Interesting Videoclips of the Week (November 20 – November 26)

Editor’s Note:  In this series of articles, we include important or interesting videoclips with our 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. We are very happy with the tremendous response from readers to this series of articles. We thank them sincerely and profusely. 

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.


First Tepper and Now Prechter?

The Tepper part has been established. The clarion call by David Tepper to go long the stock market upon QE2 announcement was simple and superb in our judgment. Any one who followed it made money, real money. The Tepper Corollary that all negative news will be followed by buying because of greater amount of QE2 also proved correct.

By early November, the Tepper corollary ruled. It became consensus when the venerable Art Cashin used the term on Thursday, November 4 to justify the pre-market rally that morning.

But as the Tepper wisdom was celebrated, the call by Robert Prechter to Sell the market rally was forgotten by most and derided by the few who remembered it. As we recall, Prechter said that investors would be presented with a great opportunity to Sell in October, just like they were given selling opportunities in April and January. We remember Prechter’s call and we have been intrigued by it (see clip 1 of our September 26 – October 2 Videoclips article).

How wonderfully ironic would it be if both the diametrically opposite predictions of David Tepper and Robert Prechter proved correct within a 4-5 month period? Note, we said “diametrically opposite”, not Contradictory or Mutually Exclusive.

Tepper’s call was based on the consequences of Fed’s announcement of QE2. That announcement was sort of made on August 27, 2010 and the QE2 rally began that day. All the good news, otherwise known as the formal announcement, was released on Wednesday, November 3 and the best news of all, the Fed’s support of the stock market, was released in Bernanke’s article on Thursday, November 4. The good news about an improving economy was released on Friday, November 5.

If the “Sell the News” dictum were to be valid, then the stock market should have made its high on Friday, November 5. Wonder of wonders, the S&P 500 did reach its high for 2010 on Friday, November 5. Since then S&P 500 has been down and the Dow has gone negative for the month of November. As Prechter predicted, the U.S. Dollar has rallied (almost 5%) since that day and the 30yr-5yr yield spread has dropped from 304 bps to 268 bps.

So we ask again, is it possible that Prechter was right about stocks when he said October would be a selling  opportunity just like April 2010? Fine, he said October when the selling started on November 5. But the same factors (how do you spell Europe?) that created the sell-off in May are rearing their uglier head in November.

So if the Prechter Sell proves to be as correct as the Tepper Buy, then we could use a classic term like “twas the best of times and the worst of times” for the last 4 months of 2010. Which was which depends on whether you play bull or bear.


Do Rosenberg and Krugman remember Dr. Mahathir?

David Rosenberg wrote on Thursday:

• the dramatic fiscal tightening we are seeing in Ireland is insane…
  
• the Argentine peso depreciated 80% (in 2002) which in turn paved the way for massive trade surpluses, and from 2003 to 2007, real GDP expanded at 9% annual rate, and real wages rose by nearly 5% per year.
  
• Sweden, in the early 90s, is another example, and the reason Iceland no longer makes the news is because the Krona has been devalued by 60%.

We usually agree with David Rosenberg and we usually disagree with Paul Krugman. This week, these two wrote in unison or so it seems. Mr. Krugman wrote a sensible opinion this Friday called Eating the Irish . In this article, Krugman notes that Iceland is doing better than Ireland. Part of the answer Krugman says is that Iceland let foreign lenders pay the price of their poor judgement (of lending to Iceland’s banks) rather than putting its taxpayers on the line. Krugman adds ” Iceland has also benefited from the fact that, unlike Ireland, Iceland has its own currency and that devaluation of the Krona (by 60%) has made Ireland’s exports more competitive”.

Surprisingly neither Rosenberg nor Krugman mentioned Mahathir of Malaysia. In the 1998 EM Debt crisis, when the rest of Asia was following IMF’s dictates to impose austerity while bailing out foreign lenders, Mahathir of Malaysia went the opposite way. He said to heck with foreign lenders and the IMF; he refused austerity measures and actually loosened his fiscal policy while imposing capital export controls. As we recall, the Malaysian economy stabilized and recovered much faster than the rest of Asia.

For some time, we have been tracking a portfolio. This portfolio of blue chip Indian stocks was established in 1980 and has remained static since then (talk about buy & hold) because the family migrated to the USA. Since then the Indian rupee has fallen from 7.5 rupees to about 45, an increase of 6X or 600% in the Dollar-Rupee rate and the stock portfolio has gone up by 200X or by 20,000% in Rupee terms or by 33X or 3,300% in U.S. Dollar terms.

Ah, the magic of a falling currency coupled with a restructuring economy. This may be why today’s European prescription of keeping the Euro as sacrosanct while imposing unprecedented austerity in Ireland, Greece and the rest of PIIGs seems insane to Mr. Rosenberg.

But then why do we complain about Bernanke’s intentional debasement of the U.S. Dollar? It is because Bernanke (and the political leadership) is not taking any steps to restructure any aspects of the US economy. Instead Bernanke is doing the crazy dance of artificially inflating asset prices in a desperate hope of recreating the same dynamic that led to the problem in the first place.


The Anti-QE2 Investment

The markets are speaking loud and clear. Bernanke is buying the belly of the Treasury curve & its flagship, the 5-year Treasury. Bernanke is NOT buying the 30-Year Treasury. Guess what the market is doing, selling what Bernanke is buying and buying what Bernanke is NOT buying.

Since November 5, the 30yr-5yr yield curve has fallen from 304 basis points to 268 basis points and the 5-Year Treasury yield has gone straight up from 1.05% to 1.52%. So why should we be surprised that stocks, the investment Bernanke wants to inflate, has actually deflated by 3% since November 5.

Combine this with the deflation shock to the global economy from Europe’s insane austerity drive and what would you get? In the words of David Rosenberg “Treasuries would rally big-time”. 


Problems to the Left of The, Problems to the Right of Them

We are not talking about the Light Brigade of Tennyson. We are talking about China. The Chinese regime has a horror of seeing foreign militaries on its borders. To prevent this, China has consciously built buffer states all around core China since 1950. All of a sudden this plan seems to be unraveling mainly due to the recent arrogant and aggressive posture of the Chinese Military.

China already finds US troops in Afghanistan, it finds increasing US involvement in Vietnam, It finds Japan & USA coming to an agreement about countering China and it finds India building new military divisions to counter China in Burma and its remote, northeastern border with China. And this week, China faces the prospect of a US Aircraft Carrier Group operating with South Korea in what China claims to be its exclusive zone. This last movement is thanks to the unprecedented (for past 55 years or so) act of hostility by North Korea.

But China does not seem to listen or hear. Instead, China warned against “any military acts in our exclusive economic zone without permission,”. We have felt and written for some time that geo-politics is the largest tail risk for emerging markets in the next few years. We hope we are wrong, way wrong. But unfortunately, we could be proven right. If so, what would work the best? The U.S. Dollar cash and Treasury Bonds.

Didn’t Robert Prechter ask people to hide in precisely these two asset classes? (see our September 26 – October 2 Videoclips article)
 

A Thanksgiving Thought for a group that needs it most

We honor Staff Sergeant Giunta of the US Army for his extraordinary valor in Afghanistan by giving our pole position of the week to his interviews on Fox Business & CNBC. Our first and foremost thanks go to him and the brave colleagues of SSgt Giunta in Afghanistan & Iraq. We live in freedom because of them. 

At the same time, on this occasion of Thanksgiving, we wish to remember a group that needs our help the most, Afghan Women. Recently the New York Times reported that Afghan women are actually committing suicide to escape from the terrible lifestyle imposed on them. We all remember the awful Time Magazine cover below:


When you watch TV coverage of Afghanistan, you see Pashtun women and girls under terrible conditions. These pictures are really of war and the horrible miseries it imposes on the weakest sections. Do not think these pictures are representative of Pashtun women. To make this point, we give you two examples of the amazing beauty of Pashtun women. The women below were fortunate because their families left Afghanistan to migrate to India.

The first is Madhubala, born as Mumtaz in a conservative Pashtun family. Her father relocated to Mumbai when he lost his job in Peshawar in today’s Pashtunistan-Pakistan. Young Mumtaz entered the movie industry in Mumbai in 1942 at the age of nine. Later she took the screen name Madhubala. Her  ethereal beauty made her a legend that lives to this day. Witness her beauty in the immortal clip below from the 1960 film Mughal-E-Azam:

We ask readers to at least fast forward to minute 2:59 and then watch until minute 3:03. You will see the hands of Madhubala covering her face. Notice the jewelry on her fingers and hands. Then notice the amount of Gold, pure Gold, on her wrists. You will realize see why Gold will remain in a secular bull market for a long time in a parallel trajectory with the rise in Indian family incomes (do you concur Mr. Gartman? – see clip 2 below for his vies on Gold) . Then notice the beauty of her face as her hands come down as if a veil is being drawn from her face.

What you are also seeing is the triumph of American Ingenuity. The clip above and the entire film was originally shot in black and white in 1960. Earlier this decade, in a long labor of love, color was added to every single frame of this film using software produced by an American software company. The result is the magic you see above.

For our next example of Pashtun beauty, we move forward to 1980 to Zeenat Aman in the film Qurbani. Zeenat is a well known Pashtun name – for example, Zeenat Karzai , the wife of President Hamid Karzai of Afghanistan.

Zeenat Aman was luckier than Madhubala. Her family migrated to India well before she was born. After becoming Miss Asia Pacific, Zeenat Aman entered Bollywood. She was an  intoxicating beauty. Witness the clip below:

When you see pictures of today’s hapless Pashtun girls and women on your TV, think of what these girls could become in a free society. Remember Madhubala, Zeenat Aman and think of the appalling loss in human terms in Afghanistan. Be thankful you live in a free country.


Featured Videoclips

1. Staff Sergeant Salvatore Giunta on Fox Business & CNBC on Monday, November 22
   
2. Dennis Gartman on CNBC Fast Money on Wednesday, November 24
   
3. Half Time Poll Answers on CNBC Fast Money on Wednesday, November 24
   
4. Larry Fink on CNBC Closing Bell on Tuesday, November 23

• Nicole Petallides – How has this changed your life?
  
• SSgt Giunta – I am still the same guy but I would like to raise awareness for the military.
  
• Petallides – How so?
  
• SSgt Giunta – You know, everyone has been very nice to me, incredibly nice. But this is more than me, this is bigger than me. This is for all the servicemen and women over there for the last 9 years in Afghanistan, since 2003 in Iraq, for all those servicemen and women who did not get the opportunity to come back home and see their families again…this is more for them than anything.
  
• Petallides – And your family, how did they react to receiving such a great honor?
  
• SSgt Giunta – My family has been incredibly proud of me since day one, they were excited when I learned to ride my bike without training wheels, excited when I graduated high school, this is one more thing.
  
• Petallides – Some of the traders say it is time to make a video game, its all about you and your experiences. What do you think of that?
  
• SSgt Giunta – You know its not all about me, its all about so many other people I have served with. Video game would be awesome, guys would love that but it has to have us all in it.

• I think it is the brotherhood that we share. Because those I have served with are doing this for themselves, We do it for a separate reason, whether it be the man to the left of us or the man to the right of us, or our families back home. What we are doing, we understand is bigger than us. We all take that responsibility.

• All of this is on so much more of a grander scheme than we foot soldiers look at. I know that we will do whatever is asked of us. ….because what we are doing there is bigger than us. We all do understand this. I have been there to Afghanistan on two different tours, I did one for 12 and one for 15. And if need be, I would go again. men and women do it continually over and over again …because what they are doing, they understand is bigger than themselves. How long that actually lasts, that’s not up to us.

1. Buy Gold and Short the Euro against it.
   
2. Buy the Australian Dollar and Short the Euro against it.
   
3. Buy Soybeans & Corn.

• Apple – 46%
  
• Ford – 28%
  
• Gold – 21%
  
• 30-Year Treasury – 4%

• Guy Adami – $285
  
• Joe Terranova – $413
  
• Karen Finerman – $360
  
• Tim Seymour – $361

• We are still going to have a depressed housing market, but it is improving,
  
• Corporations are in great shape, exporting is growing and agriculture and technology are reasonable for long-term investing,
  
• We love equities,…Equities with large dividends compete well against owning fixed income, and we believe you have the protection of a strong dividend.
  
• Fink said any portfolio should include global equities, especially those that are in construction
  
• Fink also said he supported the Federal Reserve’s recent action to add $600 billion in quantitative easing (QE), and said that that Fed was “brave” to take this step.