Internet Hoax Gooses Stock Market

by: Barry Ritholtz April 01, 2008    
Barry Ritholtz

Barry Ritholtz

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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.

Sources:
Time to Buy the Bull?
Doug Kass
Real Money Silver, 4/1/2008 7:44 AM EDT

Short Seller Starts Stock Rampage
Dave Callaway
Marketwatch, April 1, 2008

Longtime Bear Tosses in the Towel; Says New Bull Market is Upon Us
Alan Abelson
Barron's, April 1, 2008

Bear Flips Bullish!
David Gaffen
WSJ, April 1, 2008

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This article has 18 comments:

  •  
    Apr 01 03:07 PM
    How do we know this is not an April Fool? ;> Can't verify the original Kass post...
    Reply | Link to Comment
  •  
    Apr 01 03:07 PM
    is this post an april fool's joke? all of the links in it are dead.
    Reply | Link to Comment
  •  
    Apr 01 03:08 PM
    How do we know this is not an April Fool? ;> Can't verify the original Kass post...
    Reply | Link to Comment
  •  
    Apr 01 03:22 PM
    Is this serious? So many people will lose money because of this!
    Reply | Link to Comment
  •  
    Apr 01 04:03 PM
    LEH capital infusion = LEH shareholder dilution. This action, together with their "testing" of the discount window last week deosn't speak to their financial strength.

    Houses will get more affordable in the coming years and stocks will seem less affordable when the earnings start to tank, as surely they will.
    Reply | Link to Comment
  •  
    Apr 01 04:29 PM
    LOL. Kass must be pissing in his pants. The worse thing about it is he probably sat on the sidelines drooling at all the easy short money he could make due to concerns about the SEC.

    This will go down as the April fools rally.
    Reply | Link to Comment
  •  
    Apr 01 07:14 PM
    When it comes to the stock market, people are already lost enough, jokes might be funny to the uber-wealthy but to everyone else, this is just sad.
    Reply | Link to Comment
  •  
    Apr 01 08:09 PM
    Doesn't really matter. The headline could have read "A Butterfly Flaps Its Wings in China" and the market would have gone up. Maybe that's the point of this article? When sentiment gets to a certain point, the detail of the headline is meaningless and the market moves in the path of least resistance.
    Reply | Link to Comment
  •  
    Apr 01 08:45 PM
    This is an April's fool too... there was no write-up on bloomberg.
    Reply | Link to Comment
  •  
    Apr 01 08:50 PM
    Yes, of course it was a goof

    Doesn't anyone recognize an April fool's joke when they see one anymore?
    Reply | Link to Comment
  •  
    Apr 01 09:11 PM
    Oh, it was a joke. I thought that you had engineered a default credibility swap (DCS) with Cramer and decided to just start making it up.
    Reply | Link to Comment
  •  
    Apr 01 09:20 PM
    Good one though Barry, I was emailed this by about 6 brokers today.

    My favourite bit (apart from the CNBC show) was "I apologize to my partners, and to my friends, and especially to the SEC"
    Reply | Link to Comment
  •  
    Apr 02 12:47 AM
    Those links don't connect to any evidence supporting this story...so it looks like the April Fools joke is by Barry.

    Doug seems to have written these things...but I can't see that it was picked up and widely distributed.

    Very funny...jerk.
    Reply | Link to Comment
  •  
    Apr 02 08:10 AM
    HOO HOO HOO !!!
    I guess it just shows the fragility of the system.

    As Warren says,
    Sell when everyone else is buying,
    Buy when everyone else is selling.

    Reply | Link to Comment
  •  
    Apr 02 09:30 AM
    Barry no one listens to all you PUNDITS anymore.
    Reply | Link to Comment
  •  
    Apr 02 01:03 PM
    Much ado about nothing, a simple case of post hoc ergo propter hoc.
    Reply | Link to Comment
  •  
    Apr 02 07:18 PM
    First, do no harm...
    Reply | Link to Comment
  •  
    Apr 03 07:09 PM
    It was Doug Kass' son Ethan who was the rogue trader that lost $12 million at Seth Tobias' hedge fund.

    Funny how CNBC didn't disclose that fact in the story about Seth. CNBC is a morally corrupt network. Seth was snorting cocaine like a wild man and he used to work for Jim Cramer. Kass was so close to Seth that he got him a job as a trader. Kudlow was a cocaine addict while working for Bear Stearns.

    It's one giant cesspool and they all belong in prison in my opinion.
    Reply | Link to Comment
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