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.
The Fed Meeting
It has been our empirical experience that the markets show their true reaction to the Fed statement the morning after. What happens in the hour and three-quarters after the Fed statement is a knee jerk reaction. This reaction is often validated the next day but sometimes it is reversed. In our experience, the reversals prove to be important signals.
The Fed announced on Tuesday that they they will buy US Treasuries with proceeds of their bonds on maturity. In other words, as Ken Volpert of Vanguard predicted minutes before the Fed announcement, the Fed has announced their decision to maintain the size of their balance sheet. This was perceived as a dovish gesture and it was. The morning rally in the US Dollar died in the aftermath of the Fed statement. The Treasury curve rallied, with the notable exception of the 30-Year Bond. The stock market went up a bit from its pre-fed statement level.
The markets perceived the Fed statement as additional stimulus and that is debatable. Yes, the Fed removed its current plan to remove liquidity be allowing current assets to mature without repurchase of new bonds. But, they merely went from, as stock analysts would say, from Sell to Hold on their balance sheet.
The markets thought about this overnight and reversed the next morning. The Dollar rallied. Commodities dropped and stock markets fell. The Treasury curve rallied some more and flattened. After all, the treasury market is in a Heads I Win and Tails You Lose mode. And why not, a Hold rating by the Fed is bullish for Treasuries because the economy seems on a sliding path.
Like stock analysts, will the Fed, in a couple of months, upgrade the size of their balance sheet from Hold to Buy? And, like most stock analysts, will this upgrade come after the markets have already priced it in and perhaps after the need for it has passed?
For the past few weeks, we have been looking at the steady widening of the 30-10 year Treasury yield spread. The week before, it opened at 112 basis points and closed the week at 118 basis points. This week, this spread continued its rally on Monday and on Tuesday after the Fed statement. It closed on Tuesday at 125 basis points, another historical high.
On Wednesday morning, the Treasury Buy Schedule released by the NY Fed showed the 30-Year Bond as one of the securities the Fed plans to buy. This was a surprise. Heck, even Bill Gross and Ken Volpert said on Tuesday afternoon that the Fed buying would be in the 5-10 year range (see clip 5 below). May be this Fed clarity was what the Treasury market was waiting for. The 30-10 Year spread began slowly narrowing and closed the week at 118 basis points, down from 125 basis points on Fed afternoon.
We had noticed a sharp sell off in the 30-Year bond at around 2:45 pm on Fed afternoon. In fact, by 3pm, the 30-year Bond was down for the day in stark contrast to the rest of the Treasury curve. But after the NY Fed schedule was released on Wednesday morning, the Bond rallied by over a point on both Wednesday and Friday.
We wrote on July 31, that the long Bond begins a strong rally about 2-3 weeks after the spread crosses the 100 basis point level. That’s what it had done in the past. This past Wednesday marks about 3 weeks after the break of the 100 basis point level on this trip. We shall see whether the rally in the long bond continues next week and how far it goes. After all, the 30-Year is where there is value left in the Treasury curve.
On Friday afternoon, the so far bullish, Tim Seymour of CNBC Fast Money said “this week all data seemed to go bad“. Well, Tim may not have realized it, but the US economic data began going bad 5-6 weeks ago. The sickness just became visible to markets this week. The best comment of the week came from veteran analyst Dan Niles on Wednesday afternoon after Cisco’s numbers. He said of Cisco “..something changed very dramatically at the end of June into July across the globe across all their customers…” As he himself pointed out, this has been true of the entire technology supply chain (see clip 2 below).
We recall a statement from Carly Fiorina of the then Hewlett Packard in December 2000. She said later “it was as if someone switched off the lights on the economy in December (2000).” And we all remember how the economy just stopped in September 2008.
Is this all factored in the Treasury curve? Or is it time for the long Bond to join the party? We shall find out soon.
Currencies & Risk Assets
The seasonality seems to be playing true to form this year. Most people would wish that they had “Sold in May and Gone Away.” True to form, we had a counter-trend rally in the Euro and European assets in July but it is now mid-August. This week, the Euro began falling against the US Dollar just as the Thai Baht began falling in mid-August 2007 and other emerging market currencies began falling in mid-August 1998.
Will we see a steady drop in the Euro against the Dollar into October as in prior currency-crisis years? Will the drop in the Euro lead to a drop in risk assets and especially in equities into October 2010?
That is what Mary Ann Bartels of BAC-Merrill suggested this week (see clip 3 below). This week, the “Hindenburg Omen” was triggered on Thursday, August 12 according to Michael Riesner of UBS according to a Bloomberg article . The article also quoted Albert Edwards, strategist at Societe Generale as saying the Hindenburg Omen may suggest that “a savage equity downturn is imminent“.
Then you still have the astrological prophecy of the “Cardinal Climax” we wrote about in our July 24-July 30 Videoclips article. So caution a watchword for the next couple of months? At least for us, it shall be.
Anger Helps, sometimes!
Watching Financial TV is neither our main business nor our major activity during the day, despite this Blog’s evidence to the contrary. It ranks 3rd in both importance and time spent. We rely on Financial TV for timely accurate breaking news, for global information and for investment opinions from expert guests. Being the leader, CNBC does tend to get the best guests most often. And we like CNBC’s style of making financial news “fun”. We don’t have the time to switch channels and so our preferred mode is to keep CNBC on.
Until this week, that is! On Fed day, for some ungodly reason, CNBC decided to get 3 Journalists (from NYT, FT and Wash Post) to opine about the Fed. This trio was first on Kudlow’s show at 11 am, then on PowerLunch and then again on Closing Bell. Why get three journalists to talk about the Fed when CNBC can get any trader or manager, an actual do-er? And when CNBC has the best Fed-watching journalist in Steve Liesman?
The conversation on Closing Bell was so moronic that we flipped, both emotionally and physically to Bloomberg TV and Fox Business. Fox had our favorite Charlie Gasparino talking about the politics of ShoreBank and Bloomberg had Al Broaddus (ex-fed head) and Dean Mackie (Barclays). We found this discussion so superior to the one on CNBC Closing Bell that we stayed.
Carol Massar and Matt Miller of Bloomberg are veteran anchors and they can talk markets with most guests. They are not as “fun” as CNBC anchors but they do a good job. When Maria Bartiromo is on, we would not consider switching. But this week, CNBC had Amanda Drury and we just could not take it. So all week, we watched Bloomberg TV from 3-4 pm instead of CNBC.
Our anger helped us because on Bloomberg, we heard Joe Saluzzi of Themis Trading and we were impressed. He was insightful and articulate. He made one comment that we felt was on the mark. Mr. Saluzzi wondered whether this week’s selloff was due to Quant Funds finally liquidating their positions.
Last year, we wrote frequently about the dominance of Quant factor-based trading in the stock market. Their signature is visible on grinding up days on low volume and the inevitable sucking of volatility from markets due to their liquidity providing tactics (actually, they provide liquidity when it is not needed and vanish when liquidity is really needed to cushion the downside). So the comments of Joe Saluzzi about Quant liquidation struck us as insightful. Will CNBC’s trading gurus comment on this next week? Are you listening, Gary Kaminsky?
Anyway, we think Maria Bartiromo needs to watch out for her show. She needs to make sure that someone smart anchors her show in her absence. In our helpful style, we ask why not Melissa Francis? She might play the adoring companion to Larry Kudlow but Melissa is a sharp woman and now has learned to speak less when interviewing guests.
Or, in our ever helpful style, we ask why not let Erin Burnett make StreetSigns a 2-hour show when Maria is on vacation or assignment. And when Erin goes on vacation or assignment, Maria Bartiromo can take over for Erin. These two divas, as we used to call them, play on-air friends now and so they may not mind helping each other out.
If we are wrong about their new friendship, then this arrangement might actually persuade Bartiromo & Burnett to not be away so often. So, we the viewers win regardless. See how helpful we are to you, CNBC?
Finally, we must comment on the new turn in PowerLunch. It began with Sue Herera expressing her enchantment with Jersey Shore a couple of weeks ago. This week, the normally staid Tyler Mathisen went farther and discussed the Oh Cupid website on the show. For full disclosure, we learned about this site when we interviewed a technical person who had worked at Oh Cupid. The discussion focused on how the Oh Cupid matching engine differed from that of eHarmony and other techno-business matters. We never broached the sort of dialogue that Tyler went to in discussing antennas and their problems. This was about the survey of iPhone users and their “action” compared to that of Blackberry users.
As we said, what PowerLunch lacks in investment dialogue (too journalistic and less actionable), it has begun making up in, shall we say, “fun” segments. We would never consider switching from this new PowerLunch!
This week, we feature the following videoclips:
- David Rosenberg on CNBC on Friday, August 13
- Dan Niles on CNBC on Wednesday, August 11 and on Monday, August 9
- Mary Ann Bartels on CNBC Closing Bell on Wednesday, August 11
- Walter Zimmerman on CNBC Closing Bell on Tuesday, August 10
- Bill Gross & Ken Volpert of CNBC StreetSigns on Tuesday, August 10
1. David Rosenberg on CNBC Squawk Box – Friday, August 13
David Rosenberg, Chief Economist at Gluskin Sheff, was a guest host on Friday. It has been a long time since Mr. Rosenberg was on CNBC. So we were all ears. We were not disappointed.This interview is in three different clips:
- Rosenberg – We just saw the important components of retail sales, the components that actually go into the consumer spending part of GDP, was negative 0.1 which was in nominal terms, which means it will be a bigger negative in real terms. We are getting a sense here, before anybody expected, that the consumer may be double-dipping as early as the 3rd quarter.
- Quintannia – What’s Bernanke’s next move?
- Rosenberg – If my forecast is right, they will be moving towards QE2 by end of the year.
- Kernen – And the 10-Year could go where?
- Rosenberg – The 10-year is gonna go back to 2%, even lower. Look it was there in December 08 under a financial event; now we are talking about an economic event
- Kernen – What about the 30-Year?
- Rosenberg – The 30-Year could go to 2.5-3%
- Kernen – from 3 to 2, it is -1; that is deflation; its scary.
- Rosenberg – I think the risks of deflation are rising significantly.
- Kernen – It is all about domestic now;
- Rosenberg – 100% right; it is all domestic and because we have gone through the past few months post the stimulus, post the inventory rebuild in the US, …there is very little stimulus left..looks like 2nd quarter growth could be 1-1.5%, …there is no momentum built into the 3rd quarter, even though capital spending looks to be OK, if we get a flat 3rd quarter, who knows about the 4th quarter? ..
- Quintannia – do you think the relative strength of earnings season was about the last gasp of stimulus?
- Rosenberg – Not only that, but you see, these are quarterly numbers, right? so they are just quarterly averages, and the good thing about the incoming economic data is that you can see how things actually progressed through out the 2nd quarter..looks like everything was really built on April, slower in May and almost no growth built in to 3rd quarter… look what did Mr. Chambers say about the guidance…..who’s got a bigger rolodex than Ben Bernanke and they just cut their forecast twice, you are going to see in the next couple of months reduced guidance for the 3rd quarter and the market is going to respond to that...
A summary of Rosenberg’s views can be found at US Virtually Certain to Fall Into A New Recession on cnbc.com. A couple of excerpts from this summary are below:
- The risks of a double-dip recession—if we ever got out of the first one—are actually a lot higher than people are talking about right now; I think that it’s almost a foregone conclusion, a virtual certainty.
- Most economists, most strategists are still deploying the old rules of thumb that worked so well post-1945 where recessions were really just corrections in GDP in what was a secular expansion of credit; People haven’t wrapped around their heads what is a credit contraction all about.
- ..the household employment survey has declined three months in a row, a condition that indicates a recession 98 percent of the time.
- Comparing to the recessions of the post-World War II period is a total waste of time; This is a totally different animal.
Dan Niles used to be a respected technology analyst before he became a hedge fund manager. He is usually direct in his comments and thoughtful. This week he was both.
On Wednesday , after a steep downdraft in stocks, a serious decline in semiconductor stocks, and bad reaction to Cisco’s earnings, he was asked by anchor Melissa Lee whether “at this point do you take off this (short Semis) trade?”
- Niles – No you don’t because now you are starting to see the customers coming out admitting they have got a demand slowdown problem. This Cisco miss was bad because the thing you have to remember is over the last few days you mentioned it on CNBC you had analysts raising numbers on Cisco’s quarterly numbers, you had John Chambers out during the quarter saying how he saw no slowdown in Europe, how things are actually better than expected, and so you go into this, they miss the revenues, they miss the gross margins, …and they guide the next quarter, the top end of the range is below where the current consensus is, so something changed very dramatically at the end of June into July across the globe across all their customers that’s what they said; now the thing is this is not just Cisco, if you remember when IBM reported, they talked about a couple of billion dollars of orders slipping out of the current quarter into the next one and people decided well you know they would ignore that; then you had several semiconductor companies come out which actually had Cisco as a customer, well you know we are forecasting flat revenues for the next quarter..but some of the other businesses did ok…so people tried to ignore it..then the enterprise storage names, they missed their quarters. and people tried to ignore that and say well, that’s some of the smaller stuff, Cisco is a big company that came out and told you that there is a problem across the globe across all their top customers. (emphasis ours)
We gave the Niles clips top billing because of the one statement we highlighted above. Niles gave voice to what we have been seeing in data in the last few weeks – the data is coming in bad and worse. Something happened, as Cisco said, between June and July to scare off large customers. No wonder long Treasuries have rallied so hard.
Dan Niles essentially told you that the entire tech supply chain from Semi Equipment manufacturers to Enterprise software makers is seeing a problem in demand. No wonder the Nasdaq fell so hard in the last 3 days.
Listen to his comments about Intel, Hewlett Packard and margins of semiconductor stocks in this clip. His advise “I would stay away from Intel and let the fundamentals for their customers bottom before you step in“.
Dan was bearish about the stock market in his appearance on Monday, August 9 . A summary of his comments on Monday can be read at Markets May Fall 25% in Next 2 Years on cnbc.com. The title sort of gives it away but we include an excerpt or two anyway.
- The market is headed for a pretty big fall coming up between here and year-end
- Businesses are slowing down and the bond market is telling you that it’s worried about deflation or slowdown—The stock market seems more than happy to ignore it, like it did in the summer of 2007.
- Niles said he “wouldn’t be surprised” to see a 20 to 25 percent correction in the next two years.
3. Mary Ann Bartels on CNBC Closing Bell – Wednesday, August 11, 2010
Mary Ann Bartels is the Head of Technical Analysis at BAC-Merrill Lynch. Her views are as below:
- We really like the US Dollar in here; I think we are going back to the risk-off trade; we are in a mid-term election year. We tend to have a lot of volatility in the markets in the fall. So we think the Dollar has bottomed, the Euro has topped and the Yen actually tested very critical support and actually see the Yen weaken a little bit in here.
- I think what the market is missing is they are not paying attention to the positions in the Euro and Yen vs the Dollar. So when we look at the Euro, we had a crowded short, and they have basically covered that short and where the big crowded long is in the Yen. So I think even with the market positioned long Dollar, we can get Dollar to move on other crosses…the ones (crosses) we focus on are the major ones in the Euro and the Yen.
- We are thinking that we can go back down and test the S&P lows around 1010 but we haven’t ruled out the markets actually going to 1000-950 and we think we might be in the early stages of putting this risk off trade.
- So what we have told clients is to go away on vacation and have fun.
- We still like the Bond market. We are looking to go long. We still like the market either on the 2-year and particularly on the 10-year. We are seeing the yield curve flatten; we think the 10-Year Treasury yield is going to 2.5%, we are almost there, and possible we might even see 2% on the 10-Year. So stay long the Bond market vs. the Equity market at least going into October.
This is the same Mary Ann Bartels who correctly advised aggressive clients to go long the stock market on July 13 (see clip 2 of our July 10-July 16 Videoclips article) and the same Mary Ann Bartels who correctly predicted the mid-term decennial pattern for 2010 since last December (see Equities Section of our Dec.6-Dec.12, 2009 Videoclips article).
For some reason, CNBC Anchors do not tell viewers such facts that are on cnbc.com. Perhaps, the anchor egos are such that reading cnbc.com is beneath them, especially the egos of new anchors. This is one reason we have given up watching CNBC Closing Bell when Maria Bartiromo goes on vacation.
4. Charting the Future – Walter Zimmerman on CNBC Closing Bell – Tuesday, August 10, 2010
This is an interesting clip because it looks back at charts of the stock market during the Great Depression of the 1930s to predict the next move in the stock market of today. Walter Zimmerman has had a good track record as a guest of CNBC since we saw him first in September 2009.
For some reason, the actual comparison of the the 1930 chart and the 2010 Chart is done by CNBC’s stand-in anchor Amanda Drury. Frankly, she does an awful job and robs the viewers of the insights that Zimmerman could have provided had he compared the two charts. Unlike Maria Bartiromo, Amanda Drury does not realize that viewers watch Closing Bell to listen to the wisdom of the expert guests and not to hear an journeywoman reporter babble. Shame on Maria Bartiromo on not providing instructions to her stand-in. Ms. Drury does not even use a telestrator to illustrate her points on these hard to decipher charts. Will she learn from Melissa Lee or from CNBC’s master telestrator Gary Kaminsky? (Gary – does this make up a bit for our shame on you call for Greenberg’s segment on your show?)
So let us go to Zimmerman’s words:
- The situation in 1930 was everybody thought we just dodged a big bullet; Happy Days are here again. But in 1930 there was an initial sharp spring decline, and the market slowly had a grind higher during the summer from late June into mid-September, and then of course the bottom fell out. So what was evidently going on in 1930 was that the slow grind higher in the stock market was a camouflage for deflation gaining traction and while the market today at present has been slowly rebounding from an early July low we don’t like the shape; the shape of the rebound is what is called the bearish rising wedge, that is support and resistance lines are converging.
- Back in the 1930s, the US economy was an agricultural economy but the similarity between today and the 1930s is human nature. Human nature is the one constant in all markets, and that’s what produces these patterns, that’s what produces peaking action and bottoming action. So the components of the indices may be different, but what they share in common is human nature itself. For instance, the pattern of the Rising Wedge, there is particular mood in the collective market that produces that pattern. It is a pattern of waning enthusiasm, falling momentum, increasing hesitancy & doubt and you can see it in the bearish momentum divergence. Volume in the stock market has for the past few weeks resembled what you normally get between Decembers and New Years. So falling volume, bearish momentum divergence, a bearish rising wedge, I mean this market really needs to accelerate higher; the more it just grinds on like this, the more the parallels to 1930 will be intact.
One of the CNBC bullets on the screen said “Zimmerman: April 1930 Peak Is Replica of the April 2010 Peak“. But this statement of Zimmerman’s was not discussed in the interview.
We are a bit incensed that a stand-in anchor took so much time for her own introduction rather than giving it to Mr. Zimmerman to elaborate more fully on this comparison. We really don’t blame Amanda Drury because she did what she could with her level of understanding and intelligence. We blame Maria Bartiromo for not finding a more suitable replacement.
5. Fed Decision Unchanged – Bill Gross and Ken Volpert with CNBC’s Erin Burnett & Steve Liesman – Tuesday, August 10
First, we wonder ourselves how could we put this clip at the end of our weekly list? The Bond King Bill Gross usually commands the pole position himself and when paired with the Bond Vazir Ken Volpert, the clip must get the pole position, right? And when these two are together with CNBC’s Erin Burnett and Steve Liesman, this clip should not fail to get the pole position. After all, this is Erin Burnett’s best segment and the Fed afternoon is like festivals of all religions rolled into one for that lover of monetary policy, Steve Liesman.
Yet, as we wrote last week about Meredith Whitney, markets are cyclical and so are the relative importance of guru comments.
This week’s statement by the Fed turned out to be very important in its impact on the stock market and not that important for the bond markets. This may be why both Gross and Volpert ended up saying the obvious – that the 5-10 year Treasury sector would benefit from the Fed’s statement.
We are a bit disappointed that the Bond King and the Bond Vazir did not comment on the widening of the 30-10 year yield spread and its meaning. After all, Rick Santelli kept commenting on this virtually every day for the past couple of weeks. How did Erin Burnett fail to ask these Bond gurus about the historically wide spread? And how did Steve Liesman ignore this? Or is Steve Liesman predisposed to ignore what seems important to Rick Santelli? Just kidding!
At least the Bond gurus proved to be correct in their recommendations. But the corresponding equity segment of Erin Burnett with Ken Heebner and Bob Doll proved to be completely wrong in both the assessment and the recommendations.
These are some of the reasons why this clip was downgraded to the last spot and why the equity clip with Heebner-Doll was not featured.
As a note, Bill Gross is called the Bond King by many people in the Bond market. Erin Burnett has begun using this term for Ken Volpert as well. We beg to disagree. The great Gross has the personality (& perhaps the ego) to be called the Bond King. In contrast, Ken Volpert seems to be a man of moderate temperament who gives advise softly and thoughtfully without ego. If true, then the Vazir seems to be the more appropriate title. At least, that is our opinion.
Note: We typed Bill Gross in the box under the words SEARCH in the blue banner of cnbc.com and clicked on Go. We expected to get videoclips and articles featuring Bill Gross. But that shows how plain and unimaginative we are. The search function came back with 78 pages of results listed in chronological order. The stories listed included articles about Pakistan floods and the Taleban, stories about Turkey, Slovakia, Czech Republic, Hungary and about Alpha Capital, Krusen Capital forging a partnership. But, in its infinite wisdom, the search function did not list this videoclip of Bill Gross on StreetSigns. So we searched for “Volpert”. Presto, this time, the 2nd item listed by the search function was this videoclip. Mysterious are the way of CNBC search.
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