Interesting Videoclips of the Week (February 27 – March 2, 2012)

• Kernen – I‘m not optimistic about,..Washington doing anything in the next year. Let’s say this sequester goes in and the Bush tax cuts expire. Is that a net positive if that were to happen for the deficit? Or do we absolutely need new legislation to figure out the tax system?
• Feldstein – I think that would be a terrible outcome and it’s not an outcome that I’m expecting. I think the economy is not strong enough to take that. I think what’s important is that after the election, the two parties get together and recognize they have to make some changes…. After the election, I think we’ll see compromise.
• Kernen – So you think we ought to reform taxes on both the individual and corporate level? that’s what we need?
• Feldstein – That’s certainly what I’ve been saying for years and it’s never been more true than it is today. Kernen – What do you make of the President’s plan to go to 28% and to go to 25% on manufacturing? Is that good start? Or just a political move before the election?
• Feldstein – Well taken by itself, it’s a move in the right direction. The trouble is, that he has combined it with penalizing companies that produce abroad, that are part of multinational U.S. corporations, that create jobs in the United States by having subsidiaries abroad that market their products. So he just didn’t get the message that every other country but the United States has what’s called a territorial tax system for its multiple national corporations  which gives them a real advantage over ours.
• Kernen – What should we do on the individual side of things?
• Feldstein – Well I think we need to take a hard look at the tax expenditures. Over the years, the Congress has decided that the way to spend money is to change the tax law and to build those incentives into the tax law for spending, 
  whether it’s for mortgage debt or for solar panels; you name it and they have found a way to use the tax law to spend money. So I think we’ve got to go after those tax expenditures. If we do that, we can bring down personal rates.
• Kernen – Who is right, Doctor, about how we increase what the government has to spend? Do we do it through pro growth initiatives that eventually the revenues go up? Or do we do it just simply from raising taxes?
• Feldstein – We want to get the growth up. And if we get the growth up, that will produce additional revenue. There are all kinds of spending programs, of the sort I just have been describing, spending programs that are built into the tax code. That we ought to be cutting back. If they were listed as, as outlays, there would be strong support from Republicans for cutting them back. Because they come through the tax code and raise revenue, there’s confusion about just what they are. But they are spending done through the tax code and we ought to cut that spending so we can bring down tax rates.
• Schwartz – Hi, Marty, it’s Allen Schwartz. Couldn’t we bring down rates on all side if we just basically eliminate, you know, really broaden the base and tried not to distinguish which behaviors the government would like to encourage and which discourage and let the market decide that? Couldn’t we get growth and revenue increases at the same time?
• Feldstein – Yes, absolutely. I think that’s what I meant when I said there are all of these so-called tax expenditures in the tax code, broaden the base, put a cap on those. Don’t let people have unlimited amounts of employer-financed health insurance or so many of the other things where as you say, the government is trying to manipulate the economy through tax incentives to increase spending on this or that. So we ought to get rid of some of those and cap others.
• Kernen – Put your MBA hat back on, what are we going to do this year on GDP? Do we need the Fed training wheels beyond to the extent that they’re on?
• Feldstein – I‘m concerned about the pace of activity this year….My personal view is that we’re not going to see the kind of 3% GDP growth that some people are calling for. I think we’ll be lucky if we have 2%. There are strong headwinds. It’s going to be hard to maintain Exports. Consumption got boosted last year because people cut their saving rate sharply. I don’t think that’s going to happen again. We’ve got higher oil prices. So it’s going to be a tough year. And being under 2%, which is where we were last year, I think is more likely then higher rates.
• Quick – Dr. Feldstein, does that put you in consensus with the Fed, which is now saying we shouldn’t expect to see higher interest rates until 2014?
• Feldstein – 2014 to me is a long way off in the future. I don’t read the Fed’s message as a commitment. to keep them that low. I think they’re saying if necessary, they would keep them that low. That’s okay. But it will be a big mistake to say that no matter what happens in the economy, we’re going to keep short-term rates close to 0.
• Kernen – Are we really at 8.3% on unemployment? Have we been making strides? or do the people that talk about participation rate, are they on to something? 
• Feldstein – They sure are. That is over the last year, the unemployment rate has come down by more than a full percentage point. But about half of that is because people have stopped looking for work or haven’t even started looking for work. Young people coming out of school and saying well, no point in looking for a job, I’ll continue in school. So we haven’t seen the improvements in the labor market that the unemployment rate suggests.
• Kernen – Do you see anything at this point, Doctor, on to worry about on the inflation front? I mean oil is eventually filters into everything, but the Fed’s okay there, aren’t they?
• Feldstein – I don’t see any short-term inflation problems. By short-term, I mean this year, next year. It’s hard to believe that in this economy, we’re going to see significant inflation problems. But I think further down the road, the Fed going to have to find ways of unwinding its very large balance sheet without allowing that to turn into inflation.
• Kernen – What about China or Europe? Anything thaw want to weigh in on either area?
• Feldstein – Well, Europe. There isn’t a Europe. There are a bunch of different countries in very different economic
  positions. Greece is a basket case. They’ve now just about formally defaulted. I think they will make that a formal default, we will see the credit default swaps triggered. I think Greece would be better off, the rest of Europe would be better off, if Greece just took a leave of absence and said — we’ve got to go back to the Drachma, we’ve got to fix our economy, we’ve got to devalue and we’ll see whether we can be back into the Euro a few years from now. For the rest of Europe, things are going much better than some of the pessimists thought just a few months ago and you see that in what’s happened to the interest rates on Italian bonds, and on Spanish bonds. They’ve come down from 7%-plus, down into the mid 5’s. So I think those countries are making progress. and I think it’s important for that to be recognized, instead of being lumped in with Greece.
• Kernen – Are there ten countries in Europe that can have the same currency and the same interest rates and behave themselves? Could you count ten?
• Feldstein – Well, they can do it, but they’re going to pay a price for it. I mean, I’ve been saying that since they first started talking about the euro. That if you try to squeeze 10 or 17 heterogeneous countries into the same currency, you’ll find things you don’t like. Lots of sun, nobody is working.
• Schwartz – some people are beginning to say, you know, obviously credit crisis in the past have been dealt with through devaluation, this isn’t available to some of these weaker countries. Some people are saying they’re seeing signs like out of Italy that will finally underline some of their problems, do you think that’s possible, long-term?
• Feldstein – Certainly is. I mean Italy is in many ways a vibrant economy. Again, they really are two Italys, There’s northern Italy, a big exporting, manufacturing, vibrant economy. And there’s the area south of Rome, which is in a different world. It’s like a microcosm of what we’re talking about.
• Kernen – My last question, so there’s all of these structural problems that Italy has and that Europe has with labor and you know, they’re well documented how they sort of got off-track. are they learning a lesson and headed back the other way as we’re moving towards them, in your view?
• Feldstein – I hope we’re not moving towards them. Although from time to time it sure looks like this administration is pushing us in that direction. I think the Italians are learning that lesson. When Mario Monti was appointed as prime minister, he said look, the pension system in this country is just too expensive. We’ve got to slow it down. We’re going to have delays in retirement. We’re going to have a change in the inflation indexing and the public accepted it. There was one three-hou
  r strike. Well, for Italy, that’s hardly anything. So it was clear recognition on the part of the public that changes need to be made to keep the Debt-to-GDP ratio, the government Debt-to-GDP ratio from rising. And to turn it down. they’re going to be on a course over the next four to five years that will bring the ratio down.

Louise Yamada is a widely respected technician. Unlike many, she does not focus on daily, weekly or short term movements but instead makes long term calls. Here she takes pains to explain her views in detail to BTV’s Tom Keene.

• …at this point, we have positive signs for the Dow, the S&P,…, the Nasdaq. So we suspect that any pullback or pause here should be one that refreshes.
•  where we saw monthly sell signals come into play almost a year ago, which kept us cautious first on the emerging markets, and then on the US, now we are beginning to see the emergence of the long term buy signals.
• There is not just one thing. We want to see a progression of pluses coming to the fore…. We are not daytraders. We try and establish what some of the structural trends are out there, so people can start  to position in them.
•  the Nasdaq is finally picking up. You had a 10-year breakout here which is very exciting. In the terms of technology, the relative strength actually broke out of a 6-7 years range..back in 2009.
  
• In terms of the Nasdaq 100, Apple is about 16% of it. What is starting to come to the fore in terms of the Nasdaq breakout, you are seeing some of the heretofore dead issues like Microsoft, Intel come to the fore and they have a significant weighting too…plus the bases we are seeing in a lot of technology names from pullbacks to breakouts that offer the opportunity to buy on weakness
• the other ratio we watch is emerging to developed nations ratio and that had a long term uptrend of emerging outperformance but it looked like a top for awhile, looked as though may be you are going to see a breakdown towards the developed, but right now we think you are going to see it play in the neutral range and by the end of 2012 you will be coming into that long term uptrend, then you have to make a decision — we suspect we go back to an outperformance of the emerging,,we shall see
•  I would be long Microsoft, absolutely . You have a nice 3-4 year breakout that has just taken place, a little farther you will perhaps exceed that other peak
•  Intel…..has broken out of a much longer base so that’s actually looks like the Nasdaq itself. It is one that is initiating, definitely if you want to buy something at the initiation stage.

Jordan Kotick of Barclays Capital has been featured in these articles on several occasions. He is succinct in his comments and thoughtful in his comments.

• Kotick – We’ve had a tremendous run in January and February. In March and April we look for the market to exhale and take a bit of a pregnant pause. The Emerging Markets stand out to us. If you look at January and February, they’re strong. But once we get into March, that tends to be when the markets do start to under-perform a bit…..It’s been a tremendous year for most of these markets – 18, 14, 12, 10%… March is the seasonal time when money tends to come off the table in the end space. In America, quarter end is the end of March. Tax deadlines are in April. The seasonal back drop supports that.
• Bartiromo – Let’s take a look at the internals, Jordan. We’re constantly looking at the AD line and volume. What does that tell you?
• Kotick – I was taught internals are everything with the stock market. What we’re starting to see is a tremendous run higher, and it’s still bullish this year but we re stating to get to levels; (points to the chart on the screen) this is a percentage of stocks above the 200-day on the Nasdaq. This is the advance decline line. As you can see here, we’re starting to get levels right up where the market has paused. The internals are supportive but we’re starting to get to levels where historically, the market has paused, too far, too soon. Fitting with the seasonal back drop, that maybe we just need to pause for a month or two and catch our breath.
• Bartiromo – I‘ve been astounded at some of these valuations in technology. a lot of people saying that, sure, the Nasdaq is the winner on the year. but let’s not forget that you’re talking about nine, ten, 11 times earnings which is lower than the broader market. You’re bullish on tech as well as banking. Talk about that and what about housing?
• Kotick – biggest sectors we like this year have been tech and banking and energy. We like all of them this year. But in the background we want to keep an eye on housing, because it’s not on too many people’s radar. The housing market has been outperforming the broad market since 2011. Now the housing index, which has been in a range now for the better part of two years, is not far from breaking above the top of the range. So we’ve had out-performance in housing, the housing stocks are doing well, they’re coming up to the top end of a three-year range where we expect it to pause and stutter step. But in the back half of the year, if we’re right about keeping the bullish focus, banking, technology and energy, and housing, simply a position people don’t have.
• Bartiromo – Oil moving to $110 a barrel in the extended hours. What do the charts say?
• Kotick – Energy’s our favorite sector this year. While the market consolidates in March and April, we think energy goes higher. It will be heating oil. The market cannot sit down, even when you had a chance to decline the best the market can do is go sideways. When you go sideways when you have an upside trend, it speaks to the underlying bid in the market. while we should have a corrective activity and a choppy tone in March and April. Rbob, heating oil, even natural gas we’re looking to bottom out, Brent, WTI, We think there is a lot of upside throughout most of the year for energy.

6. A $300,000 bribe in Moscow – Steve Liesman on CNBC Fast Money Half Time Report (05:54 minute clip) – Thursday, March 1

The most interesting comment we heard was about Russia’s corruption, level of government corruption that even President Medvedev said was out of control. Then Steve gave us a real case:

• I
  visited a couple of guys I knew when I was living here. They tell me
  the corruption story which was big back then is off the charts now…
  one guy I know was putting on a multimillion dollar international trade
  show, he was threatened to be shut down a couple of days before it
  started by a fire inspector asking for a bribe.. the amount of the
  bribe  asked by the fore inspector – $300,000.

And they say New York is corrupt.

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