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.
Is this what is going on?
A reader told us this week that he was thinking of liquidating the Municipal Bonds in his personal account and putting that money into risky assets. This reader is a professional money manager and is already overweight in DM Equities, EM equities and EM Debt in his personal account. He bought Munis in December for capital preservation and to reduce his heavy exposure to risk assets. With the awful decline in Munis this week, he is thinking may be risk assets are the new safe ones.
Such has been the fall in Municipal Bond prices and such has been the slow and steady rise in stocks. If this experienced money manager feels this way, what must be the panic level among individual investors? These folks bought Muni Bonds through open-ended mutual funds and closed end funds. They are seeing their assets fall fast and furious. Those who want figures can read David Rosenberg’s comments of Friday. He reports that individuals liquidated more money from muni bond funds in November-December than they did at the height of the financial panic in 2008.
May be that’s it. People who held on in 2008 paid very dearly for their patience. So once bitten, twice shy? Or was it the Whitney interview this week on CNBC? (see clip 2 below). Interestingly the stock market rallied on Thursday & Friday, the two days which saw prices evaporate in Muni closed end funds.
Ms. Whitney said on Wednesday “February is a critical month for states data because the Pew Institute which covers all the Pension Funds across the nation; that data comes out.” (see clip 2 below). So we don’t have to wait till June. We shall know next month. Did investors sell this week to avoid getting the bad news next month?
Add to that the wonderful comment this week about New Jersey could go bankrupt due to health care costs by New Jersey Governor Christie and the (completely coincidental – per Gov. Christie) cut back in the NJ bond issue. As John Miller from Nuveen said on Friday, the redemptions from open ended mutual funds are creating difficulty in the muni new issues market. This week, Vanguard canceled the launch of its Muni Bond ETFs due to market conditions. The Muni selloff was not stopped by the positive comments of Bill Gross (see clip 3 below) who seems to have lost his magic touch in influencing prices.
This 3-month selloff in Muni Bonds has been substantial. The Muni ETF, MUB, has dropped from $106 in late October to $96 on Friday. Even stock traders seem impressed like Brian Kelly of CNBC Fast Money. He said he would be a buyer at $85. His colleague Jon Najarian was more bullish with his buy level of 4% below $96. Their colleague Steve Cortez was proved wrong when he asked viewers to buy the VIX if MUB closed below $98 on Thursday. Any one who listened lost money on Friday because as MUB fell to $96, the VIX fell by almost 10%.
Perhaps it is as we said last week that like the Gallo brand, the stock market does not care about any crisis before its time. Or it could be that people fleeing muni bonds are running into “safe” stocks. They certainly are not running into Treasuries.
Pro football has nothing on financial markets.
It is better to be a believer
Look how little it took to believe that Europe is fine. Just one successful auction in Portugal. Who cares who bought the auction? It got done and that is all that counts. Like the old Big Ten teams, central banks seem to be playing a field position game by punting at every opportunity. Unlike football, their game can continue for ever or so they think.
The Great Bernak expressed his satisfaction with QE2 by stating that the S&P 500 had gone up by 20% since he announced QE2 in August. This led David Rosenberg to remark that “the Fed has added High Equity Valuation to as a 3rd mandate to its charter.” We must disagree with Mr. Rosenberg. We feel Bernanke has always had high stock prices as his main mandate. This was true in June 2003; Chairman Bernanke acted on this mandate in Fall 2007 and on Thursday, January 13, the Great Bernak merely gave voice to it.
That is what the stock market believes. It became a believer on August 27, 2010 and remains a believer. Look China doesn’t matter anymore. The stock market shrugged off the Chinese RR increase on Friday and it yawned at the Muni selloff. It does care about Europe though. So when the Portugal auction was successful, the stock market moved up.
The stock market does not care about food inflation in EM, outbreak of riots, overthrow of governments and minor stuff like that. Remember the Fed does not care about what its policies do to other countries. So why should the US Stock Market? And problems in EM Equities will lead to migration of money from EM markets back into the US Stock Market. So what’s not to like? And why should anyone remain a non-believer?
Bears should be happy that they live in the USA. We saw what happens to non-believers, especially who give voice to their “non-belief” in Pakistan.
Is CNBC like the Democratic Party of 2000?
Virtually every CNBC show tried to cover the Muni Bond carnage on Friday. But all of them failed. It was clear that none of them knew much about Munis (which leads us to wonder what these rich Anchors own in their personal accounts). It was also clear that they do not have any contacts or resources in the Municipal Bond trading community. So they reverted to the old CNBC approach and invited theoreticians or fund managers whose livelihood depends on managing muni mutual funds. This was the equivalent of old or not-so-old CNBC inviting stock mutual fund managers to comfort viewers about buy-n-hold stock fund investing.
This reminded us of the Democratic party in the early years of the past decade. The Democratic Party enjoyed great success under President Clinton. But they never understood Bill Clinton. And what little they understood of Bill Clinton, they did not want to implement.
CNBC seems like that today because they do not understand the model established by Fast Money. And what they understand, they refuse to propagate across all their shows.
A case in point – Fast Money usually assigns a dedicated trader to be their “Prop Desk” to monitor market events or news. When it happens, the show goes to this dedicated Prop Trader for commentary. We had offered a suggestion that CNBC use a prop trader every day to support all their shows. We called this a Breaking Macro type alert in keeping with CNBC’s Breaking News alerts.
This would have been very helpful on Thursday when the Muni market broke and no anchor at CNBC had a clue that it was breaking down. They didn’t and so the anchors ignored the story. Then every show scrambled to find guests on Friday to offer after-the-fact drivel.
We don’t get why CNBC doesn’t get its own creation. But then, the Democratic party never got Bill Clinto
CNBC Anchor Indicators?
This week, CNBC Anchors discovered Food Inflation around the world, especially the explosive rise in onion prices in India. CNBC’s gentle Ms. Herera noted the entry of 3 billion people into the class of people who want to eat more. We were impressed by the “insight”. But we wondered whether these 3 billion people suddenly morphed into bigger, better eaters in the last month or two. May be, CNBC cameras saw this mass migration take place last month that no one else saw.
No one asked whether this has anything to do with the strange commodities governance in India. People who care to look might notice that the minister in charge of regulation is also in charge of production, a case of the referee being a player. Ohers might want to look at the cumbersome supply chain in India from the farmer to the consumer with various middle entities creating their own markups and bottlenecks. A price rise is the perfect camouflage for the supply chain to exploit inefficiencies. We know this because this scene has been the staple of Bollywood movies since the 1950s.
CNBC may not know Bollywood but they have a large affiliate in India. Had we been involved in a CNBC show, we would have sought the help of TV18 in India to do a segment on the supply chain and perhaps explain how a Walmart could help streamline the choke points. But why commission TV18 when CNBC has India experts like Sue Herera and Erin Burnett.
We wonder whether this week’s focus on food riots may end up signalling a short term top in soft commodities. The Gold fever seems to have broken and Copper has begun showing weakness. The action this week could be a head fake or a break in the continuous momentum since August 2010.
Speaking about Erin Burnett, we feel sorry for her. Just last week, we highlighted her segment on Tunisia in clip 5 of our Videoclips of January 3- January 7 article. Like her other tourist segments, the Tunisia segment was visually nice and the commentary almost got us enamored. To show a connection to CNBC’s business, Ms, Burnett invited David Grayson of the EM broker Auerbach Grayson to discuss investing in Tunisia.
We recall that Mr. Grayson said the government in Tunisia was very stable. Ms. Burnett agreed and the two had a good time on air discussing the virtues of Tunisia.
Well, Tunisia exploded this week and on Friday, the Tunisian President flew out of the country and landed in Jeddah, Saudi Arabia. His son-in-law reportedly flew to Dubai. Anything to add to your “very stable” comment, Mr. Grayson?
This brings up a market indicator revealed to us many months ago by one of our readers, a prop trader. Apparently, the visit by Erin Burnett to any country is an indicator of a top in that market. This is not our indicator and so we cannot vouch for its predictability. We must add that, in this case, Ms. Burnett was simply unfortunate in our view.
Speaking more generally, we have noticed a tendency in Ms. Burnett to become a saleswoman for the country she visits and paint a tourist-brochure like picture of that country. Just watch her Dubai clips. We do like her focus on global investing but we wish she would really learn about that country and prepare for the visit as a money manager would.
- Ben Bernanke on CNBC’s Small Business Forum on Thursday, January 13
- Meredith Whitney on CNBC Squawk Box on Wednesday, January 12
- Bill Gross on Bloomberg’s InBusiness on Wednesday, January 12
- Jeffrey Gundlach on Bloomberg on Friday, January 14
- Rick Bensignor on Bloomberg’s Taking Stock on Wednesday, January 12
- Doug Kass on CNBC Squawk Box on Thursday, January 13
1. Bernanke: More Optimistic – The Bernanke-Bair panel with Steve Liesman of CNBC (02:41 minute clip) – Thursday, January 13
Ben Bernanke and Shiela Bair were members of a Small Business Forum sponsored by CNBC and chaired by its economics reporter Steve Liesman. When asked about his economic outlook, Dr. Bernanke replied:
- we see the economy strengthening, it looks better in the last few months and we see a 3-4% type of growth number for 2011 seems reasonable. Now that’s not going to reduce unemployment at the pace we would like it to but it will be good to see the economy growing.
Then Steve asked Dr. Bernanke how he could say that the QE2 was a success given that interest rates were higher and commodity prices were higher:
- Bernanke – Policies have contributed to a stronger stock market, just as it did in March of 09 when we did the last iteration of this. The S&P 500 is up about 20%+, the Russell 2000 which is about small cap stocks is up 30%+. So I think a stronger economy actually helps small businesses more than it helps the large businesses.
If this is what Dr. Bernanke believes, then we would ask a simple question? Why didn’t the Bernanke Fed just buy the S&P basket and the Russell 2000 basket with the QE2 money? Why bother with buying Treasuries? We think a daily buy program in S&P & Russell 2000 would have worked just as well. And it might not taken $600 billion. A mere $100 billion would have sufficed. We recall that the Hong Kong government went in and bought stocks on the Hong Kong stock market in 1999. That did the trick.
Now you see why David Rosenberg added “High equity valuation” as the 3rd mandate for this Fed. But we still have a gnawing doubt – If a stock market rally of 20%+ is equivalent to a strong economy, would an eventual correction be equivalent to a weakening economy? Or does Dr. Bernanke intend to ensure that stocks never go down?
In other words, this is a Fed of the Believers, for the Believers and clearly by the Believers. And we are a tolerant society. We don’t call the sceptics as “infidels”, we don’t shoot them. We simply bankrupt the blasphemous few who dare to short the stock market.
2. Meredith Whitney on CNBC Squawk Box – Wednesday, January 12
Much of what Ms. Whitney said on Wednesday was a repeat of her comments on September 28, 2010 in her interview with Maria Bartiromo. We encourage readers to go Clip 2 of our article Interesting Videoclips from September 26, 2010 to October 2, 2010 .
This interview is in two segments:
- (minute 01:38 of segment 2) – February is a critical month for states data because the Pew Institute which covers all the Pension Funds across the nation; that data comes out.
- (minute 01:14 of segment 1) – We have never said that we thought any state would default; we think the municipalities have the risk of defaulting.
- (minute 10:13 of segment 1) – When you have the first group of defaults, you will see indiscriminate selling and that will be a buy opportunity for some,….there are many municipal bonds that are safe, that are great investments, but because there has been such complacency in the market, muni investors have been frankly talked down to for so long – there is nothing to worry about, there is nothing to worry about; they will just fly.
- …a generic long-dated AAA-rated muni yielding just over 5% is pretty juicy despite what Meredith Whitney’s forecast is over looming default risks.
- Orange County defaulted 16 years ago, and believe it or not, the creditors were ultimately made good.
- But as a sign of just how much out of favor the group is, retail investors liquidated more than $13 billion from muni bond funds in November-December, topping their net redemptions in this space at the height of the financial panic in 2008. This conjures up the memory of Bob Farrell’s rule number five: “The public buys the most at the top and the least at the bottom”.
3. Bill Gross with Bloomberg’s Margaret Brennan (08:45 minute clip) – Wednesday, January 12
This is an interview about the successful auction in Portugal and finally about Meredith Whitney’s forecast. Mr. Gross explains why Pimco has avoided buying Portugal’s debt. His comments about Ms. Whitney’s Muni call can be found at Pimco’s Gross Clashes With Whitney Over Municipal-Bond Outlook on Bloomberg.com.
We miss the old Bill Gross. The new Gross tends to speak in platitudes. Mr. Gross, do you still own the California Muni closed end funds you bought in December? Shouldn’t you have asked this question, Ms. Brennan?
4. Jeffrey Gundlach in an telephone interview with Bloomberg.com – Friday, January 14
This is not a video clip but a telephone interview by Jeffrey Gundlach reported on Bloomberg.com. Mr. Gundlach is a well respected fixed income manager. Read the entire article at DoubleLine’s Gundlach Ready to Sell Treasuries as 10-Year Yield Nears 3% . Guess, the title gives away the plot. A couple of excerpts are below:
- DoubleLine Capital LP’s Jeffrey Gundlach said a decline in 10-year U.S. Treasury yields to around 3 percent presents a selling opportunity with swings in bond prices likely to increase as economic growth accelerates.
- “There is just a certain quantum of risk — like keeping a lid on a pressure cooker too long — that something is going to give when volatility stays at such depressed levels,”
- “We haven’t sold any Treasuries since late October, and our next move will probably be to sell more when the 10-year gets down closer to 3 percent as we expect. The next leg up will then take the 10-year to about the 4 percent zone.”
- If we break to lower yields thanks to weak economic data, then we should see a pretty good rally in the 10-year,” Gundlach said in a telephone interview yesterday. “As this correction to the downside is unfolding in the weeks ahead, Treasuries will be the best performer. Further into the first quarter, we’ll see higher yields again”
5. Rick Bensignor with Bloomberg’s Pimm Fox (04: 38 minute clip) – Wednesday, January 12
Remember the end of August, 2010. The Bernanke QE2 speech at Jackson Hole was 3 days old. Most people were confused about the market’s direction. The David Tepper interview on CNBC was 3 weeks away. On Tuesday August 31, the noted technician Rick Bensignor made an interesting comment in his interview on CNBC Closing Bell.
That day, Mr. Bensignor said that “Actually I think we are at a very interesting point, possibly the most important juncture since the March 2009 low was made,“. He added that “within the next couple of percent, I think we really have the point at which this market is gonna bottom and move higher or we break for a 100-150 S&P points”.
We all know that the market did make a very important bottom around that time. It never looked back and went up 20% in a straight line. We covered this interview in our Videoclips article of August 29 – September 3, 2010 .
Now Rick Bensignor sees another inflection point in the market. A couple of excerpts from this interview:
- I talk to what I consider many smart-money people. And it is really tough to find somebody who is bearish….This is a market that shifted completely psychologically…
- I had said at the time (on August 31) that the US stock market was at its most important inflection point for the entire year of 2010. If buyers were gonna show up, that was the time. Now that is 225 S&P points ago…..Just weeks before that conversation, 3/4 of all PMs I spoke with said “if we just get a rally I want to sell out” because it looked like we were going to fall off the face of the earth. They got the rally and they didn’t sell because of QE & Bernanke.
- I think right now, anywhere from S&P 1280 up to 1310, is a counter-inflection point, not as dominant as we had seen in September but something that could at least give us 40-60-70 point S&P decline which in percentage terms is about 4-5%.
- I was talking to a PM who said, if you are talking about 40-60 point decline, I am not going to shift what I have on. I can live with a 50 point decline in S&P.
So what if Bensignor proves correct about a counter-inflection point coming up? That possibility made us include this clip. Note this is consistent with the Jeffrey Gundlach observation (see clip 4 above) about a downward move in Treasury yields coming soon.
6. Doug Kass Shares Market Insight – Doug Kass on CNBC Squawk Box – Thursday, January 13
Doug Kass is open-eyes thinker, a colorful speaker and usually has something fresh to say. In this clip, Doug Kass is still bearish on stocks. He is bearish on Gold but thinks Commodities look very attractive. This is interesting because so far Gold has moved in tandem with other commodities. In this clip, Mr. Kass talks about food inflation.
A summary of his views can be found at Commodities Look ‘Very Attractive’ Now at CNBC.com. A couple of excerpts:
- “There will be a fight for natural resources over the next few years and we’re going to see substantially worse-than-expected food-price inflation,….I think we’re going to see that for a number of months.”
- “You either believe in gold or don’t—you’re going to get an ‘Emperor’s New Clothes’ moment sometime in 2011.”
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