Editor’s Note: In this series of articles, we include important or interesting videoclips with our comments. 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.
Obama-Boehner “Deal” Breaks Down
The big news of the week came after the markets had closed for the week. At about 6 pm on Friday, news broke that John Boehner, the Speaker of the House, had walked out of the Debt Ceiling talks with the President. We still have an entire week before the hard deadline of August 2. And both the President and the Speaker have stated that they will NOT permit a default. So we will simply wait to see what happens next week.
The markets, in our opinion, clearly spoke their mind. Both the Stock Market and the Bond Market rallied big on Tuesday and Thursday when they received upbeat news about a deal and Gold-Silver fell hard. On days when they did not, both markets meandered and Gold-Silver rallied.
We began this past week with an oversold stock market and got good news about the deal. We enter next week with a somewhat overbought stock market and possibly with bad news about the deal, unless of course the 11 am meeting on Saturday between the President and the Congressional leaders produces a breakthrough.
We confess to be somewhat happy
We keep hearing on TV how the rest of the world looks at America with skepticism if not derision. We hear TV Anchors and Celebrity Pandits bemoan the sad state of affairs in America.
We disagree. This conflict between Democrats and Republicans is very basic and goes to the heart of their dispute about the future direction of American society. The Debt Ceiling extension should not be the arena for this conflict but it is. But that is how true democracies behave. Managed societies behave nicely on the surface until they blow up. Societies where the power really rests in people act in a messy manner and sometime create artificial explosions. But, we believe, these eventually prove cathartic.
TV Anchors like Bloomberg’s Margaret Brennan and CNBC’s Melissa Lee speak disparagingly of us viewers as “masses”. They don’t get that America is one country, perhaps the only country, in which people are not “masses”. Perhaps, that is to be expected. After all, they are TV Anchors, the ultimate ‘elite’ of America.
So we confess to a sense of pride, mixed with concern, when we witness the histrionics in Washington DC. America often behaves in a way that other societies cannot fathom and will never copy. The American financial crisis of 2008 shocked the world but proved to be cathartic for American banks. Today, as we read in clips 2 & 3 below, American Banks are (relatively) healthy. In contrast, Europe is following the path Japan has followed since 1990, band-aids that temporarily cover the wounds rather than treating the wounds.
Therefore, we are willing to bet with any one that America will solve its debt crisis before and better than any other debt-laden country. Would any Financial TV Anchor care to bet against us?
Bush & Obama
We are independent and unaffiliated with either party. Gun to our head (to use a Doug Kassism), we could accept the label of Clintonian Democrat. We have never been Republican. But we consider the Tea Party as a great example of a spontaneous eruption of the voice of ‘core’ America.
Our main regret is that the Democratic party never embraced Bill Clinton the way they embraced Barack Obama.The Democrats enjoyed their success under President Clinton, but his ideas remained foreign to them. On the other hand, the Republican party embraced Ronald Reagan and his ideas.
We turned positive on President George W. Bush at the beginning of his second term. We made our case in the article The Second Term of President George W. Bush – A Foreign Policy Success Story on September 13, 2008. President Bush transformed America from a Europe-Oriented power to an EM-oriented power. Only President Bush could have conceived of and implemented his Strategic Partnership with India.
Unfortunately, the potential of this relationship remains unfulfilled. This week, the Washington Post published an opinion article by Michael Green & Daniel Twining titled Why aren’t we working with Japan and India? Our response is titled USA-India – Did President Oversell or Did President Obama Botch It?
U.S., India Collaboration
A much better article was published in the Washington Post on July 19 titled Cooperation comes slowly for U.S., India. We urge all to read it. It shows why Europeans and Israelis are winning large Indian contracts that American companies should win.
America is and has been the world’s largest market. This is why all global companies treat Americans with respect and take great care to not annoy or insult Americans. But today’s America needs to export more, much more. America has the products, often the best products. But America as a society has yet to learn to act like an exporter. And the first rule of export business is never insult your customer. Unfortunately, the first word overseas people, especially Indians, use for Americans is “arrogance”.
You see this in the behavior of American companies, especially American media companies. We have written extensively about how CNBC, New York Times, Washington Post exhibit symptoms of cultural or religious supremacism. This year, three of these articles are in our Top 10 Articles for 2011 list. This confirms our belief that middle class India is getting more confident and vocal.
To sell to this ‘core’ Indian demographic, the first and the simplest step is to pronounce Indian names correctly. This simple courtesy is never observed by European-Americans. In contrast, continental Europeans invariably do a far better job of pronouncing Indian names. This is one basic reason why Indians prefer to do business with Europeans rather than Americans.
Suffer Silently or Be Considered ‘Uppity’?
We often contact Indian-American guests we see on Financial Television to ask them how they feel when a financial anchor mispronounces their names. You can guess how they feel. We ourselves remember the first time we were asked “do you mind if I call you….“? They learn how to pronounce French names, they learn how to pronounce long Polish names. But they have to butcher our names! This is the basic. gut feeling.
But nothing is more difficult than seeing another Indian-American change his or her name to make it easier for European-Americans. Sometimes Indian-American men even change the gender of their names. No European-American named Carl would ever accept being called as Carla. But many Indian-Americans accept such ‘feminization’. (see our article A Case of Two Financial Journalists dated May 15, 2010).
Based on our conversations, many of these people are upset or ashamed of being ‘feminized’ in this way. But they feel they would not be invited as guests on TV if they are too ‘uppity’ about their names. So they carry the resentment within themselves.
Kudos to CNBC
We have been rather vocal about the absence of multi-cultural on-air talent at CNBC. So we were delighted when CNBC introduced Seema Mody, a new Indian-American reporter. Fox Business has Shibani Joshi, Bloomberg has Sheila Dharmarajan and now CNBC has Seema Mody.
Ms. Mody, according to her profile, worked as an anchor and reporter at CNBC, Mumbai before moving to CNBC’s opulent offices and the lush, green surroundings in Englewood Cliffs, New Jersey. We wish her the best of success.
But our happiness was tempered by a jarring note. We heard CNBC anchors pronounce “Mody” with a harsh “d” sound as in “Dat” as opposed to the softer “d” sound as in “that”. Later we heard Ms. Mody emphatically declare on air that her name is to be pronounced with the harsh “d” sound as in “Dat”.
To our knowledge, every other Mody (& there are so many famous Modys) pronounces it with the softer “d” sound as in “that”. Our inquiring mind had to ask why Seema Mody says it differently. So we did ask CNBC with the usual result – utter deafening silence. Then we found YouTube clips of Ms. Mody from her CNBC Mumbai days. In these clips, CNBC Mumbai anchors pronounce Ms. Mody’s name with a soft “d”.
(Listen from 00:10 for 2 seconds)
(Listen from 00:13 for 3 seconds)
So here you have an Indian-American reporter who uses different pronunciations of her last name in India & in America. Our mind would like to inquire why? Would CNBC or Ms. Mody care to enlighten us? After all, no other Indian-American anchor does so. Not Shibani Joshi, not Sheila Dharmarajan, not Kiran Chetry, not Sanjay Gupta and not Fareed Zakaria.
But we have an even more basic question. A serious conflict has begun in India and the Indian Diaspora. It is similar to the conflict in America between Bill O’Reilly’s “Culture Warriors” and the self-described “Secular Progressives”. We describe the conflict in the Indian Diaspora in terms of ‘core’ and ‘educated’. To which group does Seema Mody belong?
We shall wait to find out.
- Doug Oberhelman on CNBC Closing Bell on Friday, July 22
- Laurence Fink on CNBC Closing Bell on Wednesday, July 20
- Richard Bernstein & Robert Albertson on CNBC Squawk Box on Thursday, July 21
- Mary Ann Bartels on CNBC Closing Bell on Thursday, July 21
- Walter Zimmerman on CNBC Closing Bell on Wednesday, July 20
1. CAT Chairman Talks about US & China – Doug Oberhelman with CNBC’s Maria Bartiromo – Friday, July 22
The stock of Caterpillar has been the flagship of global growth in the rally since March 2009. So when the CEO of Caterpillar talks about slower growth and weaker employment in the USA, we listen. What Mr. Oberhelman said on Friday reminded us of what Mr. Hill of Novellus said last week (clip 1 of Investment Videoclips of July 10 – July 15).
- Oberhelman – the U.S. is slowly recovering. it is recovering, just a slow, slow return. I was just out with four of our very biggest American contractors and customers. These are companies that aggregate business and road construction and building and and operating at half their 2007-2008 levels and worried about an infrastructure program next year and what happens if spending doesn’t come through, we are talking about a quarter to a third reduction in their business, which would be a quarter to a third of employment reduction. We’re all worried about that.
- Oberhelman – the ones we follow closely are free-trade agreements for Colombia, Panama and South Korea. We hoped and actually had assurance from many in Washington, by mid-summer they would be enacted and we could move with trade agreements and get moving and those are stalled like everything else at the moment. There is a lot of uncertainty extreme this week and next week will be very extreme if there’s not some kind of concrete announcement of some kind. we really need to get on with business and is holding a lot of us back in terms of investment.
- Oberhelman – as their (China’s) economy grows, it gets more challenging to do the things they have done. Chinese for 30 years have done a wonderful job of controlling growth and balances organization all the things the company needs to do to progress. No question a slowdown will have ramifications. I come down to slowdown of reasonable proportion, 7, 8, 9% on ongoing basis is very healthy, a lot healthier than a hard landing that may or may not come, I don’t think it will because the Chinese will manage their way through it.
The last sentence is the key difference between China Bulls & China Bears. The Bulls believe that the Chinese will manage their challenges just as they have for the last 30 years. The Bears believe that central management of a large, complex economy is doomed to failure and the risks of failure rise as the economy gets bigger & faces bigger challenges.
2. Message to Investors: Stop Being Chicken – Laurence Fink with CNBC’s Maria Bartiromo – Wednesday, July 20
- Fink – we are seeing clients delay decisions; we are seeing clients who are — were once looking to invest in maybe equity strategies, remain in fixed income strategies, de-risking. We are seeing clients capitulate, seeing clients worry about the eventuality of these problems. As we said on our call this morning, we’re seeing other clients saying this is an opportunity to invest. It’s not across the board we are seeing this worry, but this worry is real, and as I said on our call today, this is one of the most important issues that will confront investors. that is we have to pay attention now to political risks more than ever before.
- Fink – I would also argue, we have seen in the last week, very good earnings numbers across the board. We’ve had many more exceeds expectations than misses expectations, yet the market is still sitting in the same trading range. By definition, as earnings go up and the market stays in the same trading range, the market is actually getting relatively cheaper.
- Bartiromo – are you worried that this soft patch will impact what has been the best performing area of this recovery, corporate earnings?
- Fink – The answer is clearly no. The beauty of corporations today is that they’re not just dependent on one country, they are dependent on the world economy, and this is why I like equities so much. You have a more diversified investment by investing in companies today than you have politics of any one nation. you have now with the dividend rates of some companies and the PE ratios of these companies, Equities are relatively cheap vs almost any other asset class.
- Fink – I would say for U.S. Banks, the burden is basically behind us. Our banks are in really good shape, have sufficient capital, building capital base overall. return earnings are strong and can meet the targets. I am not worried about the U.S. banks.
- Fink – I am worried, though, the European Banks, I don’t believe, by and large they will meet their capital needs, especially if you have to mark the market some of the sovereign credits and this is why I’m more worried about Europe and resolution how does Europe get around the sovereign credit problem. when we talk about Greece or Ireland, we should be talking about the European banks who own them. one of the reasons why the European banking community is not willing to mark down Greek debt is it has a suffer impact and contagion effect on the banking system. until the banking system of Europe addresses their capital issues, we cannot see a — I would call a broad-based resolution in the sovereign credit issues. we believe the sovereign credit issue, whether that is Greek or Portugal or Ireland, whatever, has to be done in conjunction with the recapitalization of the European banking system.
We also suggest reading the WSJ article titled Larry Fink to Investors: Stop Being Chicken.
3. Richard Bernstein & Robert Albertson on CNBC Squawk Box – Thursday, July 21
Richard Bernstein is ex-Strategist of Merrill Lynch and the CEO of his Firm. Robert Albertson is the Strategist at Sandler O’Neill. They are interviewed primarily by CNBC’s Michelle Caruso Cabrera, or MCC for short, with her implied permission of course.
- Bernstein – U.S. earning fundamentals remain extraordinarily strong. My argument has been we have the strongest profit dynamics in the world and I don’t think that investors fully appreciate this. I think we’ve been overwhelmed by the politics of what’s been going on and everything else. But the underlying profit fundamentals in the United States are right now the best in the world.
- Bernstein – Where we’re having trouble and people don’t appreciate where the problems are really staring to rise is in some of the major emerging markets. That, I think, is where people will get blind sided in the next 12 to 18 months.
- Albertson – At the beginning of the day I would argue that we were probably a month away from Greece and the United States as debt problems being removed, not resolved, but back of mind. It will get done. None of us will like how. But sufficiently so we have to look back and see what’s really going on. What’s really going on in the United States, depending on leverage, the corporate sector is still under levered, the corporate sector is doing well, the market is doing well. U.S. economy is doing something else because there’s still too much leverage in the consumer sector and we’re waiting for the consumer to help drive GDP. That can’t happen with this much leverage. We’re trying to solve that one problem that Dod
d-Frank didn’t address which is we have a trillion dollars in debt and mortgage that doesn’t make sense anymore and has to get removed one way or the other before we can really get into a recovery. My guess is they don’t do that and we sit in a sluggish economy.
- MCC – Does that mean you continue to buy anything that’s leveraged to overseas growth rather than what’s happening here?
- Bernstein – Quite the opposite. What we’re trying to do is actually shield ourselves from the emerging markets. I actually think there’s much more risk than people think. Yield curves are flat in Brazil and India. They have inverted. This is normally the early warning radar for equity investors to be very, very cautious. We’re actually trying to protect ourselves from the emerging markets and focusing more on the domestic economy. Now, that may sound very odd to people. Why would you not want to expose yourself to other markets? The answer is markets don’t move on absolutes of good and bad. I‘m not saying the U.S. economy will grow faster than the emerging market economies. All I’m saying is it’s likely in the next 12 to 18 months the U.S. economy will grow better than people think right now. Whereas in the emerging markets it’s very likely you’ll see growth rates slower than people expect. Therefore expectations of the United States go up. The expectations of the emerging markets goes down. That’s what moves stock markets, not the absolutes of GDP.
- MCC – you do that through stocks, through fixed income or what?
- Bernstein – for us we’re doing it more through stocks and lower quality bonds or even munis, if you will. If you think growth expectations in the United States are gonna improve in the next 12-18 months, you want to look at Munis.
- MCC – what’s your recommendation based on your scenario?
- Albertson – I think the big difference in emerging markets is that they are slowing because the management of the countries are trying to slow them somewhat. I‘m not as concerned as Rich. Where I would look now is what a fortress balance sheet industry, which is American banking.…I don’t think anything else can happen to it and if you look at the degree of loss absorption that has occurred at the capital levels, which are already doubled, and you are seeing accelerating signs of loan growth in the business sector which is being ignored. You have got momentum finally in the group and it never bought QE2, it never took off because it was supposed to …it is a magnetic attraction, you see that.
- Albertson – I think at the end of the day, listening to what these managements are telling us, is that they all are looking for the worst, they are prepared for it, meanwhile the credit demand is picking up and meanwhile they are generating excess capital; they don’t know what to do with it;
- Bernstein – I think what we are looking at in major financial institutions, I disagree a little with the other guest. We should look at them much as we look at Microsoft and Cisco; that if you go back to the tech bubble; Microsoft and Cisco, these were huge growth companies; things started to unravel; then oh look they are generating so much cash, they have great growth prospects but its been dead money….I think the growth expectations among analysts on
the street for long term projected growth rates for some of the major financials in the United States, are still like 10-12-14% annual growth over the long term
- Albertson – look at where the multiples are.
4. Case for Stocks – Mary Ann Bartels with CNBC’s Maria Bartiromo – Thursday, July 21
Mary Ann Bartels is the Chief Technical Analyst at BAC-Merrill Lynch. She is bullish on the U.S. stock market.
- Bartels – it successfully tested support at 1300, 1295. We had good market internals and breadth and good market volume and many indicators approached oversold levels and we think the market is responding to that and we will reach the highs of 1370 and 1350. and maybe this year go as high as 1400.
- Bartels – what we noticed in the past several weeks if not months, hedge funds have been lowering exposure to markets. What is their net exposure is to the market and last week we estimated they dropped it to 28%, relative to a normal benchmark somewhere between 35 to 40%. We noted cash levels have been rising and a notable hedge fund recently saying they raid their cash level to 75%. We think hedge funds could be one of the major catalysts that allow this rally to participate. They’re basically on the sidelines raising cash levels. Any trigger could bring them back in.
- Bartels – really, what we’ve seen is a lot of investors pull away from the market, sit on their hands, waiting for a decisive move on the macro news. What the market is telling us, this will be resolved in a positive way and if the markets continue to rally, we think the hedge funds will come back in the market and if they do, they can drive the markets to new highs and if we break 1370, we go to 1400.
A different viewpoint is expressed in the clip below:
5. Time to Sell Stocks? – Walter Zimmerman with CNBC’s Maria Bartiromo – Wednesday, July 20
Walter Zimmerman is the Chief Technical Analyst at United-ICAP. He is a frequent guest of Maria Bartiromo.
- Zimmerman – Distressingly similar compared to the situation in 2007. Back then, the stock market was teetering under the weight of an unfolding mortgage debt crisis. The U.S. dollar was plunging on its way to new lows and commodities were roaring to new highs. When commodities broke through their downturn resistance line, it was too much for the stock market and they couldn’t handle a new debt crisis and mortgage and commodities at the same time. So the stock market buckled. What do we have now? The stock market teetering under the weight of a sovereign debt crisis. We have the U.S. Dollar, looks like it’s just in its spring-to-summer rally, completed a bear market correction and is ready to plunge lower again. And the spring-to-summer decline in the CRB index looks like it just finished a bull market correction. So we have a pretty much a replay of the situation that we had going into September, 2007. A stock market that, by the way, is giving sell signals such as the RSI Divergence Sell Signal, we have commodities look like they’re about to surge to new highs, and the Dollar looked like it’s about to break down.
- Bartiromo – So, what do you want to do then as an investor? You’re looking at the technicals and you think this is going to materialize.
- Zimmerman – absolutely. and I think the takeaway for investors is that although the stock market and commodities have moved in
tandem since March of 2009, it looks like we’re entering a phase where another set of new highs in the commodity market risks breaking the back of the stock market rally.
- Bartiromo – what’s the timing on that? what would you expect the timing to be in terms of a sell-off?
- Zimmerman – it looks like it’s going to happen this summer. The commodities look really set to surge. The dollar looks like it’s under severe pressure. and the stock market looks like it’s skating on thin ice. We think all these events will unfold this summer.
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