Editor’s Note: In this new series of articles, we include important or interesting videoclips with brief comments. Our Web Software does not permit embedding of the clips into our articles. So we shall have to be content to include the links to the actual videoclips. Please let us know whether such articles are useful to you. This week Bloomberg TV had a couple of clips we wanted to discuss. Unfortunately, Bloomberg.com does not provide access to prior videoclips. We do not believe in discussing videoclips without giving the readers the means to watch the clips.
This is an article that expresses our personal opinions about comments made on Television and in Print. It is NOT intended to provide any investment advice of any type whatsoever. No one should base any investing decisions or conclusions based on anything written in or inferred from this article. Investing is a serious matter and all investment decisions that should only be taken after a detailed discussion with your investment advisor and should be subject to your objectives, suitability requirements and risk tolerances.
1. Will USA Eventually Lose AAA Rating? – Bill Gross of Pimco on CNBC and Bloomberg – May 21, 2009
On Thursday May 21, the rating agency Standard & Poor’s put UK’s credit rating on a “negative” watch for a potential downgrade from stable. By late morning, stories hit the tape that Bill Gross, the best known bond manager in the country, had said that the USA will eventually lose its AAA rating as well. Mr. Gross explained to both Bloomberg and CNBC that the markets consider the U.K. and U.S. to be relative twins (see http://www.cnbc.com/id/30870842 for the article & videoclip).
The Bloomberg anchor asked Mr. Gross “where do you go with your money?” Mr. Gross replied:
“Our money is substantially US –based although Pimco is a global firm. I think, you want to go to hard currency countries if you have a choice, such as Germany, countries that are exhibiting less of a trend towards higher debt, let me cite, the Quantitative Easing programs in US and UK so far vs. what we have seen in Japan, Euroland & Canada.”
But when CNBC’s Erin Burnett asked Bill Gross “for an investment opportunity, where do you see it?”, Mr. Gross gave a different answer:
“Well, I think what you want to invest in, certainly not Treasuries, you want to invest basically in sectors that are not subject to tremendous supply like treasuries & that have potential demand going forward; in the bond market, I think it is in municipals & high-quality corporates and in the stock side it is in companies that have a very steady stream of income going forward i.e. stable dividends and outlook for increasing earnings going forward”
We are intrigued by the two different answers given by Mr. Gross to the same question at two different networks. He did not say do not buy treasuries to the Bloomberg anchor while he went out of his way to say that to the CNBC anchor. Was Mr. Gross simply being a good CNBC guest? Does he wonder like we do whether CNBC Anchors are on a mission against US Treasuries and was he therefore being accommodative of their wishes?
In any case, Kudos to Ms. Burnett for letting Mr. Gross for express his opinion without piling on. In contrast, the Fast Money team became hyper-emotional and proclaimed “This is a Sell America moment”. Then, the Fast Money Team (with the exception of Pete Najarian) began hyping “Short America” trades – short the US dollar and short US Treasuries, because of America’s debt binge.
We went looking for hard data about America’s so-called debt binge and to our surprise we found it on CNBC’s website. CNBC had posted the list of The World’s Biggest Debtor Nations on that day. According to this list, the USA is the 15th largest debtor nation in terms of External Debt as a % of GDP.
Which countries are the most debt-ridden? Ireland is No. 1 with debt/gdp = 811%, UK is No. 2 at 336%, Belgium is No. 3 at 327%, Switzerland is No. 6 at 264%, France is No. 8 at 168%, Germany is No. 8 with 137.5%, Norway is No. 14 with 114% and the USA is No. 15 with 0.95% ratio.
Did the Fast Money Team know this data when they began blaming America for going on a debt binge? Do they read their own website? It does not appear so.
2. Tracking Fund Flows – Charles Biderman of Trim Tabs Research on CNBC – May 20, 2009
In our opinion, this is one of the most useful interviews of 2009. It is insightful and tradable with real data. This interview as arranged by Maria Bartiromo as a follow-up to her earlier interview with Mr. Biderman in March 2009. Watch this interview at
Mr. Biderman’s statements about consumer income were an eye-opener for us:
“Incomes are plunging; we track income tax collections and they are falling off a cliff; there are no “green shoots’ that we see; savings by all retail money market funds, bank savings, CDs are plunging, people are taking money out of savings to pay bills, hopefully not to buy stocks here”
Then Mr Biderman provides the data – In April 2009, consumer savings posted an outflow of $83 billion, the highest outflow since they began keeping records. The breakup is as follows:
- $33 Billion out of savings accounts,
- $20 Billion out of small certificates of deposits,
- $30 Billion out of retail money market funds.
Mr. Biderman also spoke about the 8-week long rally in the equity markets. Some of his quotes are:
- “Companies insider buying is way down, insider selling is more than 10 times insider buying; we are seeing record amount of new offerings; last time we saw this amount of new offerings was in 2000 and what happened after 2000 wasn’t pretty if we remember correctly.”
- “Historically when companies have been buying, stocks have gone up and when the companies have been selling, the market has gone down except for now and in 2003 and we have been tracking this since 1987. (Biderman also explains why 2003 was different than now)
- “Remember house money in the stock market casino are the public companies; that it their shares that they are playing with”
That is why he was gently dismissive of “commentators, journalists and hedge fund managers who think they are smarter than the company guys”
Then he said:
- “I am not wanting to stay long in front of this and I would recommend those who have made a lot of money to get out and those who are traders to go heavily short.”
We remind readers that last week , Meredith Whitney said in her interview with Maria Bartiromo “the consumer is not going to spend, you are still going to see massive contraction in consumer liquidity”. We notice that Wall Street Firms are beginning to sound an alarm about the drop in wages of the American household.
Are consumers taking money out of their savings because their credit liquidity has collapsed and their wages have dropped? The American consumer is about 70% of the US economy. So what does this portend for the US Economy?
The American consumer is 20% of the global economy, twice the size of Japanese economy, three times the size of Germany’s GDP and four times larger than the UK. When the US consumer is in this much trouble, what happens to these countries? You do not have to guess. Just read the title of May 21 Wall Street Journal article “World Economies Plummet”.
We forget. So many people on TV tell us that China is the magical key to all our problems and we should only worry about the outbreak of inflation that will result from America’s debt binge. See the next clip for the possibility that China might be bubbling over.
3. Fund Manager Survey – Michael Hartnett of BAC-Merrill Lynch on CNBC – May 20, 2009
Michael Hartnett spoke to CNBC’s Mark Haines about the findings of the monthly Merrill Lynch survey of 220 global fund managers who manage $617 billion in total. Any one who invests in equities and in emerging market equities should watch this video at www.cnbc.com/id/15840232?video=1129183203&play=1.
Hartnett – “Very Bullish; a complete reversal of what we saw in March; if you remember back in march the bearishness in the Fund Manager Survey was apocalyptic. Eight weeks later, we have got bullishness about the global economy, we have got investors loving technology, loving energy, loving materials, adoring emerging markets to almost a worrying degree. so yeah, the bull is back.”
Haines – “The reversal, Michael, quite frankly worries me.”
They discussed several aspects of this survey. Then they switched back to Emerging Markets and China.
Haines – “You do note bubble-like levels of enthusiasm for emerging markets.”
Hartnett – “Investors are all in on China now…..Now we are a little bit nervous because we see this optimistic view on China; if the Chinese economic numbers disappoint in nay way in the next 4-6 weeks, …, there are a lot of places that could pull back on that news.”
Mark Haines is a veteran anchor and it shows in this interview.
4. Other Videoclips
We also recommend watching an interview by Carter Worth on CNBC on May 20, 2009 titled “VIX Retreats to Pre-Lehman Bankruptcy Levels“. Every equity investor should watch this clip at www.cnbc.com/id/15840232?video=1129243381&play=1.
5. In a lighter but semi-serious vein
Erin Burnett of CNBC did a great job covering Africa as the final investment frontier on Thursday, May 21. In her clip “Investing in Africa: Opportunities & Risks“, she made the following point.
“And Mark, you know you mentioned China, and it is pretty interesting when you look the markets today, down 130, when you think about the economic crisis you got to think about China; maybe part of it some say is cultural; they are thinking over an extremely long time frame and that means in the midst of this economic crisis, the President of China, the commerce Minister of China are coming to Africa, they are now the largest lender, and they are investing left and right ; and this is something mark we saw everywhere, from Libya down to South Africa, in the Congo, on your plane, in the airport, on the street, Chinese people are everywhere”
As soon as we heard the phrase “some say is cultural; they are thinking over an extremely long time frame”, we immediately thought about the scene from the Clint Eastwood movie “In The Line of Fire”. Near the end of that movie, Larry the Assassin is sitting with a portly fund raiser and he says to the fund raiser “American companies only think about the next quarter; the Japanese think of the next quarter century”.
We do wonder whether the Chinese Banks of today are in the same condition as that of the Japanese banks in 1990-1991 – Strong, large and dominant on the surface but deeply loaded with bad debts kept hidden from investors due to lax disclosure requirements.
We also recall that at that time, Japanese were everywhere in the world as the biggest lender. Today might be different from 1991 and China might be different from Japan. But you have to admit, the parallels are intriguing.
PS: – Last week, our first videoclip featured a call by CNBC’s Rick Santelli who said on May 12 that ““As an old technician, I see that we probably trade under 3% before we trade back over 3.25%, w.r.t. to the ten year – that’s my own opinion.” This week, Rick Santelli proved to be wrong as the ten-year treasuries never rose to 3% but went back to 3.25% and then crashed to 3.36% on Thursday May 21. This shows that even Rick the REF Santelli can make a wrong call.
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