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%.
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.
- Staff Sergeant Salvatore Giunta on Fox Business & CNBC on Monday, November 22
- Dennis Gartman on CNBC Fast Money on Wednesday, November 24
- Half Time Poll Answers on CNBC Fast Money on Wednesday, November 24
- Larry Fink on CNBC Closing Bell on Tuesday, November 23
1. Staff Sergeant Salvatore Giunta – on Fox Business (Minute 01:54 minute clip) & on CNBC (Minute 06:04 clip) – Monday. November 22
The first living soldier since the Vietnam War to be honored with the Congressional Medal of Honor by President Obama! Every week, we cover Investment Gurus, Money Managers and other people who have made riches, people who are and should be proud of their own accomplishments. But Staff Sergeant Giunta is one we should all be proud of. The War in Afghanistan must be hell. To fight it with honor, with selfless courage and with the brotherhood SSgt Giunta shares with his fellow soldiers makes us humble.
The Fox Business Clip is simple, to the point and in that we see the true measure of SSgt Giunta:
- 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.
The interview with CNBC was moving as well, especially when SSgt Giunta said:
- 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.
Then Simon Hobbs asked what we thought were inappropriate questions. He asked SSgt Giunta about the exit from Afghanistan and related how the people in the UK are concerned about the war. Then he asked how the Staff Sergeant felt about it. The answer from SSgt Giunta was perfect:
- 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.
Mr. Hobbs, you got to ask that question of General Petraeus or of Defense Secretary Gates. Don’t ask that question of a Staff Sergeant at his moment of glory; your question was bad form from some one whose only job is to shoot questions without ever taking responsibility for anything!
2. Gartman’s Top 3 Trades for 2011 – Dennis Gartman on CNBC Fast Money Half Time (at minute 01:20 of the 06:23 minute clip) – Wednesday, November 24
Congratulations to CNBC for getting Dennis Gartman as a CNBC Contributor. Why it took CNBC so long remains a mystery to us. In this clip, Dennis Gartman shares his top 3 trades and explains his reasoning.
His top three trades for 2011 are:
- Buy Gold and Short the Euro against it.
- Buy the Australian Dollar and Short the Euro against it.
- Buy Soybeans & Corn.
Watch the clip and read the summary of his appearance on cnbc.com.
3. Answers to Half Time Poll of the Day – CNBC Fast Money (Minute 04:05 clip) – Wednesday, November 24
At half time (12:30pm) on Wednesday, CNBC Fast money asked viewers “What 2010 Trade Are You Most Thankful For?” The choices were: Apple, Ford, Gold and the 30-year Treasury Bond. We were thankful and stunned to see the 30-Year Bond even mentioned as a choice. How far as the Fast Money show come since 2009?
The Viewer poll results were revealed in this segment:
- Apple – 46%
- Ford – 28%
- Gold – 21%
- 30-Year Treasury – 4%
We routinely ask friends and acquaintances at parties about their bond investments and about Treasury investments in particular. We find that very few people are invested in Treasuries and the vast majority of those who are tend to be at shorter maturities.
How lonely must Gary Shilling and David Rosenberg feel?
At the end of the clip, the Fast Money Trader team gave their price targets for Apple a year out. The answers were:
- Guy Adami – $285
- Joe Terranova – $413
- Karen Finerman – $360
- Tim Seymour – $361
4. Fink on QE2 – Larry Fink with CNBC’s Maria Bartiromo – Tuesday, November 23
Larry Fink is someone we like to listen to and learn from. His interviews with Maria Bartiromo in 2007 were prescient and would have saved you from the damages of the 2008 bear market had you listened. But that was a Larry Fink, the dispassionate observer.
These days we keep hearing about Mr. Fink’s desire to get into an economic policy making role in the White House or the Treasury. Whether true or not, the Larry Fink in this clip is very different from the Larry Fink in the 2007 interviews.
This Larry Fink comes across a unabashed cheerleader for Bernanke’s QE2 and the Obama Administration’s economic policy. In particular, Mr. Fink says “We Love Equities”. Ah! Music to Bernanke’s ears. The only thing Fink did not do is to exhort people to spend away their unrealized stock gains.
We sincerely hope we have to apologize for these sceptical and perhaps uncharitable statements within the next 6 months. Because we fervently want Bernanke-Fink to be proven right with a brand new virtuous circle of higher stock prices leading to higher spending thereby creating jobs which increase income and lead to further higher stock prices. While we like Circles, we see Ellipses as more common
in nature. And we do believe that all virtuous circles of the past dozen years lie within a vicious ellipse of deflation created by capex & credit busts.
But Mr. Fink has earned the right to be listened to and he could well prove to be right for the next few months. Recall that he told Maria Bartiromo on October 6 that the stock market had another 10-12% rally left in it.
So listen to Mr. Fink speak in this clip or read the appropriately titled summary of his comments at ‘We Love Equities‘ on CNBC.com. A few excerpts from this summary are below:
- 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.
Send your feedback to [email protected]