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.
Giddy Strategists & A Giddy Stock Market?
This title is a repeat of last week’s title for the stock market section. We don’t usually repeat titles but this one seems to fit. All week, we heard bullish and very bullish predictions for the stock market’s performance in 2011.
The most bullish among major firms was Binky Chadha of Deutsche Bank who sees the S&P hitting 1,550 in 2011. The most restrained was Tobias Levkovich who sees the S&P 500 at 1,300 by next year-end. When quizzed about his “bearish” outlook, Mr. Levkovich said he expects the market to go up higher in the first half of the year and then sell off to close at 1,300.
So the outlook for the first half of 2011 is almost universally bullish. The almost is due to perennially un-rosy folks like David Rosenberg and Gary Shilling.
The sentiment levels are still giddy but not as giddy as mid-week. The ISEE All Equities Call-Put ratios closed at 238, down from the sublimely ridiculous level of 500 plus midweek. Remember the time when this ratio created concerns about excessive bullishness when it exceeded 200. That was so pre-QE2. And what about the VIX? It dropped 10% to a 15-handle on Friday afternoon before closing above 16 with only a 7% loss. As usual, a CNBC “Equity Fee Collector” otherwise known as a long only money manager told Maria Bartiromo that this was a bullish signal. It may well be. After all, April 2010 was so, so pre-QE2.
Every time we start putting away the Prechter topping call, the stock market begins acting toppy again. Like it did this week. Is this just another consolidation before another lovely rally? It could be. We shall wait and see.
Sell Bonds Buy Stocks?
That is what CNBC’s Larry Kudlow preached all week. We don’t usually take Larry Kudlow seriously. He is a political advocate first and a market follower a distant second. But by Thursday, every CNBC anchor was trashing long maturity Treasuries. It was as if Christmas had come early for them.
Then as if on cue, the Treasury market staged a rally on Friday. The 30-year bond was up 2 points in the afternoon and closed up about 1.5 points for the day. The hated 30-Year closed higher in price and lower in yield for the week despite the big sell offs on Tuesday and Thursday.
CNBC’s Rick Santelli tried to accurately describe this action to the CNBC anchors. He was ignored as usual. Then on Friday afternoon, CNBC Fast Money televised The Great Rate Debate (at minute 04:29). Most people would interpret this term to mean a debate about whether rates would go up or down.
But most people are not CNBC Fast Money “traders”. Except for Steve Cortez, the Fast Money crew is Anti-Treasuries at heart. So as anchor Melissa Lee said ” Are the Rates going up for the right reasons?” Brian Kelly said it was because the economy was improving and that would be good for stocks because the Fed has been successful in pushing people into stocks. But Karen Finerman thought it might be negative for stocks and this move means the Fed is not in control. Karen is a hedge fund manager and Brian is a trader.
Neither of these market wizards wondered about the 2% rally in the 30-Year Treasury Bond on Friday. Neither of these two nor any of the other Fast Money traders even considered the possibility that rates might go down.
Is there any doubt what is a contrarian bet in this market? Buying the 30-Year Treasury Bond, we think!
And who is on our side? David Rosenberg, Gary Shilling, Jeff Kronthal and Mark Kiesel of Pimco. Are these four better than the Fast Money trader team? You be the judge.
Speaking of Pimco, it was reported that Bill Gross, the Bond King, of Pimco bought municipal closed end bond funds for his personal account. Now that is talking with your money. This would seem to be a bet on both muni credit risk and on duration.
Why didn’t Mr. Gross elaborate on these purchases during his interview on the Fed-day segment on Tuesday? Perhaps more relevantly, why didn’t Erin Burnett ask him? This must be CNBC’s “don’t touch Bill” rule like the NBA’s “don’t touch Mike” rule for Jordan. But Bill Gross did recommend buying the 20 year New York Build America Deal with a 6.65% coupon. Did he know that the books for individual investors were already closed by then? Ken Volpert, the other guest, reiterated his buy short term corporate bonds recommendation. We don’t even recall what Ken Heebner and Robert Doll said. Guess even these four great guests cannot rescue a ho-hum fed statement.
Lou Dobbs with Bill O’Reilly
Bill O’Reilly interviewed Lou Dobbs on Friday evening. This videoclip is not posted on the O’Reilly website as we write this article. We wish it were. We recommend watching this clip once it gets posted. This was the Lou Dobbs of CNN Moneyline. He was articulate about stocks and he said the rise in Bond yields had been overdone.
Then, wonder of wonders, Lou disclosed that he is buying Bonds. Imagine a Financial Anchor disclosing on air what he does in his personal account. We fervently wish Mr. Dobbs would actively and regularly tell us where he is putting his own money. How refreshing would that be? This is something we have been asking CNBC forever.
As an aside, O’Reilly said that “Beck has been loading up on Gold” and added that Beck wants to get paid in Gold. Didn’t the supermodel Gisele demand her pay in Euros just before the Dollar bottomed? Gisele Bundchen and Glenn Beck may not look alike. But do they think alike? If Gold starts falling, what should we call this? The Beauty and The What? Any suggestions?
We like CNBC and we watch it regularly. So we know what it lacks. In particular, CNBC lacks a voice that can speak to the individual viewer and put the political, economic and investing scene into one easy to understand picture. The only CNBC people who can reach the average viewer are Rick Santelli and Jim Cramer. Rick Santelli does Bonds and Tea. Jim Cramer pitches Stocks. Neither can paint the broad picture, as far as we can tell.
So who will CNBC put up to compete with Lou Dobbs? We can’t wait for this fight.
- Michael Milken on CNBC Closing Bell on Tuesday, December 14
- Nouriel Roubini on Bloomberg on Thursday, December 16
- Gary Shilling & Brian Wesbury on Tuesday, December 14
- Mark Kiesel on CNBC Street Signs on Friday, December 17
- Stock Market Predictions for 2011
1. Health Care: The Road Ahead & Milken on the Markets – Michael Milken with CNBC’s Maria Bartiromo – Tuesday, December 14
We selected the clips of Michael Milken not for their investment advisory value but because he spoke about some long term issues facing the country.
The second clip is about Milken’s views on education and the resource allocation of American families. A summary of his views can be found at US Growth Dependant on Solid Education Plan on CNBC.com.
The first clip (07:28 minutes) on Health Care is even more provocative. Mr. Milken is joined by Toby Cosgrove, CEO of the Cleveland Clinic. Watch it and you will be provoked to think. We include excerpts of the conversation below:
- Cosgrove – Right now, 10% of the health care costs in the United States are secondary to obesity. And by 2020, it is projected that 20% of health care costs in the United States are going to be secondary to obesity….We will never bend the health care cost curve unless we do something about obesity. ….This was not part of the dialog a few years ago. It’s now politically acceptable to talk about it where it wasn’t previously. It has now come to the consciousness of the leaders of the country and gradually you are seeing corporations, businesses… begin to put things in place to fight this epidemic.
- By 2014, healthcare in the U.S. will account for 17% of the country’s GDP, or more than $3T.
- Economic impact of medical research and prevention has driven 50% of all economic growth in the last century.
- Bartiromo – Have you seen what kind of an impact has it had on stifling innovation?
- Cosgrove – We do know that Venture Capital money is at an all time low coming into healthcare. We don’t see early funding going on the way we saw 5 years ago……
- Milken – Part of the benefit is confidence, if you running the FDA, you are in charge of the NIH, you see and can hear what venture capitalists are saying today. Let’s take medical instrumentation, they are not going to bring any products to bear in the United States. If they are going to test and develop them, they are going to Europe or someplace else in the world. They are going to get them approved there and then they will bring them to the US….
- Bartiromo – …What’s your take on the economic landscape today?
- Milken – The challenge for the United States is the realization that our health care systems, our medical systems, our educational systems are the underpinning, along with property rights, democracy etc., of the strength of the US economy. The facts are that the majority of the world’s economy is going to move to Asia, the growth parts of the world’s economy are parts of Africa, South America and Asia and the Middle East.
- Bartiromo – Does that concern you?
- Milken – As an American, it concerns me a great deal. And there are things we can do to change that. What is the American Dream in 2010? Can I come to America as an immigrant, if I am coming to College, can I stay in America? Can I get into America if I have been accepted at Harvard or other colleges? Can America track the best and brightest, most innovative people in the world? They are risk-takers. Is that we stand for today? Is that the American Dream, you can come here, you can have a chance to build a great company, hire people, be a great artist, be a political leader, whatever. And I think, when we look back at 9/11 over a long period of time, one of the real casualties was the dramatic change in our immigration policies. It is so easy for an American to go visit China today, visit Brazil today, visit Indonesia today. It is so difficult to get in the United States as a tourist who wants to spend money, as a student who wants to come here. We have medical research conferences today that we cannot hold outside the US, we can’t go to Toronto with this conference. Because many of our leading scientists are not US Citizens, they are going for their Ph.D.s, and they cannot leave the country to go to Toronto and get back. So unless we do something about our immigration policies which is a very very politically charged issue.
- Bartiromo – Do you agree with that?
- Cosgrove – Absolutely. We are seeing that roll over into healthcare. Just talk about Doctors for a second. We are going to see a shortage by 2025 of 150,000 Doctors in the US. One of the reasons is the USA has never produced enough physicians to meet its needs. We have always been a net importer of physicians. Now that’s getting harder and harder. And now we are in a competition around the world for this intellectual capital. It’s just as easy to have a great practice in some other part of the world like the developing countries in India etc., and so they are not necessarily sure they want to come to the US. anymore. So we have really hurt ourselves substantially by 9/11’s result in terms of our abilities to bring people into the US.
- Milken – Just one other factoid. A decade ago, 750,000 Americans left the United States for medical treatment. In 2010, 6 million Americans will leave the United States for medical treatment.
- Bartiromo – To get it where?
- Milken – Someplace else in the world, could be India, could be Israel, could be Singapore, could be Thailand….
- Bartiromo – So America does not have the best health care in the world anymore?
- Milken – It might not be as accessible. But America does have the best healthcare in the world.
- Bartiromo – Why are six million people leaving?
- Milken – Because I can go to India and for $4,000 get my heart valve replaced, go visit the Taj Mahal, take a two week vacation. The cost differential is so significant.
- Bartiromo – My thanks to Michael Milken and Toby Cosgrove.
But we would like to know where in India you can get a heart valve repaired, go see the Taj Mahal and have a two week vacation for $4,000. We will be on our way for the two week vacation and the Taj Mahal once we get the scoop. We will skip the heart valve replacement though. We also must state that this stuff is rather far fetched.
During the recent US recession, Dentists in Mumbai ratcheted up their fees substantially. Why? A large number of Indian Americans went to Mumbai Dentists during their vacations when they lost dental coverage due to early retirements and layoffs. This raised the demand on Indian Dentists to such a degree that they raised their fees significantly. Soon , a large part of the price differential disappeared. And they say free markets are not efficient?
But on a service note, Dentists in Mumbai practice from about 7 pm to almost midnight on weekdays and on weekends. This is to meet the needs of their patients who prefer to see their dentist after their day’s work. How many Dentists in Manhattan would do that? We personally have no reason to complain. We have a wonderful Dentist from Long Island who agrees to see us on Saturday morning. She also reads our Blog.
2. Nouriel Roubini with Bloomberg’s Tom Keene (17:13 minute clip) – Thursday, December 16
This is a continuous discussion between Nouriel Roubini and Tom Keene for about 17 minutes. We like this format if the topic is interesting. In this case, it was. The video clip has some interesting charts as well.
Mr. Roubini said that “Unless the Europeans this weekend are going to decide to increase the envelope of those official resources, in the next few weeks you’re going to see a worsening of those spreads for Spain”.
Predictors usually tell you what is going to happen but rarely do they tell you when. Mr. Roubini said Europeans need to take action this weekend. That is fairly rare. Roubini’s point is that Spain is too big to fail and too big to bail out. His view is that today’s bailout resources are too small to prevent a run on Spanish Banks. Read his views at Roubini Says Spain Risks Bank Run Without More European Support on Bloomberg.com.
In a discussion on Fed policy, Roubini said “We may need QE3, but then the politics from Congress and the internal dynamic of the FOMC may not allow it, even if now growth is still below trend and inflation is still low and falling,”. Read his comments about the Fed at Roubini Sees Politics Curbing Further Fed Asset-Buying Rounds at Bloomberg.com.
3. Growth & Rates 2011 – Gary Shilling and Brian Wesbury with CNBC’s Larry Kudlow (06:56 minute clip) – Tuesday, December 14
Larry Kudlow kept hitting Gary Shilling about the strong retail sales that were reported on Tuesday. Then he asked Gary whether Gary had changed his mind. Gary said No and explained:
- Shilling – The economy is moving ahead but it is still not growing fast enough to reduce unemployment. It is a real sticking point. The jobs picture is really weak…..
- Kudlow – It doesn’t look like Gary is going to do much changing. So I am going to unleash you, buddy.
- Wesbury – What’s interesting is there are a lot of 3% forecasts for the holiday shopping season and yet, in the last 5 months, retail sales are up 12%. at an annualized rate. We are going to revise up 3rd quarter now at a 3% rate and 4th quarter looks like it is going to be 4-5% GDP..
This follows a hot debate (hot as a debate between economists can get) between Gary Shilling and Brian Wesbury. The clip ends with the forecasts on the 30-Year Treasury Bond:
- Gary Shilling predicts that the 30-Year Treasury Bond is going from a 4.5% yield (on Tuesday) to 3%, which would a huge gain in its price.
- Brian Wesbury predicts it is going to 5%.
4. Pimco’s 2011 Bond Outlook – Mark Kiesel of Pimco on CNBC Street Signs (04:29 minute – Friday, December 17
Melissa Francis of CNBC informed us that Mr. Kiesel is a nominee for MorningStar’s Fixed Income Manager of the Year and Pimco’s Global Head for Corporate Bonds. Melissa alluded to the story that Pimco’s Total Return Bond Fund was moving into Preferred & Convertibles and asked whether this mean the Bond run was over.
Mr. Kiesel said he felt banks afforded opportunities and CNBC ran a banner saying “Kiesel: Bank of America & Citigroup, Two of Best Ideas in Fixed Income in 2011”.
About Treasuries, Kiesel said:
- “.. we have seen a backup of about 100 basis points or 1% over the last 6 weeks. A lot of that has been due to higher growth expectations and also obviously the passing of Bush Tax Cuts, the Stimulus program. We think that back up is mostly over (you can hear Melissa sarcastically go hmm in the background); a lot of these is due to technical selling, mortgage hedging, etc. but at this point we think the yield has backed up to a point where they are actually attractive now.”
- Kiesel said: At this point, we would want to own credit risk, not interest rate risk, specifically US Banks, Emerging Market Corporate Bonds and some High Yield Bonds.
- Francis – What is your outlook for the end of the year and what would change your perspective?
- Kiesel – What would change our perspective is valuation as well as the strength of the economy. Over the next 6 months at least, the US economy is going to be running faster and Emerging Markets are going to be running fast. So you are going to see a cyclical pick up. That should lead to tighter credit spreads. Specifically we think the Banks are going to be among the winners.
- Francis – Give me your two best bets..
- Kiesel – The Banks. The Banks are like Secretariat, the horse that started slow but closed fast. Their valuations are very compelling. Citigroup and Bank of America 10-year bonds trade at 5.5-6%. These companies have paid back the TARP, raised private equity. They are generating earnings, their balance sheets are improving and housing is starting to stabilize. They are also set to shrink their balance sheets which means there won’t be a lot of supply. So all those factors, valuations, fundamentals and technicals, argue that these Banks are set to do well next year.
- Francis – Really? And you feel good about Citigroup after everything that has happened? How long do you think that streak continues to improve and at what point do you think is has sort of played itself out?
- Kiesel – I think it continues. Citigroup of all the major US Banks has the most exposure to the emerging markets and that growth. One of the misunderstood facts about the US banking sector is it basically throws off, sets up for basically $200 billion of pre-provision earnings to start the year. Tier 1 capital ratios of the US Banks have improved from 6% to over 9% in under two years. These companies are well-capitalized now and they are set to start making loans in 2011. So we actually think they have been laggards but they are set up to perform well at the start of the next year.
5. Stock Market Predictions for 2011 – 12 Pages in All
We typed in Outlook for 2011 in the search field of cnbc.com and then we clicked on “Show Videoclips Only” button. We got a large number of prediction clips . We leave it to readers to watch what they want from this huge list.
As you might expect, the vast majority of these predict that stock markets will outperform and that Emerging Markets will outperform the US & European stock markets. The highest forecast from a major firm is Deutsche Bank which sees S&P hitting 1550 in 2011.
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