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.
- I don’t think I have seen such trading so schizophrenic in this trading market since late ’08...it’s impossible to make money trading hedging that type…- Jeff Gundlach.- Tuesday, July 5
- We had a client lunch in Edinburgh and not one client showed up…free scotch and lunch in Edinburgh and nobody showed up…..Brad Hintz,– Friday July 8
ADP or PAD?
On Thursday, ADP released their number of private jobs added in June. It was 157,000, a shocker. The stock market exploded in a fierce rally. By the end of Thursday, the whisper number for the actual number of jobs added in June had risen to 250,000.
On Friday, the Bureau of Labor Statistics announced that only 18,000 jobs had been added in June, a shocker. The stock market dropped by 150 points in the pre-open session. This was a horrible, horrible report. The larger Houeshold survey was down by 445,000 jobs.
We never were believers in the veracity of ADP numbers. Is it a real calculation or do they simply pad the number to make it fit that they think it should be? If so, it should be called the PAD number rather than the ADP number.
The U.S. Stock Market Reaction & Behavior of Currencies
Any way, you look at it, the reaction of the U.S. stock market was encouraging. The futures suggested a down 150 point opening. The actual open was bad, but not that bad. Stocks started recovering in the 11:00 – noon hour and rallied in the final hour to close down only 62 points.
The Jobs number wasn’t the only worry. Italy was the new PIGG to create fear. The spreads between Italian and German Government Bonds widened by 60 basis points this week. For a quick summary of Italy’s Debt problems, see the informative and succinct clip Default Threatens Italy? by CNBC’s Michelle Caruso Cabrera. But the Euro did not fall out of bed and the Australian Dollar had recovered most of its early losses by the close.
What happens on Monday? Does Italy get worse? How do our markets open?
- I think Oil is supported. I think the stock market is supported and I think the Dollar is off. Go long those commodity currencies and even dip a toe in the Eurodollar. – Todd ‘Flash’ Gordon, Aspen Trading Group
- The tension around Italy has the potential to see the Euro even significantly lower in the next couple of weeks and I think we are going to see a significant move starting on Monday. – Jens Nordvig, Nomura.
What we called ‘encouraging’, Art Cashin of UBS called a “salvage operation”. John Netto of M3 Capital called it a sign of complacency in the stock market (see clip 3 below for their views).
We are not as smart as these folks. We simply wish we had a good handle on the positioning of big players in the stock market. Two weeks ago, most large macro funds were neutral or short the U.S. stock market. The stock rally caught them by surprise and we saw what happens when large players chase a rising market. Are they still short their target positions? Are their Portfolio Managers trying to buy the dips to get more long? Or will the payroll number on Friday and the Italy scare lead them to go shorter? Next week is Options expiration. So positioning will determine the direction, we think, simplistically as usual.
The Treasury Market
Last week, Treasuries had a horrible week. That storm was nowhere to be seen this week. Treasuries were quite until Friday, when both the 30-year and the 10-Year rallied by a full point and the 10-Year yield touched 3%.
We always watch the action of the 30-Year Treasury Bond. We noted last week, that on Friday, June 24, the 30-Year closed down a bit while the rest of the Treasury curve rallied. That foretold the the massacre in Treasuries last week. This Thursday, the 30-Year Treasury Bond was virtually unchanged while the rest of the Treasury curve was down. Predictably, this turned out to be a harbinger of the Treasury rally on Friday.
Did the 30-Year Treasury somehow know something on both occasions? Or did it reflect positioning? CFTC data showed that large speculators had gone short the 30-Year Bond and the 10-Year Treasury curve before the Payroll number. They got burned as usual. As Jim Bianco has been pointing out for a couple of years, large speculators have made it a habit of getting burned by getting short 30-yr & 10-yr Treasuries at the wrong time.
On Wednesday, JP Morgan released its monthly Client Survey on Treasuries. For the first time, in six years, the number of Longs was Zero. Simple folks like us have treated this survey as a contrary indicator. But CNBC Fast Money made a banner “Investors Flee Treasuries” and claimed it proved their view that Treasuries were not to be bought. But then, no show has been more wrong more often about Treasuries than Fast Money.
Once again, Jeff Gundlach has been proven correct. He predicted on Thursday, June 30 that ‘short-term yield rise is just about over’ (see clip 1 of our June 24 – July 1 Videoclips article).
How far can Treasury yields fall? Until 2.35% says Holly Liss of Citigroup. She also sees a golden cross in the 10-Year Treasury (see clip 3 below). This is a different view than that of Gundlach who says the market needs fear to take the 10-Year yield below 3%.
The U.S. Economy
Even after the horrible payroll data on Friday, the consensus, as we hear it, believes the c
urrent weakness in the economy to be a ‘soft patch’. The consensus expects stronger growth in the second half.
ECRI, one of the better predictors of the U.S. Economy, think otherwise. They think that the global industrial slowdown is going to persist through year-end. For the U.S., they say this is not simply a manufacturing slowdown any more. this is a broad economy slowdown (see clip 1 below). And they made these statements on Thursday, before the jobs number was released on Friday.
For a succinct discussion of the semi-permanent or structural issues facing the U.S. economy, see the discussions between:
- David Rosenberg of Gluskin Sheff and Matt Miller & Julie Hyman of Bloomberg &
- Tony Crescenzi of Pimco and Margaret Brennan of Bloomberg.
Bloomberg has good interviews. But the Bloomberg website runs consistently behind their competitors. Fox Business was the first business network to include automated transcripts on their website. CNBC followed them and began including automated transcripts with their videoclips on CNBC.com. Will Bloomberg.com follow and how many months will it take them? This may be a tall order because Bloomberg.com does not even list all the videoclips of the week in a simple chronological order as CNBC.com does. Instead, they list a few and call them ‘Editor’s Picks’. How arrogant and how dumb?
A Credit Bubble in India?
Richard Bernstein has made a case that the growth in EM has been largely due to a credit bubble. We are sympathetic to the view that a credit bubble exists in EM. Some signs in India follow the parable of other countries like Ireland.
In 2006-2007, we read that people from Ireland were buying apartments in New York City. By early 2007, about 20% of apartments in new buildings were reportedly being purchased by the Irish thanks to their strong economy. We know how Ireland turned out.
We recalled this when we read in the Economic Times (of India) that
- They’re coming from Mumbai, Delhi and a bit from Bangalore, and though still a trickle, even tier-2 cities like Ludhiana and Chandigarh…..They’re swarming all over Knightsbridge and Chelsea with budgets as modest as £500,000 all the way up to £20 million…..These are mostly young, small businessmen and entrepreneurs, and upper middle class parents of kids studying in London acquiring their first overseas property…. A study by top-end property consultant Savills estimates that Indians have now grown to make up 4% of buyers in prime central London, 6% by value, and have an up to 9% share in the £5-15 million range, with an average spend of £3.5 million …..We’ve seen a significant shift in the past two years, more people want to buy. When people become wealthy, they like to own overseas property – and a home in London is seen as a trophy asset. (emphasis ours).
Home as a Trophy Asset? A sign of something? Didn’t Mark Mobius say a Bubble was not a problem until it bursts? But what does this say about China? China takes in more foreign capital every month than India takes in an entire year. If we are worried about an Indian bubble, how worried should we be about a Chinese Bubble?
If and when these bubbles burst, will we hear people talking about the 30-Year Treasury Bond with a 4.25% coupon as a Trophy Asset? When you hear that, CNBC Anchors, then you can safely call Treasuries a Bubble.
Wealth that is & was of India – And Related Thoughts
India is (& rightly so) described as a poor country. But it was the wealth of India that brought marauders and invaders to India for the last 1,200 years. The plunder of India has been truly staggering in its dimension. We are in the process of studying carefully researched books that shed some light on the plunder.
This week, a staggering discovery was made in the small southern state of Keral on the western coast of India. Authorities found a treasure in gold, diamonds and jewelry worth about 22 Billion US Dollars hidden in the 16century Padma-Nabh-Swamy temple by the ex-King of Travancore. By the way, there are records (per BBC.com) of Travancore trading actively with Rome in the first couple of centuries CE.
The Travancore Kings were never considered to be really wealthy by Indian standards. So if they could store away $22 billion for the future, what was the wealth of the Kings of bigger & richer states?
It is generally reported that over $1.5 trillion has been taken out of India and is now held in tax haven countries. Such has been and is the level of corruption in the official circles in India. If $22 billion can be located in just one small temple in a small state, then $1.5 trillion does not seem too large.
Finally, we are so tired of the nonsense that is written by ‘Indian’ authors about ‘Hindu gods’ in the New York Times and Washington Post.
For the record, the ‘Hindu’ Dharma has always, since its Vedic foundations over 5,000 years ago, been based on One Central Supreme Divine Entity, an Entity that is beyond and without any Form (Nir-Aakaar), without any Attributes (Nir-Gun) of any kind. How does one think of such an abstract entity? That is why they sought to study representations or projections of this Divine Entity onto known objects.
- For example, if the sun is so bright, how bright must be the halo of the Divine Entity? That is how the adjective of ‘As Bright as 10
Million Suns’ came to be applied to this Divine Entity. And the Projection or Representation of the Supreme Divine Entity onto the attribute of Brightness was called Surya.
- If the Joplin tornado can be so ferocious, then how ferocious must the power of the Divine Entity to sweep everything from its path? So the Projection or the Representation of the Supreme Divine Entity onto the attribute of Wind, became called as Marut.
These Projections came to be described as Representations With Attributes (Sa-Gun) and With Form (Sa-Aakaar). These, though popularly known as Gods, are merely Representations of the One Central Supreme Divine Entity which of course has no name. This is very different than the Greek concept of many Gods, each a different entity than others.
These are original concepts even children know in India. But the new species of ‘educated Indian’ does not. For those who wish to become familiar with this doctrine of Non-Duality, we suggest the following simple, short articles:
Perhaps, even a man with a celestial name like DeoGun might be persuaded to read these articles.
- Lakshman Achuthan & Kevin Caron on CNBC Squawk Box on Thursday, July 7
- Nouriel Roubini on CNBC Closing Bell on Wednesday, July 6
- Art Cashin, John Netto & Holly Liss on CNBC Power Lunch on Friday, July 7
1. Countdown to Jobs Friday – Lakshman Achuthan & Kevin Caron on CNBC Squawk Box – Thursday, July 7
Lakshman Achuthan is the Co-Founder and COO of Economic Cycle Research Institute (ECRI), an economics firm. ECRI and Lakshman Achuthan disagree with the consensus position of stronger growth in the second half of 2002. They have a good track record in predicting the economy by using their proprietary indicators. If ECRI is correct, then their views expressed below will have a significant impact on all markets and asset classes. This is why we chose this clip for our pole position of the week.
- Quintannia – The last time you were on, you talked about some of the long leading indicators slowing down and yet the markets seemed to be more excited than they were before at least about the second half. Can those two things coexist?
- Achuthan – For 20 years I’ve been doing this and that’s basically how it happens. Two months ago, I came on and said, “hey, heads up, there is a global industrial slow down starting this summer”. Then the PMIs fell like flies, all over the world they dropped and I think people were like, whoa, what happened? There was a big surprise,…..then the story became, oh, you know, it was Japan,….In the latest data, you see the one PMI, the U.S. PMI, earned a little bit, all the other ones were weaker and I think that is basically your proverbial dead cat bounce. It is a dead cat bounce because of that earlier down turn and longer leading indicators, the PMIs are short leading indicators, commodity price inflation – short market leading indicators. The market itself is a relatively short leading indicator. Long leading indicators, as we had discussed two months ago, had turned down decisively ahead of the events in Japan and so this stuff is going to be transitory. I think the Fed chairman gave a nod to that. A couple months ago, he was saying, nice rebound in the second half. The last time he talked, he said this looks a little confusing.
- Quintannia – well, he said some things might be more long lasting than temporary. but he also blamed some of the weakness on Japan itself, right? Japan got a direction mention in the statement.
- Achuthan – When you’re surprised, you want to make some kind of an explanation as to why you’re surprised. I think that’s a lot of what you’re hearing. I think this is some false hope that there is a rebound here in the economy or in the global industrial sector through the second half. and it’s not unusual to your original question because long leading indicators have a longer lead than short leading indicators and so it is by definition long leading indicators will turn down before short leading indicators have yet to fully see it. I think they started to see it. You got some noise in the data from Japan, this dead cat bounce. I believe that the global industrial slowdown is going to persist through year-end. This is not a transitory event.
Kevin Caron, the other guest, sort of offers a rebuttal. Then he offered his prediction “what we think is that the S&P 500 by the end of the year should close somewhere around 1,400, predicated on expanding economy,…we continue to see decent levels of profitability. So we think the market has room to run to the upside.”
- Quintannia – Do you worry about fiscal drag?
- Achuthan – You know, as much as we like to think that politicians or the Fed or somebody can push this one way or the other, let’s say we cut taxes or we increase spending or the Fed does something with monetary easing and it will fix stuff, they’re not in the driver’s seat, they’re lucky if they are in the passenger seat. They’re in the back seat. The business cycle is much stronger element here. and right now, let’s go — the first key thing is this global industrial downturn, which is not over at all.
- Quintannia – You say it’s just beginning!
- Achuthan – you were in the at best to middle and in the best case scenario, it ends by the middle of the year. that’s if everything starts to lift from here, if the skies part and the sun comes out. and it is a pretty nice day this morning. maybe that’s happening. I don’t know. But then, when you look at the country specific indicators, look at the U.S., this is not simply a manufacturing slowdown any more. this is a broad economy slowdown. You’re not going to see the jobs growth that you saw earlier this year.
- Quintannia – you’re saying we’ve seen the best jobs numbers of the year already?
- Achuthan – Yeah. if you look at the 3-month moving average, it smooths out the jumps. That peaked out around a quarter million in the February to April range; we’re not going back there, we are not going back to the PMI in the 60s. (Achuthan proved to be prescient when Friday’s payroll number was released).
- Kernen – What makes you think that the policymakers don’t affect the business cycle? I mean, I think you’re giving the benefit of the doubt to our divided government here and good luck that we’re not going to do anything absolutely crazy because you can’t tell me that policymakers in Europe haven’t affected the business cycle in Europe for 30 years where GDP has consistently grown less than year, there’s labor laws — that’s structure. we can’t go there?
- Achuthan – no, no, we can go there. Let’s go on the fiscal side first which is taxing and spending. There, I think Washington has a lot of power or Brussels or Beijing, they have a lot of power in shaping the playing field. And so to your point over a span of many years, they absolutely can set the stage for what kind of economy you’re going to have. The Fed or the Central Bank or wherever, these guys are much more short-term. They’re going to raise rates, they’re going to cut rates, the ECB is going to raise rates, China just raised rates. The Fed is saying, you know, we’re holding off. They can smooth the cycle if they’re preemptive. You haven’t seen a preemptive fed since the middle of the 90s. I‘m talking Greenspan, vintage 90s. There’s a preemptive strike in ’94 and ’95. If you take a look at the current cycle, let’s not forget that six months inside of the recession, in the second quarter of ’08, the Fed and the Bond Market were pricing in 100 basis points of rate hikes by December of ’08. So I don’t think they’re helping in that sense. And more recently, they’ve been behind the curve with a lot, like a rocket engine, and if you look at the way cycles work, that makes cycles more bouncy not smoother, which is not exactly what you want.
- Quintannia – Bottom line, Kevin, does any of this resonate with you, make you more cautious than you ordinarily would be?
- Caron – well, it does. it resonates because we’ve seen the lowdown in the data that Lakshman is talking about. and as we look at the data, we’re a little different about the role of government in all of this because what we’ve seen in the bottom of 2009 when the stimulus package came on, it did kick up GDP. It has an impact. you’re running almost 10% budget deficit. if you were to cut that dramatically next year, back to what was normal like 2%, you would have, I think, a significant impact on the economy. so everything — it does have an impact. the question is to how it plays out in the short run. So our position is that equities move higher, we expect slow growth in the economy, and in terms of the portfolio postures, lengthened our bond duration, we focused more on consistency over growth in the portfolios that we manage. And We’ve pulled in risk.
- Achuthan – They can affect the business cycle and they do it when there’s a crisis. But here, we’re not at a crisis yet and the idea that they’re going to be able to nudge it so it lifts again, that’s not happening.
Mr. Caron has lengthened bond duration (he has added more longer maturity bonds to his portfolio). So at least in the short term, he is somewhat in sync with Mr. Achuthan.
Allow us a bit of room to get on our ‘pet’ horse. If you watch this clip, you will see a real difference between Kevin Caron and Lakshman Achuthan in their facial expressions and their voice-speech patterns. May be it’s just us, but we do see a higher level of an ‘I am intelligent’ and ‘I am so right’ attitude in Mr. Achuthan than in Mr. Caron. We hear that Mr. Achuthan is a very intelligent man, but we wonder whether he is even more convinced of it than others are. Mr. Caron, on the other hand, is content to be subdued and polite. So Mr. Caron comes across as more likable and more believable.
We do not intend to pick on Mr. Achuthan, but his demeanor seems so classically that of the ‘educated Indian’. You see such ‘educated Indians’ everywhere. They wear their ‘intelligence’ on their sleeves and in their speech. We certainly do not know Mr. Achuthan and we may be unfair to him. If so, we apologize in advance.
But we do wonder whether Mr. Achuthan watches Bollywood songs?
2. Roubini on Perfect Storm – Nouriel Roubini with CNBC’s Maria Bartiromo – Wednesday, July 6
John Taylor of FX Concepts told us on June 2 that “2012 will be a miserable year” (see clip 1 of our May 31 – June 3 Videoclips article). Then David Rosenberg told us on June 13 (see clip 1 of the June 11 – June 17 Videoclips article) that he is 99% sure that there will be a recession in 2012. You don’t expect Nouriel Roubini to not opine on a downturn, do you? Well, he does. But not in 2012. Because he sees the proverbial can being kicked down the road after until the Presidential Election in 2012.
So Dr. Roubini predicts a ‘Perfect Storm’ in 2013. Hear him explain his reasoning in the clip or read a summary at Perfect Storm Coming for the Global Economy in 2013 on CNBC.com. We include a few excerpts below:
- Weakening economic conditions will come together in 2013 and create a “perfect storm” of global weakness.
- “My prediction for the perfect storm is not this year or next year but 2013, because everybody is kicking the can down the road,…We now have a problem in the US after the election if we don’t resolve our fiscal problems. China is overheating…eventually it’s going to have a hard landing.“
- In the nearer term, Roubini sees slow but steady growth in the US, with gross domestic product likely to be a bit above 2 percent, with unemployment and housing continuing to hold back the economy. From there, recovery will be difficult as the government cuts spending and raises taxes to ease pressure from the bulging debt and deficit issues.
- At the same time, euro zone periphery nations like Greece, Portugal and Spain will continue to wrestle with their own debt problems, and China will act to prevent inflation from getting out of control.
- “I see every economy in the world trying to push their problems to the future,…We start with private debt, public debt, supra-national debt-we’re kicking the can down the road and eventually this is going to come to a head in 2013.”
- “China’s efforts to pull inflation back to the 5 or 6 percent range also will constrain growth and hit its trading partners,… That implies lower commodities, lower exports from Europe to China, weaker global economic growth and a situation in which all advanced economies have weak economic growth.”
3. Market’s Triple Play – CNBC Power Lunch – Friday, July 8
In this succinct, no-nonsense clip, three professionals give their views about markets in the aftermath of the horrible payroll number. They are Art Cashin of UBS, John Netto, President M3 capital, and Holly Liss, Director of Global Futures at Citi. The three CNBC Anchors are Michelle Caruso Cabrera, Sue Herera and Tyler Mathisen.
Art – I think we are dodging a budget. It is not just the non-farm payrolls. Before that came out, things were beginning to flash some warning signs on Italy. That’s a big, big load of the sovereign debt worries in Europe. And then when non-farm payrolls came in as disastrous as they were, I mean long-term unemployment was up, short-term unemployment hinting that maybe we’re going to have a little bit of a rollover. So far we’ve dodged a bullet. I think it’s the calendar bias. Going into a weekend, Friday’s usually the best day of the week. I think it is a value operation salvage.
John – One thing that’s important to look at, speaking anecdotally over th
e last 45 minutes or so, it is amazing how much complacency is in this market. We come with a very bad jobs data, the rally leading up to this week, showing the binary nature of this market.… The fact that we had bad jobs data and we haven’t sold off more I think speaks for complacency and I think there’s more downside to come.
Holly – It’s encouraging to me and for all the market bulls out there for interest rates. They are going lower. The market clearly had a huge move. If you look at commitment of traders data from CFTC, which granted at this point is a week old, but the market was short, the speculators were short coming into this week’s data so that probably accounts for some of the move we had here but clearly the disastrous non-farm payrolls added to that. Technicals continue to look very bullish. We are going to see continuous price action to the upside next week. If not, they may have to start looking into the benefits of outsourcing their payroll, using somewhere like Cloudpay (https://www.cloudpay.net/resources/the-benefits-of-outsourcing-payroll) or a similar system.
Sue – Holly, would you stay with your yield projections which was down I believe at the 2.35% mark on the 10-year?
Holly – yeah, clearly. I still am sticking with that. The Technicals continue to look positive despite last week’s sell-off. This week’s recovery is at this point technically it is called an inside higher week meaning we’re within last week’s range but we’re higher. Still looks like we have potential to take out 128-01 that is 2.38% in terms of yield. And there is something else interesting in the Interest Rate Market. In equities we tend to look at the golden cross, when moving averages cross over to the up side. We have that in 10-years. Last time we did, we had an eight-point rally. I‘m sticking with it. Market bears may want to look through options to get short rather than outright naked futures.
Michelle – Holly, when we come in on Monday are we going to be relieved about Italy or even more worried?
Holly – Anybody’s guess at this point. I say it’s 50%-50%.
Michelle – How much are you guys, John, Art, how much are you looking at the sovereign worries in Europe next week as we watch all those spreads blow out or are we going to be insulated here in the United States, Art?
Cashin – I don’t think you’re going to be insulated at all. I think what you’re going to see is the kind of thing you began to see as Bear Stearns was the first flashing warning and everybody thought they went past that. Then the vigilantes went around marauding from issue to issue, they are gonna go from country to country. CDS spreads are going to make it an infection.
Tyler – you put it in those terms, Art, we’ve got very thin volume. this would suggest to me that your next few weeks, the next few months may be a time to really buckle your seatbelts?
Art – It’s a time to be careful and I would bet you that given the non-farm payrolls today, not many people high up in the Federal Reserve are going to be at barbecues this weekend. I think they’ll be talking about QE 2.5 or something else to get it moving.
Sue – John, what about that? We did have several people on CNBC today saying we’re going to get exactly what Art just mentioned. More quantitative easing. How does that impact your market and what’s your near-term projection for oil.
John – I think if you want to look at oil, we’ve seen the pull-back today and ultimately oil moves down to $94. One market to rely focus on is what Gold is doing. Gold and Euros. Gold price in Euros is 1,084 euros per ounce. That’s an all-time high right now. if you want to understand and ultimately capsulate the sovereign debt concerns out there, look how well Gold has performed against the Euro, two aspects inversely correlated to the U.S. Dollar. Gold has significantly outperformed the Euro. They did so in 2010 and they are doing so now in 2011 as well. < /font>
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