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.
1. The Really Important
Nothing mattered this week than the tragic events in Boston. On Friday, we more riveted by the Boston manhunt rather than markets. Friday brought back memories of that terrible day in September 2011 when we walked through the dust and gravel to get home from our office a couple of blocks of the World Trade Center. It also brought back memories of the horrific attack in Mumbai in November 2008 when we were about a 10 minute walk of that site. Nothing this week even comes close to those events but the Friday manhunt did bring back those feelings.
The other important story of last night is the 6.9 earthquake in China’s Sichuan province in which at least 150 people are reported dead and thousands injured. With terrorism & earthquakes, financial markets seem so unimportant.
2. U.S. Equities
Below is a summary of guru opinions about the U.S. market. The most interesting one comes from Charles Nenner, a well known market predictor who called for a major break if the Dow broke 14,545 and if the S&P & Nasdaq 100 futures broke 1,544 & 2,751 resp. Well, they did break Nenner’s levels on Thursday but rallied above these levels on Friday. Does that count? Will CNBC’s Bill Griffeth check with Nenner and let us know?
Lawrence McMillan of Option Strategist on Friday, April 19
- “This market is getting very interesting. It has been under pressure all
week, and volatility has increased dramatically. In fact, most of the
indicators have turned bearish — except for the most important one:
price. $SPX has held above the 1540 support level, and if this turns out
to be a third successful bottom in that area, one would expect the
market to challenge the recent highs. However, with the weight of the
evidence on the other side (i.e., bearish), it would seem likely that a
full-blown, intermediate-term correction is about to ensue. But only a
close below 1540 can verify such a bearish view.”
Barry Bannister (of Stifel Nicolaus) on CNBC Fast Money Half Time on Wednesday, April 17
He had raised his year-end S&P target to 1,700 recently.
- yeah, we’re just consolidating after a powerful run. if you remember the day after the election, we began to take off. we had a huge run. we became within a breath of 1,600. right now, just a consolidation around these…. keep in mind, though, that some of the best moves in the s&p are relief rallies. when the cuts turn out to be smaller than expected…we cut our estimates $3 below consensus two weeks ago. when the revisions turn out smaller than expected, you get a powerful market rally,
Charles Nenner on CNBC Closing Bell on Wednesday, April 17
- “we went out of the market when the S&P was around 1510, about a month, 6 weeks ago, and we’re going to do a top formation, but it could take until the end of April, so it would be a little early to sell-off.”
- To get his sell signals, the Dow has go drop below 14,545, S&P futures below 1,544 & Nasdaq 100 Futures below 2,751.
- He said, “it’s going to take the month of April, and don’t expect a major sell-off until May“ Once his numbers are breached, “then we’ll have a correction. and based on the momentum of the correction, we can say that the bull movement of 2009 is over or give it one more try.” He warns “it’s just we’re in very dangerous territory and, again, people don’t realize what can happen.” and “it just means that over here, the chances you’re going to make a lot of money are very small“. He reiterated his final target of 5,000 on the Dow and said “we are going to be there in 2020”.
Charles Nenner was a bit more detailed & explicit in his BTV Street Smart appearance on March 4, 2013.
- That was when he first said “we had a price target of 1,505 on the S&P and we sold everything a couple of weeks ago when it hit 1,505 and risk is simply too high”. In that interview, Nenner said “in 2013 my cycles are turning down and down into the end of 2017“ .
- When will his target of 5,000 be hit? Nenner answered – “the cycles are down until 2017-2018 and then I expect a huge bull market to start again”.
- Nenner gave his final target for Apple at 360 and said the cycle for Intel and Semis would top out in a couple of weeks.
Dan Nathan (of RiskReversal.com) on Apple as the Buy of the Century CNBC Fast Money on Wednesday, April 17 (at minute 15:25)[AAPL] is probably the buy of the century if you get this thing down to $375 and this has a dividend yield above 4% and they have $150 billion in cash. I think you could buy this and shirt everything else.
- “This was a very trade folks; a serious one. Somebody made about $15 million by buying a whole bunch of puts in the FXI, the China ETF; they made that in the last couple of weeks, they bought 50,000 of these puts, the April 38.50 strike. That ran from 0.60 to $3.60, so $3 profit on 50,000 puts = $15 million; they didn’t take it off the table. They sold those and bought the May 35 puts which are basically the at the money. That’s a $16 million bet on at the money premium; you don’t see many people doing that. That’s the biggest trade of this year in any index that I have seen – the single biggest trade and somebody really thinks that China could have that same puking action that Dan was referring to in Apple.
Dan Nathan added “FXI is already down 18% from the highs already and if people are committing that sort of capital at these levels, that’s very interesting. “. Dan is the above-mentioned CNBC FM trader who described Apple as the buy of the century at $375.
Gemma Godfrey (of Brooks MacDonald Asset Mgmt) about Gold risks overblown on CNBC
Fast Money on Wednesday, April 17
- first of all, Cyprus’ holdings of gold are minimal, so that won’t be a significant impact. secondly, there is this accord with European central banks whereby they are limited to the amount they are allowed to sell to 400 tons a year. so for those two reasons, we think the risks are overblown..I think the gold miners are starting to look attracted from valuation/yield perspective. I’m concerned about the longer term outlook for gold. but given the very oversold nature of the miners, you could play a short-term bounce.
3. U.S. Treasuries
Long duration Treasuries rallied back to levels of two weeks ago with 30yr & 10-yr yields dropping from 2.92% to 2.88% & 1.72% to 1.70% resp. Once again, the 10-yr & 30-yr yields closed a bit below their 200-day moving averages & TLT closed a bit above its 200-day moving average.
The action in Treasuries has converted another sceptic. According to Seeking Alpha, Rick Rieder of BlackRock told WSJ this week that
- “he was a big buyer of the long bond (TLT) in early April, believing the BOJ’s massive easing and weak U.S. economic data would ensure a firm bid for the paper.”
But the same Seeking Alpha article points out that
- “In an April 8 interview with the FT, Rieder said he was worried about higher rates and favoring shorter durations.”
So how late is early April according to Rick Rieder of BlackRock? And the earlier converts to Treasuries, Bill Gross & company, remain committed per their tweet on Wednesday morning:
- @PIMCO Gross: Monday not a “one-off.” Wed not a “two-off.” Gold has started a levered market “sell-off.” Buy Treasuries.
4. Europe – “OMT is the Wizard of Oz”
The above comment about OMT & the Wizrd of Oz was made by Fredrik Nerbrand, head of global asset allocation at HSBC, to Louisa Bojeson of CNBC Europe. In this interview, Nerbrand explains why he is negative about Europe and why they are slashing their position in risk assets.
- “a lot of people have been hoping that this OMT will rescue us when something goes wrong, I think the OMT is the Wizard of Oz. Basically perceived to be all powerful and wonderful and in reality some dude from Nebraska that doesn’t have any powers. Because if something would go wrong from a political point of view, very quickly are there going to be question marks against that OMT because who is actually going to be signing these agreements. I think that’s the main question…”
- “when we looked to add risk back in August of last year, we were looking at an improving economic situation, credit in general was relatively supported, equities were in relative valuation against credit in particular; and all of these 3 points now are the reverse…..”
The clip we found on CNBC.com doesn’t really contain the action items Louisa Bojeson tweeted on Thursday morning:
@louisabojeson – Frederik
Nerbrand, Head Glo Asset Allocation, HSBC says slash risk. They hv cut
equity position by 1/3, halved indus metals position
5. Bloomberg.com vs. BTV’s Trish Regan & Adam Johnson
When bearish sentiment against Treasuries was rampant, David Woo of BAC-Merrill Lynch said the following to Trish Regan & Adam Johnson of BTV Street Smart:
- “We think we can actually retest 1.60% (in the 10-year yield), sometime in the next 4-6 weeks.”
- “But I think as we go into March, if the data persists to be on the weak side, I think the market will have to basically capitulate and that will be the reason for a risk-off move that will send Treasury yields lower.
What a prescient call! So on April 6, we asked whether Trish Regan & Adam Johnson would invite David Woo back for an update. They didn’t. Clearly they either don’t recall a great call made on their own show or they just don’t care. But then who needs these anchors when Bloomberg.com is around.
We refer to their article about David Woo titled BofA Sees ‘Impossible Trinity’ in Markets as Risks Underpriced. A couple of excerpts below:
- “Commodities are signaling a slowdown in global growth, while stocks reflect expectations of strong U.S. consumer spending and credit markets anticipate greater demand from Japanese households for high-yielding assets, David Woo, the head of global rates and currencies research at Bank of America Merrill Lynch, wrote in a note dated yesterday.”
- “Investors may be overestimating China’s scope for stimulus, the economic tailwinds from a U.S. housing recovery and Japan’s appetite for riskier overseas assets, the New York-based strategist wrote.”
- “”Something will have to give,” Woo wrote. He recommended a three-month risk reversal on Australia’s dollar, an options trade that would benefit if the currency weakens against the U.S. dollar. The strategy offers “cheap insurance against the possibility of a synchronized global slowdown,” Woo said.”
Thank you Michael Patterson of Bloomberg.com, Hong Kong.
- Larry Fink on CNBC Closing bell on Tuesday, April 16
- Dani Babb on CNBC Fast Money on Tuesday, April 16
- Christine Lagarde with BTV Sara Eisen on Thursday, April 18
1. Equities that look like Bonds & Bonds that are more like Equities – Larry Fink with CNBC’s Maria Bartiromo – Tuesday, April 16
A straight, no-nonsense interview, clear & succinct.
- Bartiromo – I you said I wouldn’t be surprised if we had a 5% pullback. that’s what we’re seeing or that’s what we saw. Do you think this is the beginning of something larger? How would you characterize what’s going on in the markets right now?
- Fink – not really. I would never be surprised to see the market correct itself, but I did also say I thought the markets would be higher by year end. I’m still in that position. I believe, if you lack at corporate earnings so far want 85% of the companies reporting exceeded estimations. It’s an indication of a stronger economy. It’s an indication of corporations, you know, managing their expense properly. So it does validate my long-term view, but if somebody told me we were going to have 5% correction, I would say, look at that as an opportunity to get into the market.
- Bartiromo – you’ve got, you know, nearly $4 trillion in assets more than the Federal Reserve. what can you tell us in terms of what clients are doing right now? are you continuing to see the buy on the dip mentality? do they take advantage of the pullback every time we see this market go lower?
- Fink – Well, I think what we’ve seen from the beginning of the year, clients are putting cash to work.
- We are seeing, we had $34 billion of inflows, which was a record quarter for us, in equities, and most of that money came from cash, so we did not see a rotation from bonds to equities, but we saw a persistent demand for equities.
- In fact, even yesterday we had another institutional client come for another $1.5 billion in equities. Now, i don’t think it was predicated on the dip, but it was just, they had more cash flow and they’re putting more money to work.
- So I think we’re going to continue to see clients interested in equities, but let’s be clear about it. we’ve seen most of the demand in equities in three categories – the U.S., Japan, Mexico.
- We’re seeing clients who are interested in equities that look like bonds – so a high coupon, high-dividend paying stocks. We’re seeing
client still interested in bonds, but bonds more like equities, so high yield. I think that’s the flavor, that’s the characteristics of what we’re seeing. but overall, the U.S. is the place where clients are investing. The U.S. markets are up about 11%. emerging markets, Maria, are only up about 2%. and this is after a year of underperformance last year. So we’re not seeing clients run into equities with high beta or, you know, high volatility. We’re seeing clients interested in equity, but they want coupon, they want to have some assurance of some return, and they’re looking for equities that have less volatility in the overall market.
- Bartiromo – yeah, you said a lot of things there. So I want to follow up on a few of them. first of all, mexico. you know, we have been talking about Mexico since Davos. I know you’ve been investing in Mexico since before that. I want to ask you what’s so special about Mexico right now. Because I continue to hear an enormous amount of money moving into Mexico. What’s going on from an investment standpoint?
- Fink – It’s just an overall great story.
- Over the last four or five years, as the Chinese currency has increased and as their wages have increased, we have not witnessed the same changes in Mexico. So in terms of labor costs, Mexico is now competitive to China for manufacturing. This is why you’re seeing more and more manufacturers moving to Mexico, who may have been building their products elsewhere.
- Second of all, Mexico is a great energy story, very similar to the United States. Pemex is spending more time, more money now in investing in their infrastructure. They have found in the last 18 months some large energy finds and there’s a great possibility that the new government is going to privatize natural gas and there’s a belief that there’s as much natural gas potential as the United States.
- So you add those characteristics of energy and an inexpensive but high-quality labor market, it’s a fantastic place where you could expect a consistent 4% GDP.
- Bartiromo – wow, yeah. I love this story. We’ll keep following that, because I want to figure out ways that our viewers can benefit from that. Let me turn the attention to the Federal Reserve for a moment, Larry. Lots of talk the fed will ease up on the gas pedal this quarter. just this morning, we had some hawkish comments from William Dudley, due to the recent jobs report. Janet Yellin, just in the last couple of moments, singing a similar tune. what’s your take? When does the Fed begin the end of stimulus? is this summer?
- Fink – I think it will be later than the market believes. I think it’s going to be probably late this year or early next year. I think, obviously, we’re focusing on the labor markets, but I think the key that we need to focus on is how banks are lending to small and medium businesses. And the fact that bank assets are maturing very rapidly, they’re going to have to reinvest that money and they’re going to start, you know, they’re very anxious to lend this money now and I think they’re going to lend more aggressively to small and medium business. You even heard banks talking about, we’re here, we’re in business, we’re ready to lend our money and I think this is what the federal reserve is looking for. If these small and medium businesses can get available capital at inexpensive rates, they’ll start hiring. and that’s why you’ll start to see hiring. that’s why you will see rates lower for a longer period of time. So I’m in the camp that will see the Fed’s activity to be extending large the market believes.
- Bartiromo – And of course it’s not just the Federal Reserve, you’ve got a similar story in Japan going on. on the conference call today, you talk about this spike in Japan. People looking for etfs, ways to participate into what’s going on there. how sustainable is the move in Japan, do you think, in terms of real investor interest?
- Fink – Well, I was in Japan a few weeks ago. The atmosphere in Japan is as enthusiastic as I’ve remembered in 20 years. You have a change in attitude from CEOs. You actually see a change in behavior. it is now patriotic to start consuming in Japan. I think the Japanese are aware, if this does not work, they have a long period of austerity. And so I believe you have the entire country behind what the government is trying to do. I’m not suggesting it’s going to work in the long run. I don’t have enough information. but in the short run, it’s producing more, a more enthusiastic economy. I think you’re going to see the Japanese economy do better than expectations. and as a result, we are seeing investors who, for 20 years, underinvested in japan, are now reentering back in Japan. What we have seen recently, though, is investors investing in yen, but hedged back to dollars, because they thought the yen font> would be weakening. the question is, has the yen weakened enough? and now will investors now buy Japanese equities unhedged? and that’s going to be the real test. I believe we are going to see investors come in now. Because I think most of the run on the yen is over and so if you’re interested in Japanese equities, you should do it on an unhedged basis.
2. Rather be Caterpillar than Lennar or Standard Pacific – Dani Babb on CNBC Fast Money – Tuesday, April 16
Dani Babb is the CEOs as a consultant for the national association of realtors. Here she speaks with CNBC’s Melissa Lee and the Fast Money of the Babb Group, a real estate consulting firm representing more than 5 billion in investor dollars. She also work trader team.
- Lee – the housing starts numbers, a lot of people are picking that apart because of the boost in multi-family as opposed to single family. Is that why you’re cautious on the industry?
- Bobb – absolutely, one of the reasons. I‘m also cautious because the same time the numbers are released in tandem, our new permit starts which is down 4% . It’s been flat for the past several months. Also the builder confidence numbers are still declining for the third straight month.
- Lee – What’s your sort of big picture view of the industry then considering the home building stocks are high, everybody talking about the strength in housing as the economy strengthens. Do they have it wrong?
- Bobb – I think they do. I would rather be caterpillar than than I would be Lennar or Standard Pacific in this market. When we look these numbers, the numbers released today, we had a 7% overall gain, right, of that, we had a 31% increase in multifamily and a 5% decrease in single family residential. And generally multi family makes up about 20% of this number, it made up 40% instead this time.
- McCullough – if you look at that, I heard that a lot today. If you go back, the restatement on the single family homes was very high, running at very high levels, obviously, down 21% inventory, prices are running up 10%, you have birthrates up 2% and household formation going up. How do you fight all that at the same time with one data point?
- Bobb – It’s not just one data point. If we look across the country at where housing starts were, they were decreasing in the northeast, we know they’re increasing in the midwest and the south and small increase in the west. if we look at that and job numbers and the fact that from not only anecal evidence but also data points, we see we have record low interest rates and very low inventory out there. and we know that consumers are waiting on the sidelines looking for a better price before they put their home on the market. when that hits at the same time all of these rentals hitting the market and a year from now when there’s a ton of housing available, I see it great for stocks, but not as a housing recovery.
- Adami – How important is the employment number in this equation? I‘ve got to believe it’s extraordinarily important. If it starts to trend back the wrong way, which I think it will at some point, maybe they do take a bath.
- Babb – I agree with you. I am personally short housing stocks right now. I am going to maintain that position for some time for that reason.
- Lee – where are the opportunities? what are you telling your investors?
- Babb – multifamily listings. and off market. and also, single family flips. We’re seeing a lot more people purchase in bulk
- Lee – the last time you were we were talking about the investors, the funds that are starting investing in single families homes and you’re highlighting the potential of a mass exodus once the time hits to sell.
- Babb – absolutely. I think that’s the case. I still like the space in the very short-term three to six months, not new construction. Buy to flip or buy to hold and rent out over the long-term – if you can get something 20%, 25% under value in some underwater areas… & hold seven to ten years.
3. Desperately Optimistic – Christine Lagarde with BTV’s Sara Eisen – Thursday, April 18
This is a frank interview with Christine Lagarde of IMF. Thanks to Bloomberg TV PR for this detailed summary:
Lagarde on what the ECB should be doing: font>
“The ECB has done an awful lot. For the last couple of years, it’s just incredible how much out of its traditional boundaries it has gone…It’s the only central bank that still has a bit of space. And I trust that they will be using that space when they feel that it will be most useful and they have the biggest leverage effect. What’s in it? It’s not just the sake of reducing rate. It’s making sure that it travels to the real economy and that the banks that lend to SMEs, to households, will actually apply a lower rate as well. So it might be that to restore the fluidity, a bit of work needs to be done at – at the other end, at the receiving end.”
On actions by U.S. and Japan’s central banks and whether the expectations that they are setting are too high:
“Well, the unemployment target has always been part of the traditional targets of the Fed in the US. The Japan central bank has clearly innovated by pushing the inflation target from 1 to 2, by doubling the monetary mass by a factor of two, by deciding to do so within two years. It’s a two, two, two, two, which we welcome, which needs to be completed though by two other principles that have to do with structural reforms in Japan. Very much needed. Anybody who wants to enter the Japanese market will tell you so. And also the fiscal consolidation plan that needs to be anchored to reduce the Japanese deficits and the debt of Japan.”
On whether she’s optimistic:
“I’m deliberately, decisively, desperately optimistic, yes…I think there’s some good news. The fact that the average debt around the world has stabilized, too much there is of it. It has now stabilized and the deficits on average has been halved since the beginning of the crisis. So there are some good news. It’s a question of keeping at it and pursuing the major reforms that have been initiated.”
Lagarde on what the prescription is for dealing with different economies around the world that are recovering at different paces:
- “We would like to move to full-speed recovery and not three speed. It would be far more efficient and there would be more spillovers between the various zones. For the moment, we have that three speeds. We have the emerging market economies and low-income countries. We have – moving very fast and doing quite well. We have the second group which is on the mend, which has done quite a bit of work, particularly on its financial sector.”
On the IMF downgrading global growth forecasts:
“First of all, let me observe that we have slightly downgraded, but we are moving up from last year a little bit, not much, but up. So the global economy is growing thanks to essentially the emerging market economies and the developing market economies. So it’s growing. What in our view could help it to grow better and faster would be the completion of the financial sector reform, would be the completion of the rebalancing between the various economies, and would be a clear focus on a sensible fiscal consolidation path, and could – in the medium term – and specific measures intended to develop growth, jobs and equity. So you have two – it has to walk on two feet. And one is a set of combined policies that are specific to each of the three groups, and those three construction sites, if you will, that have started but need to be completed.”
On the IMF’s criticism of the fiscal path of the U.S. and what we are missing:
“Time. Because what is needed is clearly fiscal consolidation, but good fiscal consolidation, not blind…Blind and blunt is the problem. Sequestration produces just that. And we need fiscal consolidation upfront, but not too much of it. At the moment, we see too much of it. 1.8 percent fiscal consolidation is too much at the time. But the US also needs more fiscal consolidation in the medium term, and clearly anchored, clearly communicated so that economic actors know what to expect and know that the determination of the US authorities is to bring the debt down not by cutting now so strongly, blind and blunt, as I’ve said, but over time and making it irreversible.”
On whether the IMF is a defender of austerity on a global basis:
“We are not exclusively focused on fiscal consolidation, which is the scientific word for austerity, if you will. We are very concerned about the right balance, and that means lots of things. If you look at the policy mix, it means fiscal consolidation, yes, in all advanced economies pretty much because they are heavily indebted, and they are running deficits and have been running deficits for most of them. But it also means the right monetary policy in order to encourage growth, in order to lower interest rates in the long term. It also means structural reforms. Because in many economies, including advanced economies, you have bottlenecks. There are areas of business where one cannot go without having the right license, without having the right permission, without having the right set of attributes that very often are really obstacles in the way of unleashing the entrepreneurial spirit that is in each of us. So not just about austerity, but a combination of those three is very often needed.”
rope’s austerity measures:
- “Most of them have to do some fiscal consolidation because they are heavily indebted and because they have and they are running and they have been running large deficits. But it’s a question of how much and how quickly. And for some of them, there is no reason to rush into upfront, heavily-loaded fiscal consolidation. Look at the Netherlands, for instance. They just decided, and I think they rightly did so, to reduce the pace, to continue to do it, but to allow a bit of time in order to let growth prosper, which is clearly needed and makes fiscal consolidation much easier.”
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