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.
With the election and the FOMC decision on QE II, next week is High Noon for financial markets and the country. The only disagreement is on which side is Gary Cooper? If you listen to Bill Gross, Jeremy Grantham, Peter Orszag, the decision for a massive QE II would be a disaster.
If you listen to Jan Hatzius, Barton Biggs, David Tepper, the decision for massive QE II would help the economy and elevate markets at least for the next few months. Forget the markets and focus on the economy, you say? Little do you know that the Bernanke Fed has always considered these two as one entity.
Go back and look, we urge you, at Bernanke’s timing of monetary easings in the fall of 2007. Those were exquisitely timed to lift S&P 500 just as the stock market was threatening to break down through critical support levels. Brian Sacks of the New York Fed told us clearly that QE is meant to raise asset values to “levels they would not be at otherwise”. Why would they want that? Because the illusion of higher asset prices might create confidence and spending.
This was a week of colorful commentary. Grantham’s letter was called “Night of the Living Fed, something unbelievably terrifying “. Bill Gross titled his article “Run Turkey, Run” and opined that the Fed’s QE “.. will likely signify the end of a great 30-year bull market in bonds and the necessity for bond managers and, yes, equity managers to adjust to a new environment..”
His colleague Mohamed El-Erian was more circumspect but as clear. He said that the Fed was “terrified” of deflation. and that “QE is meant to drive down the price of safe assets so much that we are all pushed into doing something risky,” Mr. El-Erian does not believe “QE on its own will help very much, and that with QE alone, the same issues will persist in six to nine months,while the rest of the world will be inflated.” El-Erian said that Pimco had reduced its gold position from 10% to 3% because of the price movement and the possibility a large technical correction.
On the other hand, Barton Biggs in a Tepper2 kind of commentary, said “we need to make sure that we don’t tip ourselves and the world back into another recession and the price of that is going to be a bubble at some point but a bubble in emerging markets as it develops now is actually going to be in my view positive for the world economy in the short run, I mean next 6-9 months“.
Interesting how both El-Erian and Biggs see the effect lasting the same amount of time, 6-9 months. (See clip 1 below for more comments by Mr. Biggs).
Happy Deepavali and Thank God
This week marks the beginning of the Deepavali festival. This is the most important festival for the global Indian diaspora, including of course India. Like most Indian festivals, it celebrates the victory of Good vs. Evil. Perhaps it was fitting that this Friday, the Good people of Chicago, America and the World won over the Evil intents of some terrorists in Yemen and global Al-Qaeda. In a sense, this was good because it will keep people awake to the continuing danger from nihilistic terrorism. We are delighted to see a win for the good guys of security agencies, both American & Global. And we feel grateful to Saudi Intelligence for the help in discovering the plot.
- Barton Biggs on Bloomberg TV on Friday, October 29
- Jason Trennert on CNBC Fast Money on Monday, October 25
- Nouriel Roubini on CNBC Closing Bell on Friday, October 29
1. Barton Biggs with Bloomberg’s Betty Liu – Friday, October 29
Last week, we wrote that we do not like the Bloomberg practice of using excerpts of their interviews on Bloomberg.com. We stand by that statement. We like to hear the full interview ourselves and not some tidbits selected by a Journalistic Editor with his or her bias.
Having said that, some tidbits are so juicy that we have to share them. Barton Biggs has been noted for quotable comments for decades. This clip is no exception. There is another reason to listen to Mr. Biggs. He made a great call on September 1 when he told Bloomberg viewers that it was time to buy. His exact words were “this is not the time to be under invested.”
A sensational call indeed. But what’s his call now? Listen to the entire clip on Bloomberg.com or read our own excerpts below:
- Biggs – We are still tipping along the knife edge…..
- Liu – What’s the case for buying into stocks now though Barton, when we have had a pretty good runup since the end of July..part of that having to do with this expectation of quantitative easing…
- Biggs – well, I think the conventional wisdom is that the rally since July stems from Bernanke’s speech at Jackson Hole talking about Quantitative Easing and so the markets have discounted some amount of quantitative easing and they discounted the election and in the meanwhile all this liquidity is being created and so my judgement and I may be completely wrong that the conventional wisdom is that the markets are going to sell off after the election and the Fed’s quantitative easing announcement. My view is that the surprise could be, the so-called pain trade could be that we have another 10% rally after the announcements, beginning may be next week.
- Liu – I want to be clear. You see a sort of a knee jerk negative reaction right after the quantitative easing but that may be the time you start getting the buyers coming into the market. Right?
- Biggs – Yeah. That’s my guess but I emphasize guess..g-u-e-s-s. But that’s the way I am playing it.
- Liu – Where is the most attractive play for you then?
- Biggs – The most attractive place for me on a higher risk basis are groups like technology in particular, I think tech is still going to be a focus of strength, I think other areas like oil service are oversold and attractive, drug stocks, things like that in the US. And look, the Emerging markets are the favorite of the investors.
- Liu – Are they a favorite of yours, Barton?
- Biggs – Definitely. I think we are only half way along the way to a gigantic eventual bubble in the emerging markets. But, we are not there yet. And the fundamentals are too strong and too good, there is too much growth and the valuations are still reasonable. So I think the emerging markets, particularly Asia, are a place where I really want a major representation.
- Liu – You mentioned in particular we are halfway to this emerging markets bubble. Some would say look with the Fed easing and the Dollar going down being debased, we are almost there with the bubble.
- Biggs – well, I don’t know what you mean by being almost there?
- Liu – For instance, China is now coming out trying to make a move to stem all that speculative money going into the property markets…there is already problems peaking, that’s what I mean…
- Biggs – of course, there are going to be more problems and amazingly, China is dealing with its problems very effectively..and so in the run up to a bubble, a really big bubble there is going to be all kinds of mini bubbles..but we are in a bubble-prone world to begin with and particularly when we have something like massive quantitative easing increasing liquidity all around the world, it will make the world even more bubble-prone..but bubbles always come out of some kind of reality..so we are still in the reality of the discovery stage of the emerging markets.
- Liu – But, shouldn’t we be doing something about this then at this point rather than letting it happen?
- Biggs – look, we are doing something about it..the world economy is in a very dangerous position, and I don’t know which way it is going to tip..I am hoping and betting that we are not going to have a double dip but the Fed is doing the right thing. the Fed is pumping massive amounts of liquidity in, our Government is not doing the right thing..we are still yammering away about fiscal austerity, we need more economic growth and we need to make sure that we don’t tip ourselves and the world back into another recession and the price of that is going to be a bubble at some point but a bubble in emerging markets as it develops now is actually going to be in my view positive for the world economy in the short run, I mean next 6-9 months. what happens after that we got to wait and see..
- Liu – don’t you think at some point it is going to get very very ugly for us in the Treasury markets? don’t you think that?
- Biggs – yeah, I do think that, I do think that. I mean there is two schools of thought about how this thing is gonna end. one is that we are spiralling into a vicious cycle of basically deflation, the other is we are going to have hyper inflation. And I think the outcome is going to be more stagflation and yeah, that’s gonna be eventually very very bearish for Treasury Bonds.
2. Bull Market or BS? – Jason Trennert on CNBC Fast Money (07:05 minute clip) – Monday, October 25
For a bit of the conventional wisdom discussed by Barton Biggs in the above clip, listen to Jason Trennert in this clip. Mr. Trennert starts speaking at minute 03:40 of the clip.
- Lee – Buy the rumor, Sell the news! When do you sell if the market is already pricing all of this in.
- Trennert – I think you probably want to be selling it now, if you ar every tactical or short term because I think the Fed is in a situation now when it can almost only disappoint people; we did a survey of about 50 institutional customers last week and the average expectation is for 900 billion dollars of additional monetary stimulus and I would say obviously in terms of the political wins, I think most people are discounting heavy Republican wins. So there may a little bit of an element where you want to sell the news. I think what is not priced in is a structural improvement in the economy which I think is possible or more likely than people think. That’s going to take a little bit longer to evidence itself. For the short termer, I think I would start selling into this as we head into next week’s election and the FOMC announcement.
Mr. Trennert added later in the clip that after next week’s sell off, he would start legging back in in a week or two.
As a book-end call for the week, on Friday afternoon, the entire Fast Money Team issued a unanimous Sell recommendation on the US Stock market.
3. Roubini Predicts “Fiscal Train Wreck” – Nouriel Roubini on CNBC Closing Bell – Friday, October 29, 2010
Nouriel Roubini is even more colorful as a speaker than Barton Biggs. He spoke of a “Fiscal Train wreck” in America’s future. Listen to this clip to hear his words. As a summary, Dr. Roubini said that the Republicans are vetoing Tax Cuts and Democrats are vetoing Spending Cuts, including Entitlement Cuts. He said the gridlock after the election will make things worse.
The funniest part of this clip is the expression on Trish Regan’s face as she said “On that note, thank you very much. It’s always a pleasure to see you.” Rarely have we seen such contrast in an anchor’s expression and her words.
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