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The perils of TV and other dangers for investors

One study claims unhappy people watch more TV, says one U.S. analyst, and investors won’t be happy watching the battle over debt.

Apparently, happy people know when to put down the remote.

It’s all on record. A recent report in Social Indicators Research asserts that unhappy people watch 30 per cent more television than others.

Those who described themselves as “not too happy” watch some 5.6 hours more TV each week — 25 hours in front of the screen in all — than those who call themselves happier.

(We arbitrarily exempt special events like the upcoming Stanley Cup Playoffs — you may be unhappy after you watch them, but viewing them doesn’t necessarily make you a TV addict, right?)

And here’s what’s surprising about this study, says Mr. Bob Carlson. It was done before the financial crisis was upon us.

Writing in Bob Carlson’s Retirement Watch, this U.S. expert also sees a connection between TV viewing and the low morale of investors.

And investors need to keep their morale up, he says, as they face a battle in the marketplace between bondholders and stockholders. The average investor is not the winner in the struggle thus far.

TVs and sharp objects

Unhappiness appears to be on the rise. Viewers of financial channel CNBC increased as the credit crisis accelerated. This could certainly be depressing, Mr. Carlson says.

“At times I worry about people who have televisions in their kitchens, where there are a lot of sharp objects.”

CNBC is especially painful, he adds. “The network changed its style and encourages guests and hosts to be contentious and make extreme arguments. If you must get your financial and investment news from television, Bloomberg often is a calmer source with higher level discussions.” The same calm generally prevails on Canada’s BNN.

Don’t be glued to the financial media too closely, he warns. “Be on the right side of the line between an informed investor and an overwhelmed investor.” You want to filter out “market noise” and focus on risk management and major trends.

And there’s one major trend investors should be aware of in the U.S. It has to do with who gets saved and who doesn’t.

Bondholders are winning

The battle is on between stock owners and taxpayers on one hand and bondholders on the other. “So far, the bondholders are winning in a rout,” says Mr. Carlson.

And here’s what’s at stake. “The battle is over public policy and directly affects your portfolio and cash flow, but it is mostly behind closed doors.”

Essentially, it is all about debt. Usually, when someone borrows too much, there are two solutions. The borrower can default. Or the borrower and lender can restructure the debt, by reducing the level of debt and even giving the lender equity.

Homeowners across the U.S. have defaulted. But governments (in America and elsewhere) have prevented default in many other cases, notably banks and financial institutions. Bondholders and other creditors did suffer in the failures of Lehman Brothers and Washington Mutual.

“But other than that,” Mr. Carlson points out, “the government has gone out of its way to protect the creditors while wiping out or severely diminishing the equity of common stock owners and in some cases preferred stock investors.”

Indeed, it has been reported that billions of dollars pumped into AIG were transferred to European banks and other creditors, including Goldman Sachs. Many payments went to holders of credit default swap contracts with AIG.

“These investors basically bet that there would be defaults on debt.”

Open the debate

Perhaps there are good reasons for rescuing creditors at the expense of shareholders, employees and taxpayers, Mr. Carlson says. Perhaps the crisis would be even worse if this was not done.

“But this is a debate that should be open,” the editor insists, “because it is determining government policy.” And here’s where the crunch comes.

The taxpayer-financed bailouts are really to save the creditors, not the companies. “Most of the insolvent firms would be solvent if the normal process of restructuring debt were followed,” says the editor. “Other firms and households simply do not have enough assets to support their debt and probably never will.”

Government policy seems to be to stall in the hope that asset values will recover sufficiently to avoid more defaults. But let’s debate this policy openly, urges Mr. Carlson. If it fails, there won’t be enough taxpayer money to pay off all the debt.

The sea of debt

The bailout programs put in place since the summer of 2008 have had some positive effects, Mr. Carlson admits. Basic functions have returned to the credit markets.

But there is still one huge problem. These programs do not help businesses and households. “The balance sheets, in fact, are deteriorating because the policies are not reversing the cycle of falling asset values and incomes leading to reduced spending leading to job reductions leading to further declines in values and income.”

In short, governments seek to restore public confidence without being able to supply the means that would make the public confident.

“I believe the debt levels cannot be sustained,” Mr. Carlson concludes. “Spending, investing and borrowing won’t amount to much until balance sheets improve.” He insists once again that the debate be opened on just how this sea of debt will finally be dried up.

Canada has been able to escape massive bailouts for our financial institutions. But it is clear that a resolution of America’s debt crisis is of the utmost importance to our own markets.

So it’s worth our while to watch the progress of this debate. We just won’t watch it all on TV.