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.
QE2, G20 & Other Opinions
This week, countries around the world expressed their outrage about QE2. The G20 as usual swept the disagreements under the proverbial rug. But frankly, the damage of QE2 may have been done already. On Friday, the markets were shaken by fears of inflation in China. If these fears continue, Dr. Bernanke may realize that the wealth effect he needs to create is in China and not in the USA.
Rather than use our own words, why don’t we summarize the views expressed by David Rosenberg on Friday:
- China’s inflation rate has accelerated to 4.5% and there is risk if more rate hikes coming as a result….
- Widespread discounting and promotional activity suggests that holiday season will disappoint and the retailers have loaded up on inventory and staffing this year. In this context, Maria Bartiromo said that her contacts in retailing had told her sales began falling about 4 weeks ago.
- There is tremendous dissension at the Fed regarding QE2...Whether this translates into any real curtailing of Bernanke’s freedom remains to be seen in our view.
- Municipal bonds have been getting clobbered as default and liquidity concerns come to the fore.
- Sovereign default risks in Europe are clearly back on the table. But as we keep being told by European traders, the prevailing sentiment is complacent because they believe that EU will bail out Ireland et al.
- A negative Cisco surprise in 2000 and 2007 proved to be leading indicators of the equity market.
- Currency wars typically lead to trade wars and protectionism is coming our way soon
- Fiscal support for the economy is soon to subside and in a major way…
The 30-Year Treasury, the Anti-QE2 Investment
Last week, we wished for a sharp rise in 30-Year Treasury yield. Little did we know, we would get one in a few days. The 30-Year Treasury auction on Wednesday was as ugly as DD (for Rasiks of Danny Devito and his lovely film The Renaissance Man). Rick Santelli was tempted to give an “F” grade to the auction but ended grading it as “D minus”.
But, as we tirelessly keep pointing out to many and especially to CNBC Power Lunch anchors, an ugly auction just means buyers got a much better price. Often, buying in ugly auctions pays off as buying in this “D minus” auction did. By Friday morning, the newly auctioned 30-year Bond was trading up a point from its auction price.
People who like the 30-year Treasury today are the same ones who have been right all along. This week Gary Shilling reiterated his target of 3% for the 30-Year Treasury yield (see clip 3 below) and David Rosenberg said simply “Long Treasuries are cheap!”.
People who did not like the 30-Year Treasury, say back in April-May 2010 just before the summer’s explosive rally, still dislike long Treasury bonds even more than they dislike stocks. For example, see clip 2 below for Jeremy Grantham’s views.
Not that there is anything wrong with that
Rasik is our nom de plume for this Blog. A Rasik is an admirer in the truest sense, an admirer without personal passion or prejudice. We use the nom Cinema Rasik for the unique ability of cinema to see angles that most don’t see and to present those angles to our readers.
We are Rasiks of talent. We respect and admire it. Sometimes we see talent where most don’t. For example, we were the first (and perhaps the only ones) to see talent in the Mark Haines & Simon Hobbs pair. The chemistry and the repartee among this rather unlikely pair was special, we thought. Mark Haines said in one of their joint appearances ” I just had a conversation and I didn’t even have to say a word”. We still believe that this pair may have a real shot at stardom in stand-up comedy and, if asked, we would be willing to help them in that goal.
But, trust us, we have no personal interest in either Mark Haines or Simon Hobbs. They are not, either jointly or severally, “dear” to us. Not that there would be anything wrong with that, of course. But alas, our interest in this pair is entirely as a Rasik of on-air talent.
In the same vein, we see talent in other CNBC Anchors, talent different from the ability to sit in front of a camera and discuss financial events with guests. We see different angles of talent, talent clear to us as Rasiks of Bollywood Songs. This is why we sometimes refer to Bollywood music clips that might provide a glimpse into the talent we see in many CNBC Anchors. But CNBC Anchors seem afraid to showcase their personalities for fear of appearing less intelligent or less dignified.
To them, we offer a showcase of real talent in the clip below, the talent embraced and exhibited by a TV anchor supremely confident of her personality. This song, released in September 2010, is a riotous hit. You do not have to understand the words to enjoy it. It is sheer fun in a setting and with a meaning that should be clear to all.
The lady in this song is Ms. Malaika Arora Khan. She got her first break when MTV India began operations. She became an interviewer and then an anchor at MTV India. She moved on to the modeling world and began appearing in music videos in Bollywood films. Understand that Ms. Khan is simply an on-air talent like CNBC anchors. The lyricist writes the words, the music director composes the music, the dance directors constructs and choreographs all the moves. Ms. Khan is the on-air talent who carries it to the viewers.
Ms. Khan is an intelligent, highly articulate and a thoroughly dignified lady. She is a mother and a wife. She is today a multi-millionaire in her own right. Yet she has the drive, the confident courage to act with abandon in a music clip like the one above that shows her talent and her own sensuality as a woman.
That does not demean her. Instead it elevates her to a status of a supremely confident feminist woman who is proud of all the facets of her life. It is this confidence we find lacking in many CNBC Anchors despite the talent we see. We do not remotely suggest that they put on an act like Ms. Khan. But they have to come out of their shell, we think.
Finally, our deep admiration for Ms. Khan and her talent does not at all mean we “like” her or that she is “dear” to us. So Haines & Hobbs need not feel bad. Someday, we shall present evidence of what we consider to be ethereal and sensual beauty.
Andrew Lloyd Webber became enchanted by Ms. Khan’s 1998 song below. That song was his inspiration to create the long running Broadway show “Bombay Dreams”. Enjoy.
- Anand Marphatia on CNBC Strategy Session on Friday, November 12
- Jeremy Grantham on CNBC Closing Bell on Thursday, November 11
- Gary Shilling on CNBC Squawk on the Street on Wednesday, November 10
- Meredith Whitney on CNBC Closing Bell on Thursday, November 11
- Jim Bianco on CNBC Street Signs on Monday, November 8
1. America Shut out of America’s IPO? – Individual Investor Anand Marphatia on CNBC Strategy Session (Minute 08:10 to minute 10:01 of the 12:24 minute clip) – Friday, November 12
The actual title of the clip is How to Get in on GM IPO. This is a lame title that does injustice to the message of the segment. So we chose one of the visuals in the clip as the title. We think those who watch this clip would concur that our title is a better fit for the segment.
GM’s IPO is turning out to be a hot deal and, perhaps naturally, individual investors across the country are being shut out of this deal. CNBC’s Kate Kelly reported about this shut out and the fact that the customers of Charles Schwab, Ameritrade and E*Trade are already shut out of this deal. This outrage was very well covered by CNBC all day on Friday. But the best TV angle was on CNBC Strategy Session which featured an individual investor Anand Marphatia. According to anchor David Faber, Mr. Marphatia has been seeking employment for a year and half. He invests his won account to support his family.
Mr. Marphatia did a very good job explaining his case and the case of millions of individual investors who feel injured and insulted by being shut out of the GM IPO when they were the ones who taxes bailed out GM.
We urge all to watch Mr. Marphatia make the case. In particular, we urge Mr. Tim Geithner, the Treasury Secretary, to watch this clip. Mr. Geithner and his Treasury Department are the ones with the power in this IPO. They and the Obama Administration will not be forgiven if the profits from this IPO only go to Institutions and Rich Individuals. We urge CNBC and Steve Liesman in particular to forward this clip to Mr. Geithner.
CNBC Strategy Session needs to be congratulated for taking this unusual step of getting an individual investor on their show. To the best of our knowledge, this is the second time on CNBC, the first was by CNBC’s The Call.
But we must also express a note of protest. If we recall correctly, it was CNBC’s Erin Burnett who exhorted the Treasury Department in August 2010 to create a separate process for wide scale participation by America’s Individual Investors. She was ably and extrovertly supported by Jim Cramer.
We think it would have been proper for David Faber to acknowledge the earlier work by Erin Burnett in this IPO. And he should have asked Erin how to pronounce “Anand”. It is pronounced as “Aanand”. In case any one wonders, the name means Joy or Happiness. As we all can see, Mr. Anand Marphatia was neither feeling joyous nor happy in his interview.
We were happy to see CNBC StreetSigns, Ms. Burnett’s own show, give the credit to her. They began their segment on the GM IPO by showing a clip of Ms. Burnett’s exhortation on August 3, 2010.
2. Jeremy Grantham with CNBC’s Maria Bartiromo – Thursday, November 11
Jeremy Grantham is the Chairman of the well-known firm Grantham, Mayo, Van Otterloo & Co., often known as GMO. According to their own pitch, GMO develops 7-year models for asset class returns and uses these estimated returns in their asset allocation practice.
We have read the views of Mr. Grantham during the past several years. Our empirical experience is that while the views are logical and very well expressed, they rarely pan out. And taking his views literally could have cost his readers a great deal of money. That may be because Mr. Grantham usually argues that markets overshoot to the downside, way below fair value, which has not occurred or because as he says the Fed has jumped in to stimulate the markets regularly and too often to his liking.
But the results of GMO show that the firm and Mr. Grantham do not invest the way Mr. Grantham expresses his views. This is sort of the lesson we discussed in Clip 5 of our last week’s article about Julian Robertson and George Soros.
Watch the interview or read the transcript of the interview at cnbc.com. A few excerpts below:
- The consequences are you get boom and bust. You— stimulate in ’91. You let it get out of control. You have this colossal tech bubble in ’99. Sixty-five times earnings for the— for the growth stocks. Then you have an epic bust. Then, of course, they’re panic struck. They race back into battle with immense stimulus with negative real rates for three years….And you get another— rise of risk taking and everything risky— prospered in ’03, ’04, ’05, ’06, ’07 until we had what I called the first truly global bubble. It was pretty well everywhere in everything. It was in real estate. Almost everywhere. It was in stocks absolutely everywhere. And— and it was in the bond market to some considerable degree.
- I think the Fed is not designed— to have effective tools to deal with the economy. It should settle for just controlling the money supply. And— if it insists, it can worry about inflation. The way you address a weak economy, particularly very substantial excess unemployment is through fiscal policy. You must either bribe man— manufacturers, corporations to hire people who have been unemployed, which they did in Germany. A lot of economists think that’s perfectly effective.
- The Fed has enormous power to move markets. And it— not necessarily immediately, but give them a year and they could bury a bull market. They could have headed off the great tech bubble. They could have headed off the housing bubble. They have other responsibilities— powers. They— they could have interfered with the quantity and quality of the sub-prime event. They chose not to.
- So, we’re already in— in a— in a currency war in a way. It’s a mild one, and I hope it stays that way. But, a currency manipulation is exactly the same as tariffs. It’s a bit easier to change, a bit easier to back off. But, it has the same effect on global economy if we get into a currency war as if we got into a tariff war, which characterized the period after 1930 when the Smoot-Hawley Tariff Bill was passed. And— and— and they’re talking about that even as we speak in— in— in Congress.
- The Fed is driving the S&P, which is overpriced— the Standard & Poor’s 500— a broad measure of the U.S. market, is driving it from already substantially overpriced into what I would call dangerously overpriced.
- We expect on a seven-year horizon one percent only plus inflation from the U.S. market.
- Our institutional clients— sell very gracefully into this rally. We’ve already started to sell. We’re not even— averagely weighted. We’re modestly underweighted. And you must remember bonds are even worse than stocks on a seven-year forecast.
- And cash has a— a virtue that people don’t appreciate fully. And that is its— its optionality. In other words, if anything crashes and burns in value— say the U.S. stock market, if you have no resources, it doesn’t help you. If the bond market crashes, and you have no resources, it doesn’t help you. And what cash is is an available resource. It buys you the right to buy the U.S. market if the S&P drops from 1,220 today to 900, which is what we think is fair value.
- I have an eccentric view on commodities not necessarily shared by my colleagues or by— almost anybody. And that is we’re running out of everything…..We’re entering a period where we’re running out of everything. The growth rate of China and India is simply— can’t be borne by declining quality of— of resources. And— and I think we’re in a period that I call a chain-linked— crisis in commodities.
- The dollar is on fundamental purchasing power— it’s a— a fairly cheap currency. And— as long as there’s QE three, four, five and six, you’d have to bet that it’s more probable that it will go down. Now, if it stirs up— a currency war, all bets are off. We haven’t had one since the 1930s. We— who knows how that will play out?
- But, if we avoid that, I think you have to count on the dollar being at least irregularly weaker until we finish the Q game, which is ma— basically just running a printing press and using it to push down artificially— the bond rate. And let me point out that the Fed’s actions are taking money away from retirees. They’re the guys, and near retirees, who want to part their money on something safe as they near retirement. And they’re offered minus after-inflation adjustment. There’s no return at all.
- We recommend a very heavy overweight in— in the great franchise companies: the Coca-Cola’s, Johnson and Johnson’s. I’m not recommending those two names. They’re just examples. We’re recommending a modest overweight in emerging, an underweight— in everything else. Extra cash reserves and— patience. But, I think if you’re willing to speculate, you might find that this is an interesting one more year to speculate.
- We are getting some breaking news from our sources inside the Ira Sohn conference which is underway right now. Jeremy Grantham is saying that Bonds are grotesquely overvalued right now, grotesquely is his word, his descriptor for bonds right now. The best bets, Timber, Emerging Markets as well as Big Blue Chips.
Then we went back and checked the video of Mr. Grantham’s interview with the Financial Times on April 19, 2010 . In that interview, Mr. Grantham said at minute 05:19 minute of the clip:
- The European equity markets are moderately expensive, nothing to write home about. The US market is thoroughly expensive.
So, Mr. Grantham dislikes Bonds today. What does an investment guru who has been absolutely correct on Bonds say now? See clip 3 below for the answer.
3. A Decade of Deleveraging – Gary Shilling with CNBC’s Simon Hobbs (05:37 minute clip) – Wednesday, November 10
Regular readers know that we have deep respect for Dr. Shilling. We are merely simple folk and our views don’t matter. So we point out that true gurus like Dennis Gartman and David Rosenberg have expressed their admiration and respect for Dr. Shilling.
He seems to have won over Simon Hobbs, who in a rare retreat from his acerbic, “guests are guilty until proven innocent style”, actually congratulated Gary Shilling about his predictions about long maturity Treasuries. Mr. Hobbs introduced Dr. Shilling as “a man who since 1981 has been bullish on the bond market and broadly proved right”. Then at minute 02:27 of the clip, Mr. Hobbs said to Dr. Shilling “All Hail to you for getting it right, so far”.
The clip is about the new book “the Age of Deleveraging” by Gary Shilling. In this clip, Shilling confirmed his view that the 30-year Treasury yield will fall to 3% and that would deliver a 25% return on the 30-Year Treasury Bond in terms of appreciation. He also added that the only reason he buys the 30-Year Treasury is for price appreciation and said:
- “the yield to me on bonds is no more important than the yield to most people on stocks. The yield of 2% on the S&P 500, would any body buy the S&P 500 for a 2% yield, of course not. And I don’t buy Bonds for the yield either. It is the expectation that the yield is going down and the price is going up.”
Watch the clip. You will gain from Dr. Shilling’s wisdom and you will get a chuckle out of the frantic and plaintive attempts of co-anchor Melissa Francis to get in a solitary word. And we thought she had been battle-hardened by fighting for word time with Larry Kudlow.
4. Meredith Whitney on Financials & Politics – Meredith Whitney with Maria Bartiromo – Thursday, November 11
When Meredith Whitney speaks, we listen. But with less and less focus, we must admit. These days, her comments tend to be repetitive though correct. Watch her clip or read the summary of her views at Regional Bank Profits to Get Hit by new Regulations on CNBC.com. A few excerpts are below:
- Regional banks are going to become less profitable because of tighter financial regulations and are likely to close thousands of bank branches to cut costs,…the climate for regional institutions has become too difficult and those institutions have become overvalued...Whitney said she is selling regional bank stocks.
- Banks also face trouble ahead with the foreclosure crisis.Attorneys general across the country are probing the industry for irregularities in issuing mortgages during the housing boom of the previous decade, as well as the way mortgage-backed securities were packaged for investors.
- “The tobacco lawsuits went for 40-plus years. I think these mortgage issues are going to go on for decades,…You’re going to have decades of lawsuits on people buying securities and being left with stuff they didn’t intend to buy.“
- State governments, which also swung heavily Republican in the elections, face severe problems as well, particularly with debt and deficits. Whitney said New Jersey has the greatest obstacles but the damage is widespread.She predicted two million layoffs among the nation’s 19.4 million government workers.
- “It seems as if the market expects Oprah Winfrey to jump out of a cake and give away free cars with QE2,…Does QE2 help middle America? No, it just makes everything more expensive for middle America. I think that is a complicated policy and a dangerous policy to take things that much further.“
5. QE2 & Your Wallet – Jim Bianco with CNBC’s Erin Burnett (First 04:52 minutes of 08:31 minute clip) – Monday, November 8
This is a really interesting clip. Jim Bianco and Erin Burnett discuss the real-life impact of Fed’s QE2 on core America.
They take a segment of America that with a salary of $75,000 (after-tax income of $50,000) with a Savings Rate of 5% and a Mortgage of $300,000. Then they looked at core inflation and headline inflation for this segment. The result: Core Inflation was up 0.67% and Real Inflation (incl. food & fuel) was up 2.69%, since Bernanke announced QE2. The net effect of QE2 on this segment:
- Adjustable Mortgage Payment: Down $192.24
- Investments: Bonds Down, Stocks Up, NET = WASH
- Cost of Food & Gas: Up $258
- Conclusion: This $75,000 segment is not better off according to Jim Bianco, they are actually worse off.
- $75,000 income: Worse Off
- $750,000 income: Better Off
- $7,500,000 income: Best Off
As we said, this is an interesting clip.
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