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.
Tepper Corollary Proves Correct Again – QE2++…+ on the horizon?
The Tepper Corollary said that bad economic data means greater QE and therefore bad data is good for the stock market. It was the counter-intuitive case for buying stocks. It proved true on Friday, December 3, The payroll number stunk up the market initially and then the sweet fragrance of potential QE2++…+ dispelled the stink. It was all roses by the close.
Of course, the Bernanke Collar kicked in as well. The rally in the final minutes (that made stocks close in the green) was due to a news headline at 3:46 that read “CBS: BERNANKE DOESN’T RULE OUT BOND PURCHASES OVER $600 BILLION”. This, with the upcoming Bernanke appearance on Sixty Minutes on Sunday, December 5, virtually guaranteed a rally in the last 15 minutes.
If this were not enough, talk surfaced on Friday about a payroll tax holiday, all but done extension of Bush tax cuts and extension of unemployment benefits. Ah, the wonders of weak economic data!
We give credit to David Tepper for what we think was brilliantly simple insight. He saw Bernanke for what he is, something we still cannot fathom.
But we still wait for the stock market to break out decisively above the November 5 levels, the day all the good news about QE2 and the economy was out. The market should deliver a breakout next week with a “don’t worry, we have QE2+…+” type statement by Bernanke on Sunday evening.
If it does not, then the ghost of Prechter may still arise.
Steve Liesman finds himself
For the first time in our memory, Steve Liesman of CNBC was critical of the Fed. He called Bernanke’s upcoming appearance on Sixty Minutes as “faux transparency” and dared Bernanke to come on CNBC. Come on, Steve! Do you think Bernanke is that dumb? Could CNBC & you showcase Ben as a good ole boy growing up in the south and taking the school bus?
Bernanke will go on Sixty Minutes and tell the nation that he is working hard to deliver the recovery. He will say he will do whatever it takes to generate jobs.
As Liesman has told us, Bernanke thinks that the reason Treasury yields went up after his November 3 announcement was faulty communication by the Fed. So this time, the Financial Un-Elected President will communicate himself from the public’s own office at 60 Minutes. Who else has the credibility to speak? Secretary Geithner? President Obama?
Dr. Bernanke should remember the proverb “familiarity breeds contempt”. He is not just playing with his own credibility but with that of the Institution of the Fed.
But we don’t think he cares. He has cast himself as the sole savior of the American Economy.
Gambler’s Ruin
Every Global Macro Hedge fund that has blown up has done so because of one character flow in its CIO. The tendency to keep adding to losing positions in the confident belief that the CIO is right and the markets are wrong. The Statistical model for this behavior is called Gambler’s Ruin and it predicts a guaranteed bankruptcy when the game player does not have infinite capital. The common sense description is megalomanic insanity.
But the Fed Chairman is as close to a player with unlimited capital. At least that is what Bernanke believes. Is he right? We shall all find out together.
Is QE2+..+ a done deal? The markets said so on Friday
Our chosen indicator of QE2 is the spread between the 5 year Treasury and the 30-Year Treasury. The 5-year is now the new 2-year, the embodiment of Fed’s determination to buy short term Treasuries. The 30-Year is the purest anti-QE signal, the only Treasury that the Fed does not want to buy.
So the spread between the Ben-discarded and the Ben-embraced or the 30-year-5-year Treasury yield spread is our favorite indicator of the market’s view of Ben’s QE2.
On November 5, the day all news about QE2 was out, this spread closed at 304 basis points. Since that day, this yield spread has gone down every single day whether the Treasuries went up or down. On December 2, this spread closed at 258 basis points.
But on Friday, December 3, this 30yr-5yr yield spread rose for the first time in a month. It jumped up by 12 basis points on Friday to close at 270 bps. This is the purest signal that the markets are expecting QE2++..+.
Treasury yields are up huge since November 5. The 5-year yield is up from 1.05% to 1.61%; the 7-year yield is up from 1.74% to 2.34%; the 10-year yield is up from 2.51% to 3.01% and the 30-year yield is up from 4.09% to 4.31%. Despite these large gains in nominal yields, the 30-5 yr yield spread is down by 34 basis points. This is why we like this indicator for the market’s signal of QE2.
CNBC Anchors spent all day Friday obsessed with the 10-year Treasury note. This was because Dr. Greenspan told them on Friday morning that he watches the 10-Year Treasury yield. Only Rick Santelli had the courage and the wisdom to tell the anchors that the 10-year is not the old true indicator any more. It has been corrupted by QE2.
Next week should be an interesting week for Treasuries with QE2++…+ as well as the auctions of 3-10-30 year.
Did Europe have a problem recently? We forget
Why shouldn’t we? The Euro rallied hard in the last 3 days. The ECB began its own QE by buying the bonds of Ireland, Greece and Portugal. Oops, sorry; some large unnamed European buyer did. That’s all it took for the Euro to rally.
Then, almost immediately after the Nonfarm payroll number came out, the Dollar went down hard and the Europe rallied. Such is the power of the Bernanke QE2++…+. That the European continent is in deep fiscal and monetary trouble, that the Euro could break apart with the strains between Northern Europe and Southern Europe doesn’t matter. The only thing that matters is Ben’s determination for QE2++…+.
Who was the last American President with such global power? We can’t recall.
China Buys Gold
The big news of the week was the permission by China for Chinese mutual funds to buy Gold, Gold ETFs and Gold mining stocks on behalf of Chinese Individual Investors. Where can Gold go with this news and QE2++…+.? We don’t have a clue.
We would call this nuts but we really don’t know whether the action in Gold is nuts or the decision by Bernanke to conduct QE2++…+ is nuts.
Featured Videoclips
We just don’t think anything matters except Bernanke’s commitment to QE2++…+ and the market’s reaction to it. So this week, we only feature clips that contain predictions for 2011. These are frankly below par. Hopefully, the Financial Netwo
rks will provide us better predictions in the upcoming weeks.
The first two below discuss our favorite Tail Risk.
- Charles Nenner on Tuesday, November 30
- Doug Kass on CNBC Fast Money on Monday, November 29
- Predictions by CNBC Guests & Anchors
1. Nenner’s Predictions for 2011 – Charles Nenner on CNBC PowerLunch (04:22 minute clip) – Tuesday, November 30
We have featured Charles Nenner before. He is known in some circles for his cycle work. The summary of his predictions can be found at Sunspot Analyst Sees Major Military Conflict in 2012 . The summary is neither complete nor good. Unfortunately, the same can be said for the interview. Three anchors interviewing one guest in 4:22 minutes is not helpful.
But watch the clip because it features Nenner’s predictions in detail. For example:
- We are still having more deflation,…I don’t know why nobody is paying attention but we are almost in deflation territory; for the moment I see the economy picking up for couple of months but after that I think it is going to roll over and be a dead economy again.
- I do cycles on war and peace; I come up with the start of a major military conflict at the end of 2012 and the beginning of 2013.
- Gold – new highs into 2011 and beyond; potential for higher price targets of $2,000 per ounce and then $2,500. Silver – new highs into 2011 and beyond
- Dollar – Strength against the Euro and the Yen. We have seen high in the Yen
- Interest Rates – Current rally short lived in the bonds toward lower rates. Potential of 10 year to go back to 4% before testing the lows again, followed by years of rising interest rates and low bond prices
- Housing Market – Not bottoming in 2011. The bottom is years away.
- Grains – Multi-year bull run. Went long a few months ago, standing aside now (no statement of when to get back in).
As we recall, Mr. Nenner claims that his work can predict cycles so precisely that he can tell us what day the cycles end and begin. Unfortunately, his track record on CNBC does not match that claim.
As an aside, why do simple folk like us have to do this due diligence on a CNBC guest? And we do this due diligence by simply visiting CNBC.com. Is it too much to ask that CNBC Anchors review the past interview of a clip of a guest before they interview him?
Mr. Nenner gives no details about where the military conflict will take place. See next clip for a more precise prediction of the military conflict tail risk.
2. The Kass Forecast – Doug Kass on CNBC Fast Money (06:08 Minute clip) – Monday, November 29
Every December, Doug Kass of Seebreeze Partners publishes a list of surprises for the next year. So far, Mr. Kass has released his first four surprises. These can be found at Jaw Dropping Prediction For 2011 and at Shortage of This Could Roil 2011 Markets, both on CNBC.com. Some excerpts are below:
- Surprise 1 – rough ride in the financials in 2011 – Specifically, short asset managers like T. Rowe Price & Franklin Resources.
- Surprise 2 – Cyber Attacks – ”I think we see a specific attack on the NYSE,…The aftermath will have a profound impact and cause a week-long hiatus in trading as well as a slowdown in travel…I’d make sure to have a large amount of cash in my portfolio,”
- Surprise 3 – Water Shortage – “Ever since the 1962 Indo-China War, the shared resources of water supply has been a focal point of conflict between China and India,” And in the wake of a water shortage those tension could intensify – in part due to a a decision by the Chinese government to expand the plans to divert the 1800 mile long Brahmaputra River which hugs the Chinese border before dipping into India and Bangladesh.
- Surprise 4 – Agriculture Commodities go higher and so food companies & restaurant chains would be among the worst performers in the S&P in 2011. Mr. Kass discloses that he is short YUM, RT, K, GIS, KFT.
3. 2011 Predictions by CNBC Guests & Anchors
Some CNBC Guests and Anchors have posted their predictions for 2011 on CNBC.com. This seems unique to CNBC because we have not been able to find similar forecasts on Bloomberg and Fox Business. Below we summarize predictions from two people who have been more right than wrong.
John Kilduff , Partner, Again Capital LLC
- Emerging markets will falter – Led By China.
- Energy prices will trade lower – Crude Oil will trade as low as $50 a barrel. Natural Gas prices will fall below $3 per MMBtu on Nymex. Gasoline will fall to $2.25 a gallon.
- The dollar will rally.
- The U.S. will take military action in Yemen.
- The Federal Reserve will step back from quantitative easing.
Gary Kaminsky, CNBC Contributing Editor and ex-Money Manager at Neuberger Berman
- Bonds keep booming – secular changes will keep driving rates on all fixed-income securities to record lows—Treasuries, munis, and corporate bonds alike.
- Goldman Sachs roars back
- M&A Activity explodes
- IPO market slows
- Hiring Hibernation continues – By December 2011, the picture will still be pretty grim, with the unemployment rate stuck around 10 percent
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