Editor’s Note: In this new series of articles, we include important or interesting videoclips with brief comments. Our Web Software does not permit embedding of the clips into our articles. So we shall have to be content to include the links to the actual videoclips. Please let us know whether such articles are useful to you.
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 that 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. Interest Rates – Rick “REF” Santelli of CNBC makes a call on Tuesday, May 12, 2009
Rick Santelli, the Bond Reporter for CNBC, has earned the trust and respect of CNBC viewers. In fact, he may be the most trusted reporter on the entire CNBC network. Besides his fair and candid reporting, Rick often makes money-making trading calls at critical junctures.
In December 2006, Rick called the top of the treasury market and predicted that ten year treasury rates would go higher and break 5%. That is what happened. Finally, in June 2007, 10 year treasury rates hit 5.3%. At that time, Rick Santelli stepped up again and said that interest rates had reached the top. He was prophetic again. Buying treasuries in June 2007 proved to be a great trade.
When he talks, investors should listen. That is why we call him Rick “EF (Hutton)” Santelli or REF Santelli. The nickname fits because, like a great referee, Rick tends to make important and courageous calls.
REF Santelli made a new trading call on Tuesday, May 12 on Erin Burnett’s “Street Signs” show. He said “As an old technician, I see that we probably trade under 3% before we trade back over 3.25%, w.r.t. to the ten year – that’s my own opinion.” So far, this has proved to be a winning trade.
Watch this clip at www.cnbc.com/id/15840232?video=1121123578&play=1 (01:33 of the 01:46 minute clip)
Every CNBC Anchor ignored this trading call all week. Is that because it was a trading call about Treasuries? Does any one believe that CNBC Anchors would have ignored such a trading call about equities? To us, this is yet another piece of evidence to validate our question on August 22, 2008 – “Are CNBC Anchors On a Mission Against US Treasuries? – A Viewer’s Perspective“ (http://www.cinemarasik.com/2008/08/19/are-cnbc-anchors-on-a-mission-against-us-treasuries–a-viewers-perpsectives.aspx).
We wonder why CNBC’s Fast Money show never invites REF Santelli to talk about trading Treasuries. They ask equity and commodity traders to comment on Treasuries but not the absolute best of CNBC, Rick the REF Santelli. Do we dare ask “Is Fast Money is biased against Treasuries?”
2. Interview with Meredith Whitney – Monday, May 11, 2009
Meredith Whitney is the prophetic analyst who warned investors about the problems with US Banks. She is probably the single most important voice in America on Bank Stocks. Her interview with CNBC’s Maria Bartiromo on May 11 is a must watch.
Readers can watch the entire interview at www.cnbc.com/id/15840232?video=1120084432&play=1. Below are some excerpts:
- “Last year you had the market impact the economy and this year, you are gonna have the economy impact the markets”
- “You are still gonna have consumer defaults worse than expected and you are still gonna have consumers not spend money…the consumer is not going to spend, you are still going to see massive contraction in consumer liquidity; a good stat to throw out, in the 4th quarter, Bank of America cut $53 billion in unused credit card lines, in first quarter they cut over $200 billion; so credit contraction is happening at an accelerated pace, and how does the consumer feel good and spend?”
- “Long only money came in last year and got their heads chopped off, you are going to see the same thing happen”
- “The biggest danger we face here from a market perspective is having the retail investor shut off for a protracted period of time because they just feel abused again and lied to again”
What about China and the price of oil, you ask? Read the next section.
3. Where’s Oil Heading? – Wednesday, May 13, 2009
CNBC’s Erin Burnett asked this question of Stephen Schork, editor of The Schork Report, and Addison Armstrong, of Tradition Energy on May 13 at 10:30 am. This interview initially discussed the demand for oil in America and then Erin Burnett asked the key question “What about Chinese Demand?”.
The price of Oil has been rising for the past few weeks and is now close to $60/ barrel, up sharply from the $37/barrel price earlier in the year. Consumers around the world are now facing the twin problems of decreasing income and increasing expenditure on oil.
So the interview by Erin Burnett was timely and value-added. We encourage readers to watch this entire interview at www.cnbc.com/id/15840232?video=1122170329&play=1. Below are excerpts from this interview:
Erin Burnett – What about Chinese Demand?
Addison Armstrong – Chinese demand, in my mind, is all related to strategic stockpiling, you know they have got to diversify some of their holdings, particularly in regards to their long term holdings
Erin Burnett – So you don’t buy the big infrastructure projects, the $600 billion stimulus;
Addison Armstrong – We haven’t seen it yet, we haven’t seen it yet.
Erin Burnett – Last year their coal imports came in second highest ever.
Addison Armstrong – I will tell you what else though; their industrial production has slipped three straight months; while these infrastructure projects are building up their internal domestic market; they still don’t have an export market and that is not coming back any time soon; until we see exports coming back and Chinese stop stock piling not just oil, copper, iron ore, when that starts to stop then I think we will get a true picture of Chinese demand, not before then.
Erin Burnett – a final word to you Stephen before we go, Chinese numbers did come in though, the numbers are still down but obviously the rate significantly better than it was. Does that not show we are going in the direction Addison was talking about?
Stephen Schork – No. I don’ t believe it; because if you look what we doing in the United States, we also are stockpiling; we are putting away 1-2 million barrels a week into the strategic petroleum reserve; this is what we are seeing in China. Let us not mistake Chinese hoarding of oil at low prices; that is not synonymous with demand, not at this point. Addison is correct. Until we start to see increase in the economies of West Europe and America for imports from China, the Chinese economy cannot pick up; that is their material demand for industrial commodities will not pick up until their exports pick up and those exports don’t pick up until our imports until our demand returns. That is not here, that is not happening now, its not gonna happen this summer, its is not gonna happen this year.
Erin Burnett – Passionate defenses from both of you Stephen, Addison. The big question for the economy could come down to that one price – Oil – $59.51 right now, shy of the $60 level.
This is similar to the case we made about China hoarding commodities in our article last week “The Bubble Is Dead. Long Live The Bubble.” (http://www.cinemarasik.com/2009/05/09/the-bubble-is-dead-long-live-the-bubble.aspx).
Rebecca Jarvis of CNBC made the most cogent comment of all on Thursday, May 7, when she said “Index Funds are back buying Oil.“ These Index Funds are the “long only” investors that Meredith Whitney talked about in her interview (see section 2 above).
These long only institutions discovered commodities for the first time in 2007 and piled on mindlessly into Oil as a long term investment. These are the “dumb” but huge investors that took the price of oil to $147 and these are the investors who ran out when the price of Oil went down. Unlike sharp, agile commodity traders, these staid, slow-moving institutions invest after lengthy discussions with their consultants. So they always arrive late and leave late. That is why Meredith Whitney said they “Long Only Investors got their heads chopped off” last year. In the meantime, these investors create havoc with small markets like the Oil market.
Wall Street Journal makes a related point in the article “Taking Stock of Crude Oil Prices“. This article argues that “Investors in oil funds push up futures prices, making it profitable for others to store crude and sell it forward; another reason inventories are high.“
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