Traders woke up to a pleasant surprise on Tuesday morning, with equity Futures strongly higher. CNBC anchors were exuberant as previous earnings and credit fears melted away.
The cause? An internet April Fool's hoax that backfired.
Dedicated short fund manager Doug Kass, of Seabreeze Partners Short LP, put out an early morning, tongue-in-cheek commentary, titled Time to Buy the Bull? The long time Bearish market pundit and writer for The Street.com and Real Money announced that he was raising his year end price targets for the S&P500 to 1,666, which would reflect a yearly gain of 26%.
The Financial press read the commentary literally. The WSJ announced "Bear Flips Bullish!," causing equity futures to rally. CNN Money covered the joke as if it were a real news item, and Marketwatch declared "Short Seller Starts Stock Rampage." Barron's headline read "Longtime Bear Tosses in the Towel; Says New Bull Market is Upon Us."
Bloomberg's data service ran a full news alert, specifying the details of the longtime Bear's hoax, without recognizing it wasn't real:
- The writedown of toxic paper throughout the world's financial system has dramatically overstated the severity of the credit issue.
- The major money center banks and brokers will be a contributing factor to a surprising 25%+ rise in corporate profits.
- Shares of financials, which have been unfairly targeted by the short community over the last year (monoline insurers, banks, brokerages, etc.), could double in price by year-end.
- Oil prices, stimulated almost entirely by managed commodity trading funds and hedge funds, are destined to drop below $50/barrel by year end.
- The U.S. economy will avoid recession, as housing has definitely bottomed;
Bloomberg failed to note these comments were all in jest, adding to the upwards market pressure.
The veteran fund manger had assumed that readers would get the April Fool's joke -- but never imagined it would go over the heads of veteran financial writers.
Shortly after the open, US equities were in a strong rally mode. The Dow was up over 230 points, and Nasdaq had gained almost 2%, up 50 points.
The short seller issued a sheepish mea culpa that morning. "I apologize to my partners, and to my friends, and especially to the SEC, for whom I have the greatest possible respect. I never intended markets to be manipulated in this manner. I was only trying to make some traders, who have been having a tough year, break a smile...
One part of the joke turned out to have a surprising result. As part of the April fool's joke, Kass announced he would host a new CNBC show, called "The Mad Bull," at 4:30 p.m. EDT daily and after "The Closing Bell." CNBC program director Bill McChesney said that the station had already test marketed the idea, and the show had a very enthusiastic response. The program "The Mad Bull" will begin airing in June.
Time to Buy the Bull?
Real Money Silver, 4/1/2008 7:44 AM EDT
Short Seller Starts Stock Rampage
Marketwatch, April 1, 2008
Longtime Bear Tosses in the Towel; Says New Bull Market is Upon Us
Barron's, April 1, 2008
Bear Flips Bullish!
WSJ, April 1, 2008