Editor’s Note: In this series of articles, we include important or interesting videoclips with our 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. We are very happy with the tremendous response from readers to this series of articles. We thank them sincerely and profusely.
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 should only be taken after a detailed discussion with your investment advisor and should be subject to your objectives, suitability requirements and risk tolerances.
Bernanke Gets Back In. Now What?
So last week was not a bad dream. Just a bad week that might prove to be a precursor of a volatile year. This week, financial TV featured a number of experts who expressed dismay about Bernanke getting reconfirmed. The Senate seemed just as unhappy. But Senators run away from accountability and they ran away from the risk of being blamed for market chaos if Bernanke nomination failed. The speech of Senator Kyle demonstrates this. He gave a blistering speech attacking Bernanke from every angle he could think of. But, in the end he voted for Bernanke because he thought the next Obama nominee would be worse. We get this. For years we complained that Coach Lloyd Carr of Michigan was not a Championship Coach and wondered when Michigan would get a Jim Tressel type coach. Then Lloyd Carr retired and his replacement gave us the worst record in Michigan’s 100 year history. So we wish we had the wisdom of Senator Kyle.
But we must disagree with the experts who complain loudly about Bernanke being weakened and the Fed being weakened by Congressional actions. We are reminded of the old adage “that which doesn’t kill us, makes us stronger”. We think, of course hopefully, that the Bernanke Fed will emerge determined to show the world that they are nobody’s patsy. May be, Bernanke will summon the inner George W. Bush in him. Remember in 2000, all the political pandits told us that the narrow squeaky win in Florida will make Bush draw in his horns and govern from the center. Bush-Cheney realized a win by one vote was as decisive as a win by 1 million votes. So they said damn the torpedoes and went ahead in their own merry way.
Of course, this is all theoretical. The US Economy, despite the inventory cycle rebound, seems mired or at least the American people do. The US banking system seems at risk of backsliding. We recall reading somewhere a question posed by Mr. Case of Case-Shiller “if house prices go down another 10% and loans made in 2008, 2009 start going bad, then what happens to the Banks?” We shudder and prefer to not think. But we already hear that JP Morgan is beginning to extend prime mortgages to 40-50 year terms rather than changing principal amounts or foreclosing. These innovative gimmicks keep the loans as current, at least on paper.
So what happens to Bank portfolios or the Fed portfolio if CNBC Anchors get their fervent wish and interest rates go up at the long end? A double barrel blast of massive duration extensions with higher rates and a gift of massive losses by the Fed to the Treasury. If this week was bad for Bernanke, what would that scenario mean for him? So you see why we ask Bernanke to begin waking up the George W. Bush inside him.
Is this the Eureka moment for Greece? Hopefully, this weekend will bring some relief. But $440 billion of debt is a bit too much. What happens to the Euro is an open question? It is massively oversold but will it eventually get to par with the USD, as Walter Zimmerman of United-ICAP so boldly forecast on September 1, 2009?
S&P fired its cannons against UK Banks but as CNBC’s Santelli said they don’t have the guts to downgrade UK. After all, as Bill Gross said in May 2009, the “market considers USA & UK to be relative twins”. By the way, did Mr. Gross buy long maturity Treasuries in January 2009? They rallied a lot in January and Bill Gross does not miss such rallies. We know Erin Burnett will never ask him a tough question but what about you, Steve Liesman? Look at the Pulitzer prize in your home and get some courage, will you? But Liesman did ask the Bond King a skeptical question about mortgages on January 27. His Majesty William Gross did not like it and gave Liesman a royal “We are Not Amused” look before dismissing it.
This was another bad week for equities. It looks as if all news is being sold. We will find out whether the January indicator holds this year. Giving credit where credit is due, we must acknowledge that CNBC did bring its viewers warnings about the stock market.
The first week was a great up week but in that week (on Wednesday, January 6), Peter Costa of Empire Executions predicted that January would be a down month this year. He also said that this year will be a down year. Strangely CNBC Fast Money has also been very useful. Gary Kaminsky had the guts to tell viewers to get out of Big-Cap technology stocks because they had become a crowded trade. Kaminsky is a real manager of people’s money and he has been a tremendous breath of fresh air on Fast Money. The Terranova gang beat up on Kaminsky in early January but Kaminsky took a victory lap this Friday.
But the star of CNBC Fast Money has been Steve Cortez. Cortez told viewers in the last week of December 2009 to sell commodities and to buy the US Dollar. He was even positive on US Treasuries. Commodity stocks were destroyed in January and the Dollar rallied.
What did Steve Cortez get for being so correct and prescient on Fast Money? Banishment, of course. We predicted this in our January 2 article when we asked Will Steve Cortez be banned again until Melissa Lee goes on her next vacation? We do wish Cortez and Kaminsky become first team traders on Fast Money. They are the ones with the hot hand. What does Anchor Melissa Lee have against Cortez? Is it an ethnic thing? We know it is a mischievous question. But why not ask it? Especially when we have been so inspired by the example of Margaret Brennan of Bloomberg (see clip 3 below).
On January 9, we asked if Steel stocks are today’s Telecom stocks? This week answered the question. US Steel went from $35 in October 2009 to $66 on January 8, 2010. It closed at $44 on January 29. Wall Street Analysts treated steel stocks just like they treated telecom stocks in 1999-2000. In January one large firm upgraded X to a Buy at around $62. Then another firm followed up by upgrading X to a Strong Buy at around $65. The first firm had rated X a Sell at $22 and upgraded X to a Hold at $ around 45. Of course the upgrade was to a Buy was at $62. A defining example of Analytical Intelligence? (See our article Instinctive Intelligence vs. Analytical Intelligence).
Where were the Squawk Box Penguins when these upgrades were announced? CNBC Squawk Box Anchors were too busy hosting politicians and pretending to be Joe Scarborough that week. We are not pleased. We gave Squawk Box an award and we don’t like to see them slipping into complacent mediocrity.
If Bernanke has not sent a thank you note to China, he should. China seems serious about cooling down its economy. It is this fear that has demolished commodities and removed the specter of inflation from financial markets. The drop in Oil, Gold, Copper has to be sweet music to Bernanke ears. Now all he has to worry about is the Fed’s massive portfolio.
Jim Chanos was on Financial TV this week talking about a bubble in Chinese real estate and fixed asset investments. We think China will end up as the most important story in financial markets. In fact, our belief that the 30-year Treasury will again trade with a 3-handle (& perhaps a 2-handle) rests to an extent on the bust of the Chinese credit bubble.
The most interesting commentary on China was not by either Chanos or Jim O’Neill. It was by Jim Grant. Those of you fortunate* enough to get Grant’s, run to the article Sell Product 97 in the latest issue. You will see how China is following in the notorious steps of Wall Street Wealth Management products. The US investors who have participated in Structured Notes, CDOs, CLOs and Trust Products realize now that Wealth Management from Wall Street means Management of the process by which Wealth is Transferred from Investors to their wall street Brokers.
Grant’s points out that Chinese Banks are doing exactly that by putting their loans (mostly bad) into trust portfolios and selling these portfolios to investors with an above-market yield, a process by which the full credit risk of the loans is transferred to investor-buyers. Remember the SIVs (Structured Investment Vehicles) that were created by Wall Street to push bad stuff out of their balance sheets. How did that story turn out?
Those who watched the opening ceremony of the Beijing Olympics know that China does things on a big scale. So does Chinese Wealth Management Sector, it seems.
For the benefit of our readers, their viewers and all investing humanity,
we call on Bloomberg, CNBC & Fox Business (lnac**) to invite Jim Grant to talk about Product 97 and their product cousins in detail. And if you invite him folks, please let him talk.
* Those who are not subscribers should rush to Grant’s website and request a free sample issue, preferably the latest one.
** lnac – last name alphabetically correct – our nod to the correctness fashion
CNBC & Bloomberg TV
Those who remember the 1980s Lakers would remember the presence of stars like Jack Nicholson and Dyan Cannon at the Forum. When asked about this, Magic Johnson replied “they want to be us and we want to be them”.
We see a tinge of this in the behavior of CNBC Anchors & Guests. Clearly, CNBC Anchors love talking to investing superstars. They want to be them. That is why instead of asking real investing questions, CNBC Anchors tend to exchange banter with superstar investors. But, we have begun to notice that superstar guests want to be like CNBC Anchors as well; may be they feel jealous of the platform the anchors have. We saw a bit of this in the Chanos interview on Squawk Box (see clip 4 below) and we have seen this in interviews with other guests.
In contrast, Bloomberg Anchors seem to be all business. That is why they seem to ask direct questions, sometimes interesting questions like Margaret Brennan’s question to Jim Chanos about comments by Jim O’Neill. Chanos responded in kind by saying Jim O’Neill had not visited 3 of 4 BRIC countries when he created the acronym BRIC (see clip 3 below). Now, why can’t CNBC Squawk Box Anchors ask such a question on their show? Are they afraid their guests may not like them so much?
May be Networks have their own culture. Just look at the Burnett-Brennan trade. Erin Burnett used to be a tough anchor at Bloomberg, so nasty at times that we nicknamed her “Irish Mace” for her tendency to beat guests over the head with questions. She moved to CNBC and now watch her with Bill Gross. She is almost coquettish in her manner with Gross, always playing up to him. She has not exhibited even a trace of her Bloomberg toughness on CNBC.
Margaret Brennan used to be nice and sweet on CNBC. Then she moved to Bloomberg and now she is asking her guests tough, direct questions.
We are on record saying that we like the “fun & friends” approach of CNBC. But folks, above all, we are hopeful investors and our eternal hope is to learn valuable investing insights from your guests. May be, you folks should view some Louis Rukeyser clips. He was the greatest financial anchor for individual investors because he never forget them. In every show and with every guest, Rukeyser would demand to know what investors should buy or sell. Are you listening, Sue Herrera? You know why we ask this question.
This week we feature the following clips:
- Jean-Claude Trichet on CNBC on Thursday, January 28
- George Soros on CNBC on Wednesday, January 27
- James Chanos on Bloomberg TV on Tuesday, January 25
- James Chanos on CNBC on Monday, January 24
1. One-On-One with Trichet – Jean-Claude Trichet with CNBC’s Maria Bartiromo – Thursday, January 28
With the debacle in Greek Debt, with questions swirling about a bailout by EMU and the steep fall in the Euro, is it any wonder that we would choose a Trichet clip for the pole position this week?
Watch him and read his comments at US, Europe Debt Levels Not Sustainable: ECB’s Trichet on cnbc.com.
2. Soros One-On-One – George Soros with Maria Bartiromo – Wednesday, January 27
George Soros is considered by many to be the greatest investor of this generation. We tend to concur. So when Soros speaks, we listen.
Read a CNBC summary of this conversation at Bartiromo and George Soros One on One on cnbc.com.
Come on CNBC producers, Soros is the guest and Bartiromo is the host. Tradition dictates that the guest’s name should precede the host’s (remember the gracious body language towards guest Rhett Butler by host Lesley Wilkes in Gone With The Wind?). Also, viewers and readers are interested in what Soros has to say, not Bartiromo. Simply Not Done, CNBC.
If you want to see the difference between an article written on the same subject by a journalist and by a CNBC producer, read the Soros-Bartiromo article in the Daily Telegraph Davos 2010: George Soros warns gold is now the ‘ultimate bubble’ after reading the above CNBC summary.
Geroge Soros warns – “When interest rates are low we have conditions for asset bubbles to develop, and they are developing at the moment. The ultimate asset bubble is gold.”
This is an interesting story. George Soros and Jim Rogers were partners once. Jim Rogers is a huge believer in Gold or so he has told Maria Bartiromo in more than interview. Now George Soros says that Gold is the ultimate asset bubble.
Hey Maria? Where are your journalistic instincts? Why didn’t you ask Soros about the Soros-Rogers disagreement on Gold? Now that would have been must watch TV. If asked, Soros would have given a detailed explanation of why he thinks Gold is a bubble and why Rogers is wrong. Listen to the Margaret Brennan clip below and see how it is done.
May be, all might not be lost. You could invite Jim Rogers on your show next week and ask him why Soros is wrong about Gold. Will you?
3. Jim Chanos with Bloomberg’s Margaret Brennan – Tuesday, January 25
When looking at a stock or a security, Julian Robertson of Tiger used to bring the best bullish and the best bearish analyst together in a call and let them debate each other. Then Mr. Robertson would make his decision after hearing both sides. That is the folklore we have heard.
We see shades of this in Margaret Brennan’s questioning of Mr. Chanos. She told him that a number of China watchers had asked her to question Mr. Chanos about his bubble call on China. Then, at minute 03:20 of this 05:51 minute clip, she specifically asked:
- Brennan – Jim O’Neill said to me about that line that China could be Dubai times 1000, he said the only similarity he sees is that the population of China is 900 times bigger than that of Dubai……Can you explain that specific quote to me, that China could be Dubai times 1000?
Chanos replied that his critics don’t sometime see “tongue placed firmly in cheek”. He then said 1000 times could clearly be the population and 100 times could be things like debt level & other things. Then the gloves came off:
- Chanos – My critics have ? on to the fact that I have never been to mainland China for example, and yet Mr. O’Neill himself admittedly never been in 3 of 4 BRICs that he so aptly and profitably named in 2001; He had been to only one of them. I take all this with a big grain of salt… A lot of people have a lot riding on China. It was the same with residential real estate and Enron……
Good job, Ms. Brennan. Watch this entire clip. Chanos does explain his point of view well. Bloomberg.com is quite unreliable in looking up old videos. So if the link in our clip title does not work, search for “Chanos” in News Search on bloomberg.com and you will get the :S:d1&q=CHANOS”> page. You will see the “Chanos sees monumental bubble in China story”. Click on the yellow Play button under the story title.
When will Bloomberg.com learn from cnbc.com how to display and store videos?
4. China Bubble Ready to Burst – James Chanos on CNBC Squawk Box – Monday, January 24
Thankfully, you don’t need complicated maneuvers to watch CNBC videoclips. This is a 09:00 minute clip and a must watch. Chanos makes very interesting points, some of which he made on Bloomberg as well (see clip 3 above).
Thankfully for us, there is a good summary of the Chanos comments at Jim Chanos: China’s Real Estate Bubble Is Unprecedented on cnbc.com. A couple of excerpts are below:
- “We are not calling for an impending crash of China or of the Shanghai stock market, but in particular the bubble that has been blown up in real estate both commercial and residential as well as other forms of fixed asset investment in china is unprecedented,”
- “In the West, GDP growth is the residual of the free market… In China it is quite a bit of a different thing, very similar to the good old Soviet Union; GDP is a planning tool and we start with the GDP target and then figure out how it is we are going to get there,”
Read this summary and watch this clip. China could be the most important factor for global financial markets this year and next.
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