Interesting Videoclips of the Week (February 1 – February 6)

1. Henry Paulson on Monday, February 1
   
2. Jon Stewart with Bill O’Reilly show on Thursday, February 4
   
3. Donald Straszheim & Ian Bremmer on Friday, February 5
   
4. James Chanos on Thursday, February 4
   
5. Nassim Taleb at Davos – Thursday, February 4
   
6. Tony Crescenzi of Pimco on Friday, February 5
   
7. Bill Gross on Thursday, February 4

• An Interview with Former Treasury Secretary Henry Paulson by Larry Kudlow
  
• 
  
  CNBC’s Steve Liesman speaks with Former Treasury Secretary Hank Paulson

• Straszheim – “China is now an important member of the G2. They are strong, they are tired of having America make kinda  the global rules. They are going to run their country the way they want to run it and not listen to us. Google is gonna be gone, I think. The real question is does China impose some kind of commercial sanctions on those companies that sold arms to Taiwan? If they do that and punish them regarding their domestic China business, that will be a new step and very dangerous and unpleasant.”
  
• Bremmer – “It wasn’t just the top risk by a little, it was the top risk by a lot. And I think this relationship is structurally getting a lot worse. You have to recognize first of all that Chinese no longer need American direct investors to just throw cash into that country. There is plenty of hot money in China. The Chinese are providing a lot of it. They want technology. That technology is increasingly getting ripped off by the Chinese when they invest. This is behind a lot of the difficulties investors are having on the ground…….But this time around, they actually threatened sanctions. Partly the reason they did is because of the cybersecurity issue with the Chinese Government, they want to say that no no no we have our own security issues, the United States is causing these issues in Taiwan. So much more assertiveness from the Chinese. So much more difficult for American investors to go there. This relationship is becoming very politicized and it is the most important trading relationship in the world.”

The U.S. has historically imposed sanctions on foreign companies and foreign governments. That was because the U.S. had an ace, the U.S. consumer, the richest and the most free-spending consumer in the world. No foreign company could afford to be denied access to this vast group. Now the picture is changing a bit. The U.S. Consumer is retrenching and the Chinese consumers are beginning to spend. It is possible to imagine that in 10-20 years or so, it might be more common for China to impose sanctions on America and on American companies.

But not now. In our opinion, there is no contest between the relative position of the U.S. and China. China needs the U.S. desperately. The U.S. can get what it needs from many other countries in South East Asia. Vietnam is emerging as a major economy and the Vietnamese are smart, hard-working and determined. Vietnam has a great geostrategic position and a U.S.-Vietnam partnership can cause serious concerns for China.

As Jim Chanos points out (see clip 4 below), the U.S. has by far the most dominant geostrategic position in the world. China has no control on the sea routes through which it’s imports and exports move. The U.S. Navy still dominates the world’s oceans. The U.S. is moving actively to build partnerships that can maintain security even when the U.S. Navy pulls back due to budget concerns. China’s life line is the Straits of Malacca and that can be controlled by a stronger Indian Navy. The Indian Navy is upgrading its base in the Andaman & Nicobar Islands that sit at the mouth of the Malacca Straits. On the other side, a stronger Vietnam can emerge as a serious contender in the South China Sea. Vietnam & China have a long history of conflict.

We have maintained on this Blog that Chinese leaders could end up making a serious mistake. They are feeling triumphant and they feel that the U.S. has been weakened by the financial crisis. This is of course the prevailing quasi-religion of the Momentum Money and their Terranova-choir on CNBC Fast Money. 

It is in the interests of China to cool it. It is good for them and for the world.

4. James Chanos on CNBC Squawk Box – Thursday, February 4
 
Chanos appeared as a guest host of Squawk Box for the second week in a row. It was worth it. We highlight two of his four clips:

• Chanos’ Parting Shots – a 03:09 minute clip – At minute 01: 57, Chanos discusses the new assertive China and talks about our geo-strategic position vs. China’s. These are views similar to the ones we articulated in clip 3 above. The last sentence of Chanos – “They send us stuff, we send them pieces of paper? who would you rather be?”
  
• Chanos Shares Short View on the Markets – a 09:23 minute clip

Fortunately for us, CNBC provided a summary of his views at Chanos Bullish on Cisco, Bearish on China, Greece  on the CNBC website. The most quotable of his comments is below: 

• “There’s almost 70 billion in square feet under construction in high rises in commercial, residential and light manufacturing. And we estimate about 30 billion square feet, and that’s with a ‘B,’ is commercial, that we would just consider office space. To put that in perspective, that’s a 5×5-foot cubicle for every man, woman and child in China. These are really staggering, staggering numbers… The banking system is the problem. The banking system is loaded with bad debts. Remember the state controls the banking system there, and the assets of the banking system are suspect.”

But the most interesting of his comments are not in the CNBC summary. For example, listen to the Kernen-Chanos exchange at minute 06:08 of the second clip featured above:

• Kernen – When we bring this up to most people, they say, look China has been doing this for awhile, I think these guys know what they are doing, I hear that a lot. Do you hear that a lot, that central planners over there, I think they know what they are doing. When you hear that from every one, you wonder about that’s so consensus that eventually can they really screw this up?

Really Joe, you don’t have to look far. Just watch Fast Money will you and listen to Joe Terranova? Last year, Terranova went as far as to say that the Fed was following in China’s footsteps.

• Chanos – The biggest response we have gotten to our views on China isn’t anybody attacking our facts or observations, the loudest chorus is the authorities will see this as well and manage it right…..they will let the air out of the bubble as opposed to pop it. And what’s interesting to me is that people who have complete disdain for government intervention in the economies & markets in the West have complete complete faith in 9 guys in a room, the Politburo, being able to figure out this very complex and rapidly growing Chinese economy and guide it to a nice landing.

Bravo, Mr. Chanos. You are talking our language. We included an entire section titled Are Chinese Leaders smarter and wiser than American leaders? in our May 2008 article The Bubble Is Dead. Long Live The Bubble. In that section we wrote that China’s leaders are thinking and acting like momentum investors and that “Like everything produced in China, Chinese deflation will end up spreading around the entire world.”

Mr. Chanos is shorting materials and construction companies that supply the building boom in China. Mr. Chanos, how about buying 30-year US Treasuries (preferably zeros) to profit from the deflationary bust of the greatest real estate & credit bubble the world has ever seen?

We concluded our May 2009 article by asking “Is there a Chinese Jim Cramer who can rant “They Know Nothing” about the Chinese leadership on Chinese National TV?”. Will Jim Chanos volunteer to be a Jim Cramer for China? 

Of course, there is no shortage of people who think American leaders are stupid. See the clip below for comments of Nassim Taleb.


5. Taleb Excerpt – Courtesy of Bloomberg.com – Thursday, February 4

This is actually an interesting excerpt. Mr. Taleb begins by talking about constructing a portfolio with lower risk. How? Make 80% of your portfolio as no-risk, real no-risk, not like keeping money in US cash at Citibank, and make 20% of your portfolio maximum risk. In his opinion, this will outperform a 100% medium risk portfolio that could blow up.

What are his trades for the 20% maximum risk component? 

1. Short S&P against Gold on a ratio basis – short 1.5 units of S&P vs. 1 unit of gold,.actually “silver, palladium type of intelligent metals that central banks don’t own – because central banks will dump their gold on us when things go bad.”
   
2. Out-of-the-Money Options on small probability of Hyperinflation – “not inflation, I don’t care about inflation – a trade that will lose money but if it works it will be big, you would never use a public plane again”
   
3. No brainer trade – every single human being should have this trade – short US Treasury bonds in the US – all along the curve – “so long as you see picture of Larry Summers in Davos, stay short of Treasuries for another year…they don’t know what is going on..every time you see the picture of what’s his name, Bernanke and he still has that job, run to make sure that your position is still active and you benefit from rise in long term rates in the USA. so long as these two guys are in office, that’s the trade…”
   
4. Other residual trades are of course possibility of breakup of Europe – small probability

Ironically, on Thursday, February 4, the day Taleb spoke, all his smart trades were blowing up – Gold was down $45, S&P was down less, Deflation was in the air and Treasuries were rallying. His small probability trade, Europe breakup, was the only trade that worked that day.

For a response to Mr. Taleb about his short Treasuries comment, listen to Richard Regan of ProTradingCourse.com in the Trader Triple Play Segment on CNBC’s PowerLunch on Thursday. As you might expect, at about minute 02:57 of this clip, anchor Tyler Mathisen asks “Richard, is there a bubble in Treasury Bonds?” Only a CNBC Anchor could ask such a dumb question on a day when Gold was down $45 and even Larry Kudlow was worrying about Debt Deflation. 

The Mathisen question was not a surprise but the fact that PowerLunch allowed Richard Regan to make a bullish call on Treasuries on their show certainly was. We were so surprised that we fell backwards and broke the chair. Our question is “Will PowerLunch buy us a new office chair?” Putting on our George Costanza hat, we think they should. They broke it and so they should replace it. Come on PowerLunch. Put your Platinum corporate card to good use and help out a guy. 


6. Sovereign Debt Concerns – Bill Gross with CNBC’s Maria Bartiromo – Thursday, February 4

Thursday was the day when fears about Sovereign Debt were at peak levels. So we were eager to listen to the wisdom of Bill Gross and to get some answers to the classic Rukeyser question “what should we buy or what should we sell?” 

We were disappointed. Bill Gross was as superficial as the average CNBC guest. Read a partial summary of his comments at Sovereign Debt Fears to Keep Markets Under Pressure: Gross on the cnbc website. 

But the main recommendation of Bill Gross was not captured by the CNBC summary. He suggested that investors buy German & French government bonds. Surely Maria Bartiromo understands that when investors buy European Bonds, they take risk of owning Euro currency. Remember this was Thursday, February 4. The Euro currency was collapsing and the US Dollar was exploding upwards. In fact, the reason Maria was interviewing Bill Gross was to discuss European Sovereign risk.

Can you imagine that under those panicky conditions Maria Bartiromo failed to ask Bill Gross about the Euro currency risk in owning German & French Government Bonds? To us it shows that Ms. Bartiromo is, sorry to say, clueless about Bonds. All CNBC anchors have grown up speaking to stock managers and mutual funds. Their knowledge of Bonds and their interest in Bonds is virtually zero except to ask whether Treasuries are in a bubble.

We feel we have the right to be explicitly critical of Ms. Bartiromo. She is CNBC’s franchise interviewer. We have praised her lavishly and gone as far to give her an award for being CNBC’s Most Useful Anchor. We are simply aghast that Ms. Bartiromo failed to ask the most basic of questions to Mr. Gross when he blithely told her viewers to buy German & French Bonds. 

This is not about Ms. Bartiromo or Mr. Gross. This is about CNBC’s individual investor viewers. We viewers respect Mr. Gross and tend to listen to his views. But we are not experts and we depend on CNBC Anchors to ask searching, intelligent questions of Mr. Gross. 

Recall that Bill Gross first asked CNBC viewers to buy German Bonds on January 6 with Erin Burnett and on January 8 with Joe Kernen & Carl Quintannia. None of these 3 anchors asked Bill Gross whether he was hedging the Euro currency risk by shorting it. (See clip 1 of our videoclips article on January 9).

Guess what happened in January. The Euro fell several percentage points and any individual CNBC viewer who bought German Bunds or a Mutual fund of German Bunds lost money on this trade. On the other hand, US Treasuries rallied hard. And Bill Gross said in January that he liked German Bunds more than he liked Treasuries. 

Maria Bartiromo had the benefit of this hindsight. So why did she not ask Bill Gross to explain why his calls had gone so wrong? We would think anchors would love to do this sort of questioning. And that would have benefited CNBC’s individual investor viewers.

The bottom line is that CNBC’s individual investor viewers might have lost money because CNBC Anchors did not do their job. That seems unacceptable to us. Is it acceptable to CNBC’s Management?

In this article, we have discussed clips of Mr. Chanos & Mr. Gross. These are two brilliant investors and we listen to them both. But we also realize that there is a very big difference between these two experts. Mr. Chanos runs a hedge fund and the majority of CNBC’s individual investors cannot invest in his fund or company. So we don’t have to worry about Mr. Chanos trying to pitch his products to us. On the other hand, Mr. Gross manages a mutual fund and CNBC’s individual investors can and probably do invest in his funds. As the founder & co-CIO of his asset management company Pimco, Mr. Gross is probably committed to gathering as many assets for his firm and fund. In other words, Mr. Gross has every business incentive and probably a fiduciary incentive to act as a pitchman for his fund & firm. Therefore, we think it behooves every CNBC anchor to interview Mr. Gross carefully and aggressively to separate his broad investing views and his views that benefit his fund & firm.

Then finally there is the question of suitability and adequate disclosure. Let us be clear. In our opinion, Mr. Gross has no obligation to worry about the interests of CNBC’s individual investor viewers. But we hope CNBC anchors do. So when they allowed Mr. Gross to recommend German & French Bonds without comment about the need to hedge the Euro currency risk or without disclosing whether Mr. Gross was hedged in his fund, did these anchors fall down on their job of ensuring suitability & adequate disclosure to their viewers?  There is no statutory obligation on CNBC’s journalistic anchors to ask such questions but we hope they feel an ethical obligation.

Our humble recommendation is that only Steve Liesman or Rick Santelli should interview Mr. Gross. They understand bonds. The CNBC journalistic anchors don’t. 


7. Crescenzi Interview on Economy – Tony Crescenzi of Pimco on Bloomberg – Friday,  February 5 

As we have written before, listening to Tony Crescenzi is a pleasure. He is succinct, straight and speaks in a way that simple minds like ours can understand. Bloomberg anchors help by asking direct questions such as “How does that affect where Bonds are going?” and “do you still trade Treasuries with the eye that the Fed is going to move on interest rates up by the end of this year?”

Tony Crescenzi sa
ys that there is a difference between the cyclical up turn and the structural headwinds. His view is that the cyclical up turn in jobs & wages might lead to the market romancing the idea of a recovery but by the second half the market will look through that to focus on the structural headwinds. Crescenzi comes really close to suggesting that Bonds might sell off a bit in the near term but will outperform later in the year. 

Remember Mr. Crescenzi works for Pimco & Bill Gross. Bill Gross has boxed himself in to a corner by telling CNBC that long term Treasuries are not attractive. So can Tony Crescenzi simply come out and say he likes Treasuries for the second half of 2010? We think not. See his discomfort on the clip. 

While Mr. Crescenzi was speaking on Bloomberg, his boss Bill Gross was speaking on CNBC and debating with other guests & anchor Joe Kernen. There was precious little in either the debate or in comments by Bill Gross. Joe Kernen failed to ask a single Rukeyser-like question about Bonds or Treasuries. Our loss. 


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