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. Short S&P at your peril?
We noticed last week, that all the guru opinions we surveyed were bearish. So wondered in print “With all this bearish guru opinion, wouldn’t it be ironic to see a big S&P rally next week?“. The stock market acted dramatically not just ironically. All major indices were up 2% or more this week, with Nasdaq up 3%. This has been the story of 2013, that every time the market looks tired & ready for a correction, it has moved up decisively to a new level. But the move this week did seem to have a higher angle than the prior up moves.
Was this sort of a coming to America by Mrs. Watanabe or Japanese institutional money coming into US markets? That is what Goldman’s Jim O’Neill hinted to CNBC’s Becky Quick on Thursday:
- “I think in the past week or so, we’re clearly had a liquidity impulse or a fresh liquidity impulse to the rally.”
This money is clearly stepping in at every sell off as it did on this Friday’s and last Fridays’ triple digit declines in the Dow. The weakness in the economy seems irrelevant to this new impulse and it tends to flow towards megacaps that are sort of bond-proxies with high dividend yields. This may also be why stocks rally whether T-bonds are down 1% or up 1%. This may be why David Tepper, the man who called this year’s stock rally, told CNBC’s Steven Weiss “So, hedge fund managers …should short the S&P at their peril”.
But the S&P rally was overshadowed again by a 4%+ rally in the Nikkei, the other stock market David Tepper likes. The amazing part is that both EWJ, the Japanese ETF that doesn’t hedge the Yen, and DXJ, the Japanese ETF that hedges out the Yen exposure, rallied by 4%+ on the week. Jim O’Neill commented on the sheer audacity and scale of Japan’s actions to CNBC’s Louisa Bojesen on Thursday:
- “I can’t remember the time the Bank of Japan ever positively surprised the
markets with this kind of size… I think it is huge… I don’t we can
be that confident about the long term impact ..it is really out
there….Bernanke might be jealous,…its huge and the market is reacting
- “I was last there before Abe came on the scene and it
was obvious to me the news was going to be big.. but the Japanese
investors didn’t believe any of it… my guess is the scale of this move
is the beginning of them starting to invest differently…it should be
really good for the flows of their own equity market but also to lots of
different markets around the world..both bonds and equities..its a big
We see one sign already. Yields on the 30-year JGBs have risen virtually every day rising from about 1.20% last week to 1.55% on Friday, a huge move indeed. The JGB 30yr-10yr yield spread has also widened by about 25bps or so. If the Japanese investors have indeed begun to increase their foreign allocations, then that is a “big big thing” as Jim O’Neill said.
David Tepper is also constructive on U.S. Treasuries according to CNBC’s Steven Weiss. And the Treasury market seems to concur. In a week that saw semi-vertical rallies of 2-3% in stock indices, the U.S. Treasury curve closed virtually unchanged with 10-year yields rising by only 1 bps & the 30-year yield by 4bps. And this is after a huge supply of reopened 10-year & 30-year auctions. This also might be a beginning according to a tweet late Friday morning from the new bull on Treasuries:
- GROSS: Retail sales with prior months adjustments even weaker than
headlines. Japanese QE money coming soon. Buy 5-10 yr Treasuries.
Getting back to the U.S. Stock market, Jim O’Neill sounded a note of caution, a strange note for someone who has been steadfastly bullish for years:
- “I’m very torn about it, Becky, to be honest. from a valuation perspective, clearly the U.S. is no bargain basement give away any more.
But against that, you know, the last time I would have been here before
the data for march. it looked to me the U.S. economy was accelerating
in line with what we’ve had thinking. But the latest data is a
disappointment and so it’s a little surprising for me to see the
markets so strong and the only way I can explain it is because of the
indirect consequences of what the BOJ is doing and maybe some belief
that not only is the Fed going to not do what the minutes implied but more
if the economy remains with the current momentum”
But his firm, Goldman Sachs, forecast a surging stock market to 1,900 on the S&P by end of 2015.
2. “A Chilly Deflationary Wind”
This decidedly cold fear was expressed by the veteran Art Cashin on Friday morning. No one does a better job of succinctly expressing trader opinion and Art Cashin seemed better than ever on Friday morning:
- “we have a sudden chilly deflationary wind blowing across the floor today.…as you look at gold and oil and copper and look at the yield on the ten year. There’s a strong sense of deflation entering the game. You want to be careful about that. Gold is trying to defend $1,500 and Oil is is going to try to defend $90. This could be an interesting day.”
The interesting day comment by Mr. Cashin seemed in the spirit of the Chinese “may you live in interesting times” wish. Fortunately for investors, the rest of the day was not that interesting. Stocks recovered to post only a modest decline, Comex Gold closed at $1,501 and WTI bounced off of $90ish area to close at $91.29. Ten year yields closed near their lows at 1.72%. But there is no denying the carnage in Gold, Silver, industrial metals and resource stocks.
Marc Faber joined Art Cashin with his own deflation comments on BTV (see clip 3 below):
- “Today we have commodities breaking down including gold. At the same time we have bonds rallying very strongly. If you stand aside and you look at these two events, it would suggest that they are strongly deflationary pressures in the system“
Faber welcomes this fall in Gold
and he suggests buying Gold for a trade and after awhile for the long term (see clip 1 below):
love the markets. I love the fact that gold is finally breaking down.
That will offer an excellent buying opportunity…. All I’m saying is
that I think we’re going to have a major low in gold in within the next
couple of weeks. Gold, as of today, you should actually buy as a trade. I
think it can rebound in the next two days by $40”
To be fair, these conditions – stock market rallying driven by consumer staples & megacaps, Treasuries rallying (yields falling), commodities falling – are reminiscent of the October 1994 – September 1998 time frame. That was a secular disinflationary period and not a deflationary period. That is why the question of deflation is paramount for today’s asset allocation. And that depends on the U.S. economy because Europe is in trouble. Witness the opinion tweeted by CNBc’s Steve Liesman:
- @steveliesman – Former Cyprus Central Banker Orphanides: in Eur, the periphery is in depression. Not recession. Depression.
3. The U.S. Economy & 2013 Tax Collection
Friday’s retail sales shocked many out of their comfort zone about the U.S. economy. This disappointment was the latest in a 2-week streak of weaker than expected economic data. We tend to discount economists because so much of their work seems influenced by the near past rather than the near future. But this week, we found a more objective analysis.
We saw a chart of the S&P 500 to the ratio of Federal Tax receipts (trailing 12-month total) divided by GDP. Intuitively when this ratio is low, meaning tax receipts are low relative to GDP, the stock market should be in a rally mode and conversely. Well, that is precisely what the chart demonstrates from 1980 onwards.
You can see the chart and the detailed discussion in Tom McClellan’s article titled Tax Collections Up in 2013. We found the discussion very interesting and actionable. So we include a few excerpts below:
- “For the 12 months ending in March 2013, total federal receipts from all sources amounted to 16.2% of GDP. That’s well short of the 18% collection rate which guarantees a recession, but it is rising sharply from recent values.”
- Why do I say that collecting taxes at a rate of 18% of GDP guarantees a recession? I only make that assertion because the U.S. has ended up in a recession every single time in the past [70 years of data per McClellan] that it has gotten that high.
- Total dollars collected for the first calendar quarter of 2013 equal $581 billion….In 2012, the first 3 months saw $479 billion in total federal receipts. So 2013 is already running 21% higher than the rate of gross federal receipts in 2012.
- Extrapolating forward, if the rest of 2013 continues to see federal tax receipts come in at a rate 21% higher than last year, and if GDP growth remains tepid, then trailing 12-month federal receipts will be up above that 18% recession threshold before the end of the year.
Now we see why Bernanke has been warning consistently that the Fed will not be able to do much against a fiscal drag, a drag that is demonstrated by Federal tax collection figures & charts of Tom McClellan.
4. Kernen’s Rant
Joe Kernen of CNBC went on an emotional rant this Thursday morning against strategists who have been advising caution during the current rally. Remember Wednesday was a big up day, a day when the S&P 500 finally and decisively broke all 2007 intra-day highs. It was almost a euphoric day. So Kernen finally thought he had a right to rant against all those people who, he felt, had denied CNBC viewers the opportunity to participate in this glorious run.
He did not name names. But we could guess at least a couple of names he meant. One of them is a strategist whom Kernen treated rudely some time ago. And Kernen wasn’t plain vanilla rude but abominably so. This strategist has been far more correct than the vast majority of Kernen’s favorite strategists most of whom are buy-buy-buy exhorters. And this strategist has been on record for recommending dividend-growth stocks for about 45-50% of a balanced portfolio, precisely the same stocks that have outperformed during the current stock market rally.
This is not the only time Kernen has been emotionally unglued. Who can forget the 2000 chants of Qualcomm, Qualcomm from Joe Kernen & David Faber just a couple of months before that bubble burst? At that time, successful investors were allegedly threatened with being barred from CNBC Squawk Box if they dared to express any bearishness on the show. Joe Kernen did not reach this fever pitch on Thursday morning but came pretty close. Is that an indicator of sorts? Will we look back at his behavior on Thursday, April 11 morning as something we should have noted and perhaps acted upon? We will all find out together.
But the emotional intensity of Kernen’s comments do suggest an inner rage, a rage that we think we can sympathize with. A glimpse of it showed on Friday morning when Jim Cramer was made an official Squawk Market Master. Joe asked whether he would be eligible to which Becky Quick replied only Jim Cramer was eligible.
This seemed to rub Joe Kernen the wrong way, at least the part of Joe Kernen that is uncomfortable about being a retail broker in his pre-TV career. There is a clear cut hierarchy in the investment business with a successful hedge fund manager at the top and a retail broker at the absolute bottom. This has to grate on Joe Kernen as he interviews celebrity hedge fund managers, successful investors and even mutual fund managers. That may be why Kernen is so rude so often to his guests.
Then there is the compensation aspect. We don’t know how much Joe Kernen makes or how much he has made in the past 20 years. But it is probably safe to say that a successful hedge fund manager makes more in one good year that Kernen has made in his 20-year career. Even highly paid strategists in wall street firms make have made more in the past 20 years than Kernen has. And Joe Kernen thinks he is much smarter than most of his guests. That may be why he exploded in rage on Thursday morning against these highly paid strategists who have been wrong to recommend a less than 100% invested position in the past couple of months.
We can’t help Joe Kernen with his compensation issues. But we can certainly try to help soothe his ego. And we can do it in a way that will benefit CNBC’s viewers too.
Joe Kernen cannot invest in individual stocks but he can certainly invest in mutual funds & index funds. So we call on CNBC Management to allow Joe Kernen to publish his own portfolio in broad categories – US stock index funds, US small cap funds, European/EM stock funds, Bond funds, etc. Not names of funds but categories and percentage allocations. This should be published on CNBC Squawk Box website on a weekly basis with changes highlighted on a weekly basis as well.
This way, Joe Kernen will be able to show the investing world how smart he is and how relatively dumb those cautious strategists are. We say that because we know how smart Joe Kernen is and because we are convinced that we viewers will be able to benefit from his investing smarts. And who better than Kernen with his 20-year plus experience, his collection of investment contacts, to help CNBC viewers?
When he publishes his own track record on CNBC.com, his guests will be appropriately wowed
by Kernen’s smarts and publicly praise his brilliance as he deserves. This is one case when deserves will have everything to do with it.
- Marc Faber on BTV Street Smart on Friday, April 12
- Sam Zell & David Rosenberg on CNBC Closing Bell on Wednesday, April 10
- Michael Novogratz on BTV Market Makers on Wednesday, April 10
1. Buy Gold for a trade; it can bounce by $40 – Marc Faber on BTV Street Smart – Friday, April 12
a day when the action in Gold petrified investors, Marc Faber stood up
and said buy Gold both for a quick trade and for the long term. The
detailed summary below is courtesy of Bloomberg Television PR.
Faber on the fall in gold prices:
love the markets. I love the fact that gold is finally breaking down.
That will offer an excellent buying opportunity. I would just like to
make one comment. At the moment, a lot of people are knocking gold down.
But if we look at the records, we are now down 21% from the September
2011 high. Apple is down 39% from last year’s high. At the same time,
the S&P is at about not even up 1% from the peak in October 2007.
Over the same period of time, even after today’s correction gold is up
100%. The S&P is up 2% over the March 2000 high. Gold is up 442%. So
I am happy we have a sell-off that will lead to a major low. It could
be at $1400, it could be today at $1300, but I think that the bull
market in gold is not completed.”
Nobody knows for sure but I think the fundamentals for gold are still
intact. I would like to make one additional comment. Today we have commodities breaking down including gold. At the same time we have bonds rallying very strongly. If you stand aside and you look at these two events, it would suggest that they are strongly deflationary pressures in the system.
If that was the case, I wouldn’t buy stocks or sovereign bonds because
the stock market would be hit by disappointing profits if there was a
On gold falling lower if we have a deflationary environment:
“Yes, I agree. That’s why I said if the gold
market collapse is saying something about deflation and at the same
time we have this sharp rise in bond prices and the signals are correct
that we have deflation, I wouldn’t buy stocks because in a deflationary environment, corporate profits will disappoint very badly.”
On whether a deflationary environment is possible right now:
is possible…In the economy of the cuckoo people that populate central
banks, everything is possible. What you have is gigantic bubbles, the
NASDAQ in 2000, then the housing bubble and then commodities in 2008
when oil went from $78 to $147 before plunging to $32 within sixth
months. That kind of volatility comes from expansionary monetary
policies from money-printing.”
“All I’m saying is that I think we’re going to have a major low in gold in within the next couple of weeks. Gold, as of today, you should actually buy as a trade. I think it can rebound in the next two days by $40.”
On why gold will rebound $40 in the next two days:
“Because we are about in gold as oversold and we were essentially during the crash in 1987. From there we have a strong rebound. All I am saying as a trader I would probably enter the market quickly for a rebound of $20 or $40. From a longer term perspective, I would give it some time. We may go lower. I am not worried. I am happy gold is finally coming down, which will provide a very good entry point.”
On whether investors should also stay in cash:
argument is that you should always have in this kind of high volatility
environment a fair amount of cash because opportunities will always
arise again and again and if you have cash you can then buy assets at a
reasonable price. I think Patience is very important in this
environment. The question is, how do you hold your cash? Hopefully not
with a Cyprus bank.”
2. This feels like the housing market of 2006 – Sam Zell & David Rosenberg on CNBC Closing Bell – Wednesday, April 10
- Rosenberg – well, I didn’t say that I was necessarily bullish. What I did say was an acknowledgement, basically, as to what’s driving this market. It’s interesting that all of the discussion is about how this rally has continued after the lousy ISMs that we’ve had, the lousy jobs number, the lousy NFIB report that we got yesterday. and of course, the flip side, because bad news is good news, is that it means the Fed is going to pump more liquidity in the market for a longer period of time. It’s not odd that Japan and the U.S. are the leaders. They’re the only two countries embarking on this gargantuan quantitative easing that is really the linchpin behind what’s happening in the stock market. So it’s not about is somebody bearish or is somebody bullish or whether you’re agnostic, it’s really about understanding what the principle driver of this market is. It’s clearly not the economy it’s clearly not earnings. it’s the mother of all liquidity-driven rallies that I’ve seen in my lifetime, and it’s continuing.
- Bartiromo – and it’s continuing meaning you have to be there, you donate want to fight the fed, is what you’re saying?
- Rosenberg – well, I think that’s a pretty glib comment to say, don’t fight the Fed, because you could have fought the Fed in 2008 and in 2009 and done quite well. It’s understanding that as long as the economy is not in recession, as long as the Fed is pumping liquidity into the system, you’re probably going to have the market, the natural tendency will be to go up rather than down. That much is true, until something breaks. and at some point, either it’s the inflation or the economy starts the to re-accelerate and then we’ll have a different market. but for the time being, I think your assessment is pretty correct.
- Bartiromo – Sam, let’s talk about the federal reserve and all this easy money. clearly, with rock-bottom interest rates, you just don’t have any alternatives to stocks. what’s your view on all of this?
- Zell – well, I just think that what we’re doing is we’re debasing our currencies around the world. the net effect of which, I mean, if you reduce the value of the currency, at some point, you’re also going to reduce its buying power. and ultimately that translates into a lot of inflation. I don’t know when, obviously, what we’re seeing here is like a giant tsunami of liquidity, but I don’t know that that necessarily means that things are better. and in fact, I think the level of uncertainty may, in fact, reach a point where people are just throwing money, because they don’t know what else to do with it.
- Bartiromo – would you put money into the stock market today?
- Zell – I’m always invested. So the answer is, would by increasing my position, No. I just think that this is a very treacherous market and, yes, it’s gone up every day, and yes, you’re not supposed to fight the Fed. but you don’t have to necessarily fight the fed, if you want to sit on sidelines.
- Bartiromo – I want to get more into real estate later on in this show, because I know you are obviously putting money to work there. But, what’s your take in terms of the U.S. economy right now? You said it doesn’t necessarily mean that anything’s getting better. so from the front lines, where you sit, how do things look?
- Zell – obviously, it depends very much on what businesses you’re talking about. I would tell you that in our businesses, we’re definitely not seeing, you know, overly strong conditions. We’re seeing a lot of uncertainty leading to people making, you know, deferring decisions. on the other hand, if you want to talk about the apartment business, eqr is doing phenomenal, and I think we’re starting to see the beginning of a serious resurgence in the commercial real estate side.
- Bartiromo – David, let me ask you the same question that I asked Sam there. would you put new money to work in the stock market, after what you just said?
- Rosenberg – Maria, when I was on one of the CNBC shows last week, when it looked like we were correcting, the question was put to me, what would you do in a pullback? And the answer is that we would probably be allocating money into the areas that we like, which has been the classic dividend growth, dividend coverage, dividend payout, the real income orientation part of the U.S. stock market. so on a pullback, the answer is Yes. in other words, we just hit new highs. but right now, we’re comfortable being between 45 and 50% exposed to equities and the parts of the market that we like. there are other parts of the capital structure, credit spreads are still look to be
fair value right now. there are still other parts of the capital structure that look good to us. but in terms of chasing the market right now with the highs, you know, I don’t think that this is the operative strategy. it would be actually to move in at a pullback.
- Zell – I think that this feels like the housing market of 2006. Everybody can’t, you know, can’t afford to miss it. Well, but that’s exactly what happened. houses are going up every day.
- Bartiromo – but wait a second, wait a second. because in 2006, prices for homes were going up, but for what reason?
- Zell – no real reason. what’s the reason the stock market is going up?
- Bartiromo – the Federal reserve has created an environment where rates are at rock-bottom earnings and corporate earnings —but — how about the fact that the corporate balance sheets are so strong, $3 trillion of cash on balance sheets. what about that?
- Zell – all I know is i never got as an operator of a company win never got recognized for cash in the bank. I only got recognized for increases in earnings. That’s the measure of the stock market, not how much cash the company has.
- Bartiromo – well, I have to say, Sam Zell telling me that this stock market feels like the housing market in 2006 is a scary comment.
- Zell – why? every single day, it goes up. every day in 2006, the housing market went up. what was the number one headline every day? housing prices going up. what are you talking about every day now? new high on the stock market every day.
- Bartiromo – Would you expect the kind of fall we saw in housing to occur in the stock market?
- Zell – I’m not that smart to be able to answer that question. But I just think that we are suffering through another irrational exuberance
3. Tail risks are behind us – Michael Novogratz on BTV Market Makers – Wednesday, April 10
Michael Novogratz is the president of the $53 billion Fortress Group.
bargain is dead on arrival; this is an exercise in Kabuki theater; its
politics; I would love to be surprised if they get something done;; I
think the market prices in and we price in almost no chance…
is succeeding despite the ineptitude in DC, its frustrating because if
Republicans & Democrats could work together, you could see an
acceleration in the economy…an acceleration in the rally…market’s
kinda doing fine without them…
- reality is for the next 7-10 years, $2.5-3 trillion in savings is enough…given
the environment in the world that US debt situation is going to be
manageable..real dirty secret is 11 years out, if you look at Republican
or Democrat projections of the deficit, they hockey-stick straight up
after 11 years; that’s when medicare, social security really kick in…
that’s the problem that Wall street would love to see tackled…but it
is not even in the dialogue.
risks are behind us mostly, Cyprus is behind us, Italy is for the most
part is behind us..they are going to punt the elections for awhile…US
could be a positive tail risk if they kinda surprisingly get something
done…but now its the economy and there is the worry that the economy
Erik Schatzker asked “if we had a grand bargain, where would the market be?” The answer:
would be up a lot higher… you could see the market up 7-10%, listen
we are taking out the 2007 highs today; so what do markets do when they
take out highs; they either put another leg in, a big leg in up or they will take it up for a day and roll back over.. so you get a positive catalyst and markets gonna be significantly higher…
Send your feedback to email@example.com Or @MacroViewpoints on Twitter