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.
G-Square?
The issues in today’s markets revolve around the letter G. Both Greece and Goldman dominated the market action this week. As we write this note, we wait for the extremely well paid bureaucrats of old Europe to come to a decision about a “bailout” of Greece. How we hark back to the days of Hank Paulson who always delivered on Sunday evening before the markets opened in Asia! Will Europe’s leaders understand the urgency or will they dither on in their nonchalant arrogance?
Frankly, we would like to be on the side of the prescient David Rosenberg of Gluskin Sheff and his new battle cry “Ban the Bailout”. We would prefer to side with the likes of Roubini and Faber (see clip 3 below) who say that a restructuring of Greek debt is inevitable. But then, we recall the decision to let Lehman go under and the carnage in the week that followed. A mere $20 billion to Lehman could have saved the world $2 trillion in wealth as one astute reader said to us. Perhaps this is why the German Finance Minister said that they could not afford to see Greece become Europe’s Lehman.
Here at home, the war against Goldman goes on. The markets saw Tuesday’s congressional hearings as a bottom in Goldman stock and the stock rallied a quick 9-10 points from near $150 to near $160. It looks as if these buyers bought with weak trembling hands. On Friday, came the Wall Street Journal report that the Justice department was considering criminal action against Goldman. Weak hands sold and sold. GS stock dropped almost 15 points as dip buyers surrendered en masse. Will GS stock reach its book value as Meredith Whitney argued (see clip 1 below).
Housing
There seems little doubt that the fate of the consumer and the banks rests on a sustained rebound in housing. Even the uber-bullish Barton Biggs (who dreams of S&P at 2000 by next year – see clip 6 below) recognizes a second drop in housing as one of the largest risks for the stock market.
The two seers who called housing correctly in 2007 are getting increasingly concerned. Meredith Whitney is convinced about a second dip in housing and Robert Shiller said that finding a “new bottom” in housing is possible (see clip 1 below).
Is this why Bank stocks have begun to falter seriously or is the current decline due to the fear of a nutty FinReg bill?
Stocks
Most TV gurus see no reason to worry so far. But some like Jeremy Grantham do. Those who like to listen to Mr. Grantham should watch his financial times videoclip. But even Mr. Grantham acknowledges that his firm’s portfolio is only slightly underweight equities. But it is tilted towards US high quality stocks. In our experience, it is safer to do as GMO does rather than as Mr. Grantham says in public, at least in the short term.
Barton Biggs bases his bullishness on his forecast of S&P earnings of $88-90 in 2010. Perhaps he should listen to Jim Bianco who has argued that the biggest risk to S&P earnings is a bullish flattening of the Treasury Yield curve. Perhaps Barton did not mention it because he, like the vast majority of investors, simply doesn’t believe that long duration Treasuries can rally much. He did say in a previous interview that the 10-year Treasury at around 3.70% is fair value.
Barton is fun to listen to d he does not mince words. In his clip, he is contemptuous of people who are “babbling away about the new normal”? Such words about His Majesty the Bond King? What did Bill Gross have to say in his usual post-Fed comments this Wednesday? Virtually nothing. Perhaps, Mr. Gross was miffed because his CNBC friend Erin Burnett called Vanguard’s Ken Volpert as a Bond King as well.
Did CNBC Anchors prove inversely prophetic again?
Last week, we noted that CNBC Anchors as a team (Squawk Box, Squawk on the Street, PowerLunch etc.) spoke of a bubble in Treasuries. Squawk Box welcomed a money manager who prophesied a massacre in long maturity bonds. The Treasury market laughed at CNBC anchors and rallied.
What is the one event that global investors are unprepared for? Our vote goes to a sustained, major rally in the 30-year Treasury.
CNBC’s Joe Kernen vs. CNN’s Sanjay Gupta
We confess we have been admirers of CNN’s Dr. Sanjay Gupta. We considered him to be a thinking person’s anchor, thoughtful, informed and moderate in his pronouncements. Then we heard him discuss Goldman Sachs as the Guest Host of CNN’s AC360. Dr. Gupta showed on Tuesday, April 27, that he had no idea whatsoever about the facts or the nature of what Goldman does as a business. He failed his medical training by not learning about the subject or not even trying to understand the rudiments of the topic before giving his opinions. Rather than being a thoughtful anchor, Dr. Gupta was more biased than the most biased commentator on MSNBC or Fox.
In stark contrast, we saw CNBC’s Joe Kernen speak with clarity and some knowledge. He had the guts to call the congressional hearings as “ignorant and uninformed” on Wednesday morning. We have always considered Joe Kernen to be a smart anchor with an honest streak. We tend to get upset with him because he rarely demonstrates this side of his, preferring as he does to coast through his show.
The contrast between Sanjay Gupta and Joe Kernen convinces us again that financial television is much better and far smarter than non-financial television. The markets impose a discipline on most financial anchors and eventually they learn to hear the market’s message.
Featured Videoclips
- Housing Prices – Meredith Whitney & Robert Shiller on CNBC
- Charlie Munger on CNBC
- Greece Bailout – Nouriel Roubini on CNBC & Marc Faber on Bloomberg
- Robert Doll & Ken Heebner on CNBC
- Bill Gross & Ken Volpert on CNBC
- Barton Biggs on Bloomberg
1. Housing Prices – Meredith Whitney and Robert Shiller on CNBC
Meredith Whitney has been bearish on Housing and on Financial Stocks. She remains so. She is convinced that housing will see a double dip. She said that financial reform would lead to banks shrinking their balance sheets and that would force low income customers away from banks towards predatory lenders for credit. When asked, she said Goldman’s stock should trade around book value of $120. See her clip at Future of Financials and read a summary of her comments at Goldman’s Lost ‘Momentum’, Housing Woes Persist on cnbc.com.
Professor Robert Shiller said that finding a “new bottom” in housing is “within the realm of possibility“. He pointed out that the latest Case-Shiller index showed a 0.9 percent drop in February on an unadjusted seasonal basis, which was worse than expected, and fell 0.1 percent on a seasonally adjusted basis after eight straight increases. Read a summary of his comments at US Home Prices Could Hit New Low or hear him at Honing In On Housing on cnbc.com
2. Charlie Munger with CNBC’s Becky Quick – Friday, April 30
Mr. Munger is Vice Chairman of Berkshire Hathaway. He spoke to Becky Quick about his views about Lehman and about SEC’s case against Goldman Sachs.
In the clip titled All Eyes on Omaha, Mr. Munger said “The vote was 3-2 at the SEC commissioner level and so obviously intelligent people can disagree on that subject. I suspect that had I been the SEC commissioner and been the swing vote, the case would not have been filed.” Becky Quick added that Mr. Munger did not think that the definition of fraud was met based on the evidence he has seen in the Goldman case.
Charlie Munger was much more explicit about Lehman’s Dick Fuld in the clip Munger on Fuld .
- Becky Quick – “Who was the worst of the players on Wall Street?”
- Charlie Munger – “Dick Fuld would not be for me the best example of what could exist in Investment Banking. I would say that of all the investment banks of size, that was the one where the behavior was of the worst and it came right from the top” When asked why, Mr. Munger replied “megalomania, envy driven…isolation..and of course, it is an interesting example of corporate governance..you don’t have to be very wise to see that the place had the wrong leaders..and the Board did nothing to fix it..”
- Quick – “Is Lloyd Blankfein the example of the most ethical standards on Wall Street?”
- Munger – “I personally don’t know Lloyd the way Warren does but I am favorably impressed with him and that’s not to say that Goldman did not participate with its industry in urging permissive rules for investment banking that were socially undesirable, it is just human nature to do that, with that one qualification, yes, I admire Lloyd Blankfein..”
Read a summary of Mr. Munger’s comments at Charlie Munger: Lehman Was the Worst But ‘Impressed’ by Goldman’s Blankfein on cnbc.com.
3. Views on Greece Bailout – Nouriel Roubini on CNBC and Marc Faber on Bloomberg
Nouriel Roubini argued that Europe’s bailout plan for Greece would not work because Greece is nearly insolvent. He said in the CNBC clip titled European Recovery Ahead? that a restructuring of Greek debt is going to be necessary.
Marc Faber went farther than Roubini in his Bloomberg interview in which he said that the solution was to be pay 30-50 cents on the dollar for Greek debt and force the bondholders to write off the rest.
4. Markets Discuss Fed News – Robert Doll and Ken Heebner with CNBC’s Erin Burnett – Wednesday, April 28
The Fed statement was a yawner and that was reflected in the comments of both Ken Heebner and Robert Doll. Ken Heebner talked about short term risks due to Europe’s debt problems. Robert Doll felt that once we get past the German elections, politicians will get practical and find the bandaids.
Ken Heebner seems convinced that the US consumer has made a sustainable turn in spending and that is the main foundation of his bullishness. Heebner was blunt about the impact of the Goldman witch hunt. He said “It cannot be healthy for market psychology to see the preeminent firm in the world under vicious attack“.
Ken Heebner’s best idea is the US Automobile sector. Robert Doll gave 3 ideas, Freeport McMoran, IBM or Microsoft and United Health.
5. Bond Kings Talk Fed Decision – Bill Gross and Ken Volpert with CNBC’s Erin Burnett – Wednesday, April 28
The post-Fed segment is usually one of the best segments on CNBC. This week the Fed statement was a yawner and so was the discussion between Bill Gross, Ken Volpert and CNBC’s Steve Liesman.
Usually, Bill Gross creates news by either making a bullish or bearish statement about Treasuries, Mortgages or European bonds. Nothing in this clip. The old Bill Gross was never boring. This new Avatar of Bill Gross is so boring that listening to him is like watching paint dry.
But Bill Gross, even he is trying to be boring, offers keen insights. Here, he points out that the Fed statement gave more room to Thomas Hoening’s (Kansas City Fed President) dissent than in previous Fed statements. Steve Liesman tried to disagree but quickly relented and concurred with Mr. Gross.
There can be only one King. We like Ken Volpert but we would not call him a Bond King. His manner is too unassuming. The title of Prime Minister or the middle eastern title “Vazir” is a better fit for Ken Volpert’s style. Our suggestion is to call this segment “The King and the Prime Minister“. Are you listening, Erin Burnett?
This is the best we can do in offering comments on this clip. That says it all, doesn’t it?
6. S&P Earnings at $88-90 a Share – Barton Biggs on Bloomberg – Friday April 30
Barton Biggs, the Managing Partner of Hedge Fund Traxis Partners, is still bullish on the stock market. His bullish case rests on S&P earning $88-90 per share in 2010 and approximately $100 a share in 2011. He thinks that the single family housing market will firm up and that would be bullish for the earnings of financials.
He gave his “20 minus” rule for valuing the stock market. The rule states that the PE of the market should be (20 minus the short term rate) or (20 minus the implied inflation rate). The Bloomberg anchor asked whether Barton thought the S&P should trade at 2000 ($100 in earrings times 20 minus zero short term rate or 20 minus the virtually zero inflation rate)?
Mr. Biggs said that is his dream but it depends on the investor expectations of the future short term rate or the future inflation rate. He went on to say that there is too much bearishness around and the hedge fund longs are fairly small. He also thought that the institutional money and individual money sitting on the sidelines would eventually come in to the US stock market.
In his colorful manner he said “everyone is babbling away about the new normal and how we are doomed to repeat the sins of our fathers, blah blah blah”.
Are you listening, Mr. Gross?
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