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.
Bernanke Got His Wishes – Is He Happy?
Chairman Bernanke has already expressed his satisfaction about the rally in the S&P 500 and the Russell 2000. He wanted to raise inflation expectations to ward off the risk of deflation. Well, he got it this week. Just look at Gold, Silver and Oil. Chairman Bernanke wanted China and the rest of EM countries to revalue their currencies. He wanted to weaken the US Dollar to make exports competitive. He got that this week. The US Dollar looks sick as a dog and no one wants to touch it.The action in long maturity Treasuries looks dicey.
In other words, Chairman Bernanke got all his wishes for QE2. Does he feel content, happy? Is he in a mood to celebrate? Or is he about to panic as he did in May 2006, November 2007 and fall of 2008? We shall get the first glimpse into his psyche in the last week of April.
On Friday, his most public and vocal admirer parted company with Chairman Bernanke. Jim Cramer went defensive on Bernanke’s greatest pride and joy, the US Stock Market. Mr. Cramer advised his viewers to raise cash and pronounced the market as “most vulnerable going into this earnings season“. His main concern was the price of Oil and gasoline. He reminded his viewers of 2008 when he admittedly did not raise cash as Oil went vertical.
So if Mr. Cramer proves correct and the stock rally dissipates, then reasonable people could ask what exactly did Bernanke achieve with QE2? Except piling on more hardship on middle America. High gas prices, rising food inflation, negligible interest income on savings, continued declines in home prices and proliferating downgrades of US GDP estimates – what a hit on middle America that was already short of income.
Well done, Chairman Bernanke. Are you planning for QE3 as the Congress cuts budgets and States-Local Governments begin their own budget cutting austerity drives? How much QE3 would you consider to address the new austerity of cutting $37.8 billion from the Federal Budget?
How will the US Dollar rally on Monday as a result of the Budget deal? If it does, Chairman Bernanke could heave a slight sigh of relief. If it does not, then he might recall the admonition “be careful what you wish for, because you might get it”.
Unanimity among Market Masters
This week CNBC Squawk Box ran a Masters of the Market series. They invited several big names in investing to present their opinion about markets. What struck us was the near unanimity among all these experts. Every single Master was negative on Treasuries. The only non-negative statement was from Peter Fisher from BlackRock who said “I don’t think the long end is going to rise a lot”. In contrast, every single Master, except Michael Steinhardt, was positive about stocks. As Robert Doll of BlackRock asked “where else are you going to go?”
Now these are not talking heads or your run-of-the-mill equity fee collectors (otherwise known as fully invested, long only stock managers). We cannot recall a period when such unanimity reigned. What does this portend? We shall find out together.
The US Stock Market, Inflation & Treasuries
Simplicity works for us. Nothing is as simple as watching financial media stars speak. These folks know just about every one worth knowing and they speak to market masters all the time. These media folks therefore reflect the market consensus. This makes them ideal contrary indicators.
Our favorite media personality in this context is Maria Bartiromo. At 3:36 pm on Friday, February 18, Maria Bartiromo exhibited her own maximum bullishness about this stock market rally. In our Videoclips article on February 19, we reported this and wondered whether this Maria sentiment peak was a sell signal. Our mark on this signal was 134.24 on the SPY. The stock market closed a few points higher that Friday.
Now almost two months later, after a fall due to Middle East & Japan and the snap back rally, the stock market has rallied back to a level just short of our Maria Sell Signal mark. Any one who shorted the S&P on Friday, February 18 and covered during the Japan led sell off enjoyed a good trade. Those who did not cover can still hold their positions. If the stock market does not break resolutely above the February 18 highs, then we may well have a double top in the market.
We think the call by Jim Cramer might be sound and tactical. He is by nature a fan of stocks and he is usually bullish. When a bull turns bearish, it is worth noting. Also Mr. Cramer is an investor and not a contrary indicator.
Speaking of contrary indicators, the entire CNBC network went inflation- phobic this week. This does remind us of other periods of CNBC’s inflation-phobia.
- We recall that Dylan Ratigan went nuts about inflation in June 2007 just before Treasuries mounted an 18 month explosive rally that took the 10-treasury yield to 2%;
- We recall how CNBC’s coverage of inflation went parabolic in 2008 and we remember what happened in the fall and winter of 2008.
- We also recall the CNBC Hall of Memories clip on Thursday, June 4, 2009 between Jim Rogers and Larry Kudlow. These two erudite gentlemen trashed the US Dollar and Kudlow exclaimed “..why any one would want to buy treasury bonds right now is beyond me..” Readers might recall that Treasuries bottomed a week later on June 10 on the day of the 10-year auction and went on to rally by 20%.
And if inflation fears are nearing a peak, are Treasury prices nearing a bottom? We urge caution on this score. The April-June period has seen a steep sell-off in Treasuries in 2006, 2007, 2008 and 2009. But if we have seen the peak of Federal stimulus and what we have ahead is austerity, then Treasuries might get a tail wind. That would be a pain trade because no one, literally no one, seems to like long maturity Treasuries here.
Speaking about inflation, what about inflation in EM?
Inflation in India
India has been a front runner in experiencing inflation and in fighting inflation by raising rates. A few months ago, everyone in India was talking about inflation and there were near riots due to exploding food prices. We just returned from a two week long visit to Mumbai and our experience was very different.
No one we spoke with brought up the topic of inflation. The people we met were from various income levels and careers. They included professors, lawyers, doctors, salaried folks, investment bankers and private equity folks. These conversations were usually over food and drinks. But not a single person complained about food inflation.
We brought up the topic with a wealthy private equity guy and he promptly got very defensive & emotional. He kept arguing that inflation was a big problem in India. This is a man who (like Maria Bartiromo) has not set foot in a grocery store in years if not decades. But as an investor, he had to express the prevailing wisdom. None of the others, people without this man’s high income, complained about inflation.
Our own investigations (lunches, dinners at our favorite restaurants) showed very little rise in prices over our previous visit. So our empirical conclusion is that inflation, at least food inflation, in Mumbai peaked sometime ago.
McDonald’s, KFC, Subway and Domino’s Pizza in Mumbai
We have been told that companies like McDonald’s, Yum and others have excellent growth opportunities in India. We are not so sure after this visit. There used to be a McDonald’s near our apt. in Mumbai. Across from that McDonald’s is a college and a few minutes away is the Diamond Exchange of Mumbai. At least several hundred people need to eat breakfast, lunch and late afternoon snacks every business day in this small area.
Despite this demand, McDonald’s did not make it in that location. The problem was McDonald’s simply did not serve the food consumers wanted. It’s sit down format did not work either. In contrast, there are about 20 other eateries in that vicinity and all of them were full.
To our delight, we noticed a new Subway franchise a little distance away. Subway serves its sandwiches with Indian filings like Chicken Tikka, Chicken Tandoori, etc. We went there often because the sandwiches were good and the specials were priced right. Subway features a different sandwich as its daily special and this special sells for $1.60, a 50% discount off the regular price. We could afford this discounted price and it compared well with the price of the local fare.
But we are not sanguine about Subway’s success either. We never saw more than 1-2 people in the place. Kentucky Fried Chicken was even worse. So we came away worried about the premium priced into these stocks based on foreign growth opportunities.
The only success story we could find was Domino’s Pizza. Pizza fits Indian tastes and Domino’s serves Pizza with Indian toppings. But the biggest reason for its success is its trademark – the 30-minute delivery to homes.
As an aside, we discovered a new delicacy in this Mumbai neighborhood. We were aware of grilled sandwiches of various types, Grilled Cheese, Grilled BLT, Grilled Club just to name a few. But we discovered a new variety on this trip – Grilled Chocolate Sandwich…a layer of pure chocolate placed between two bread slices and grilled. What a treat! And it costs less than $1.
CNBC India vs. CNBC USA
When we watch CNBC USA, we are often reminded of Bollywood clips. What distinguishes CNBC USA from Bloomberg and Fox Business, in our opinion, is the “fun aspect”of CNBC Anchors, the banter and sometimes the gender based exchanges. It is similar to the “ras” of Bollywood films.
We expected to find similar “ras” on CNBC India. We were severely disappointed. The coverage was flat, dull and boring. There was no banter between anchors or reporters. It was all so serious. It put us to sleep. We saw no difference between Bloomberg UTV coverage, NDTV coverage, Economic Times coverage or CNBC India coverage. We could hardly watch these channels and so we switched to Indian soaps.
For some reason, women anchors and reporters at CNBC India and the other financial networks seem to go out of their way to dress in awfully casual attire. It is almost as if they feel they would not be taken seriously if they dress nicely. There are a couple anchors who do dress well and they end up with large fan clubs for their looks. May be this makes the others deglamorize themselves to get credit for intelligence rather than looks.
It does not work. Generally speaking, we found CNBC India anchors and reporters to be less intelligent and less knowledgable than their US counterparts. This may surprise some readers because we have been rather critical of many CNBC USA anchors. But in all honesty, the quality of understanding, the quality of discussion and the general ability to debate on CNBC India seemed much poorer than what we find on CNBC USA. The one possible exception might be Udayan Mukherjee. He comes across as knowledgable and thoughtful. But he is as exciting to watch as our friend David Faber. May be CNBC India can find a Kernen type to complement Mr. Mukherjee.
CNBC India is not unique. The quality of debate on Indian TV is much poorer than that on American TV, hard as it may to believe. Indian TV anchors tend to be more emotional and shout often. This could because there are so many channels that unless you are verbose and sensationalistic, you may not be heard.
We did find one positive about CNBC India. The two women anchor format works well on CNBC India whereas it falls flat on CNBC USA.
World Beater India
May be India does not do well in Financial TV, but India won the 2011 World Cup in an amazing and spectacular fashion. They had to beat reigning champions Australia and then a very strong Pakistan team to get to the final against Sri Lanka, the second best team in the Cup. It was a great, great final. Sri Lanka batted first and ran up what seemed to be a winning score. But India, in a rather non-Indian fashion, played aggressive, disciplined cricket with the Captain Mahendra Singh Dhoni playing an innings for the ages. The entire country went nuts, sheer nuts.
Unlike the typical Indian leade
r, Dhoni is a brutal, hard hitting, dominating player and a very cool captain. If India gets a political leader like Dhoni, it would become a different society.
The World Cup showed why investors around the world are eager to invest in Indian Television networks. This week, Merrill Lynch announced an equity stake in NDTV, a network which already has NBC and General Atlantic as investors.
Cricket players like the Dhoni and Tendulkar, the greatest Cricket player ever, make monies from commercials that were unheard of before. And this is just the beginning. In ten years we expect the next Sachin or the next Dhoni to make Tiger Woods type money.
So our message to those interested in investing in India, consider the TV and Entertainment sector. It will be in a secular bull market for the next 15 years at least.
PS: But if you do, focus on those who provide Indian entertainment and not reruns of US shows like CBS that features reruns of Everybody Loves Raymond. In contrast, Viacom has been very successful with Colors, its purely Indian network.
One empirical observation
We have visited Geneva and Mumbai on several occasions. This was the first time we saw people asking for money on Geneva streets, in areas with money and offices of private wealth firms. Actually, we can report that on this trip, more people approached us for money in Geneva than in Mumbai. This is a rather stunning fact. We have no idea what it means if anything.
The only clips we found worthwhile this week were from one single show. These are from the Masters of the Market series on CNBC Squawk Box. Watch these clips and decide whether you find the same unanimity of opinion that we observed. We would like to thank CNBC for fulfilling one of our long standing requests (made on February 14, 2010) by adding automated transcript capability to their Videoclips. On that day, we congratulated Fox Business for this capability and wondered aloud why CNBC didn’t provide automated transcripts. Better late than never, eh? Thanks CNBC.
- Michael Steinhardt on Tuesday, April 5
- Mark Mobius on Monday, April 4
- Doll & Fisher of BlackRock on Monday, April 4
- Bill Gross on Tuesday, April 5
- Marc Faber on Friday, April 8
1. Michael Steinhardt on CNBC Squawk Box – Tuesday, April 5
This is the most candid, the most honest clip of the entire Masters of the Market series. That is why it gets the pole position of the week. We disagree with the official CNBC title for this clip. That is why we simply called it Michael Steinhardt on Squawk Box.
For those who may not much about Mr. Steinhardt, he started his hedge fund in 1967 and achieved a 24% annual average return over three decades.
We begin with what we consider to be key comments of Mr. Steinhardt:
- …the largest position i have had for the last eight months has been being short the two-year treasury. I‘ve made a moderate amount of money doing it. and I still have a relatively large position being short of the two-year treasury. and my timing has been fair. no better than fair. but i’ve made some money. and it’s an exciting position. you know, it’s fighting the fed in the heart of their view. love to fight the fed…..
- don’t you feel badly that all those quadrillions of geriatric savers have really gotten killed over these years. yes. and no one talks about them? that Bernanke or Ber Nancy Pelosi Atka as the cynics call him, he’s screwed all those nice old people who saved all their lives to retire and he’s paying them half of 1% or some other numbers it insufficient for them to live? live the rest of their lives in comfort. the journal pointed that out yesterday. we don’t talk about very often at all. they don’t matter i guess. they don’t matter…..
- i would think the stock market would have done better, given that there hasn’t been any alternative to. the stock market has done better. 1 years. we live in a inland sea of calm orders. while surrounding us are turbulent, horrible places,
- i mean, America seems almost as insular now as it did in times past.
We disagree with Mr. Steinhardt on the last point. Having just come from India, we can say with conviction that India is a far more insular place than America. Indians might know more about America than Americans know about India. But in general Americans know a lot more about the world in general than their Indian counterparts do. We are willing to extrapolate our experiences to argue that America might be the least insular society in the world.
Mr. Steinhardt, like many of the European-American success stories, grew up in an America that stood alone in the world as a functioning, well run society. There was no competition to America in those days. People like Mr. Steinhardt look back at that America and moan that it is no longer what it used to be. Well, duh! Today’s world has woken up and is much more competitive. To keep its dominant position, America has to struggle and restructure itself in order to succeed. But America still has the best hand of all. There is no other society on earth that would not trade places with America in a heartbeat.
“What do they know of England who only England know?” used to be a saying during the days of the British Empire. It meant that to really understand England, you had to leave England and look at it from the outside. This is true of America as well. To really understand America today, you have to look at America from the point of view of people of other countries. We wish Mr. Steinhardt would do so.
The rest of the clip contains a frank and candid analysis of Warren Buffet, the Oracle of Omaha. We commend Mr. Steinhardt for his honesty and candor. Very few people would have had the courage to say what he did. Read a summary of his comments about Buffet at Buffet Snow Job has Conned the Media on CNBC.com.
2. Mobius, Master of the Market on Squawk Box – Monday, April 4
Mr. Mobius is the executive chairman of the Templeton Emerging Markets Group. Read a summary of his comments at Stocks Are Good Bet as Inflation Looms on CNBC.com. A few excerpts are below:
- As you know, equities are one of the few investments that you can make that are going to adjust to inflation,
- There’s always inflation. No currency will hold its value, not even the Swiss Franc.
- There’s definitely a shift and we’ve not only seen it here in Asia but in Latin America, in Africa…These countries are leapfrogging … that means the whole process (of development) is accelerating. Taking the latest technology, not having to go through all the steps in between.
3. Doll & Fisher, Masters of the Market – Monday, April 4
Robert Doll is the chief equity strategist and Peter Fisher is the global head of fixed income at BlackRock.
- Doll – …the perspective we have is look, at the bottom last august, fears were about a double dip. we’ve come a long way since then. expectations have move up a lot. that was overly pessimistic. we think that expectations have caught up with reality. while we’re still constructive…but you don’t have to be as aggressive as you were before because expectations have move up. look, we’ve had a rise in commodity prices led by oil, food, there’s some unrest around the world. the world’s not perfect. and the markets have move up a bunch. we just want to put that note of caution in with the proviso we’re still constructive
- Fisher – …rates will start rising. i don’t think the long end’s going to rise a lot. it’s already a very steep yield curve. when the fed eventually gets around over the next year or so to bring up the short end, long end may well rally. we don’t live in fear in a backup of the long end of the market. that tells us it’s still okay to be buying those credit sectors.
- Fisher – …it’s that middle term fiscal outlook the markets should be caring about. we can see the tradeoff here. if the government starts seriously cutting back on spending, there’s going to be in the near term the risk of a slow down in that government spending component of GDP. but the benefit if you can deliver long-term cuts in spending is that revival of business fixed investment and freeing up more capital in the private sector. the ten-year horizon will look better the closer we get to something like congressman Ryan is talking about. the political process of getting there and the cuts that may come to spending in the near term will tend to weaken the economy a little bit in the here….
- Fisher – …the fed is unlikely to go straight from easing. they’re easing now till June. they’re unlikely to go straight to tightening…. QE-2 will end. and they have to think hard about the short run as the fiscal situation tightens. how much do they want to tighten into that. they’ll want to start removing the monastery stimulus and do that over the next 12 months. how much will they want to do as in the near run, federal fiscal stimulus isn’t going to grow from here and not a contributor to growth. bank lending and credit is just beginning to come out from where it’s been over the last couple years…..
4. Gross, Master of the Markets on Squawk Box – Tuesday, April 5
This is a repeat of what Mr. Gross has been saying for some time. Read a summary of his comments at Bond Yields Too Low Because of Fed Policy on CNBC.com. A few excerpts are below:
- The near-term market has been unduly influenced by quantitative easing,…We’ve had two huge buyers in the Treasury market at artificial levels. Basically the Chinese and others aren’t that picky in terms of the interest rates that they see. What they want are jobs for their countrymen.
- What they (the Fed) want to do is support stock prices and asset prices and they’ve done so…Treasury yields at these levels are very unattractive.
- The yield on the benchmark 10-year Treasury note would have to rise to 4.50 to 5 percent to be at what Gross terms a “normalized” level.
- Until that happens, he advocates looking elsewhere,such as to Canada and Mexico, for government securities. Because those markets are relatively small, he said investors also can do well in bonds from Brazil and Germany.
5. Faber: Masters of the Market on Squawk Box – Friday, April 8
Marc Faber is the Editor of the Gloom Boom & Doom report. He is always an interesting speaker. This time is no different. Read a summary of his comments at Gold Is Still Cheap Despite Record Surge on CNBC.com. A few excerpts are below:
- If it were a bubble a lot of people would have gold. The whole world would be trading gold 24 hours a day….But I don’t think it’s really a bubble. I think gold is maybe cheaper today than it was in 1999, when it was $252.
- What makes gold such an attractive investment is due in part to the Fed’s move to keep the US dollar cheap as a way to boost asset prices and stimulate a recovery.
- One day they will increase it by a quarter percent. But what does it mean when commodity prices are going through the roof, energy prices are going up, health care costs are going up, insurance premiums are going up?…Everything is going up. Only at the Federal Reserve is there no inflation.
- In that environment, cash and bonds will lose value. Other good choices besides gold, he said, are “commodities, real estate, art, collectibles and so forth, anything that essentially cannot be multiplied at the same rate as paper money, that is subject to the printing presses of Mr. Bernanke.
Send your feedback to firstname.lastname@example.org