 years ago by inviting every Tom Dick and Harry to come on their shows to balatantly hype stocks in a dishonest manner. In a milder form, they continue to do the same today, stoking up greed or fear and then appearing to try to take the opposite side to temper the mood they they have had a hand in creating. In their defense, they do also have some of the best commentators appearing regularly, so we are stuck with the need to turn the channel over to Bloomberg on a regular basis in order to get plain old news without noise while also tuning into the characters on CNBC that we like to watch. CNBC is definitely not a one-stop channel, it needs one to filter out the considerable junk that comes with the good stuff. Luckily Bloomberg is there to offer the sobre alternative when CNBC's circus gets too loud.

[MulloolyAsset]

Good article. I'm wondering if "a mention" of one of your long positions on a financial news channel might be an opportunity to take some money off the table? By the time they are talking about it on TV, perhaps some of the easy money has already been made.

Thomas Mullooly
Mullooly Asset Management
mullooly.net

[Shorewood]

Count Fortune mag among those who confused the firms. See page 40 of the Dec 24 issue. PZE is one of Fortune's "Best Stocks for 2008."

Note the comment on page 41 that "the company just announced a huge [oil] find offshore from Rio De Janeiro,..." which indicates that Fortune confused PBZ with PBR.

[HarMegiddo]

haha, somebody finally wrote about this, i posted on goofy yahoo about it a couple days after heebner was on cnbc. i own PBR and laughed at cnbc big time.

[HarMegiddo]

and cramer is just a self advertising schill, anyone that listens to him deserves what the get. you don't know fire is bad until you get burnt, haha.

[pamploma]

Perhaps Mr. Salmon should note that seekingalpha.com posted a blog on January 8 commenting on seven great Brazilian stocks for the future, including both PBR and PZE. Both seem to be great companies. I took advantage of Cramer's advice, waited several days for the pullback from Bear and Citi's downgrades to slow down around the mid $12 range (following a technique Cramer constantly advises doing), and picked up some PZE for a bargain. If you followed ALL of Cramer's guidances as I did, you'd own a great stock with fantastic growth potential (forward P/E under 8). Don't knock Cramer if you're careless enough to buy the minute after he or CNBC recommends a stock, as he always advises against doing.

[ServedCountry for26 yrs]

Well, CNBC wasn't satisfied with their first misrepresentation of Petrobras (Energia(PZE) and Brasileiro(PBR). They posted the same error several days ago when showing a blurp video with Mr Del Zappo from HBSC. Once maybe, twice is total lame. They need to get their act together and the SEC should slam dunk them for their carelessness.