Interesting Videoclips of the Week (March 18 – March 24, 2012)

• “when USCI (US Coincident Index) growth is in a downturn, it’s an authoritative indication that overall U.S. economic growth is actually worsening, not reviving…the growth rates of personal income and industrial production have dropped to their lowest readings since the spring of 2010“.

• “The employment data were affected by seasonal adjustments. It felt like March and February, okay? If you apply the March seasonal actors to February, employment would have declined”.

• “The bigger question is, can unprecedented, concerted global monetary policy action repeal the business cycle? The objective coincident and leading indexes that we have always monitored are still telling is that it cannot”. 

• “one has to be careful beating up Dave because Dave has an uncanny ability to be right when people think he is really stupid.”

• “I want to be in 30-Year [Treasury] Zero Coupon Bonds”.

• “The prospects for future returns in equities relative to bonds a
  re as good as they have been in a generation.”

• “it seems to me we’re right at the start of the system of big long term structural things improving for the U.S.”

• “The story I don’t think is new…Bonds have two components of return, they have their coupon and they also have their price change. If you look at total return of bonds up until…beginning of last week, they have outperformed stocks at almost every juncture, whether it is one-month all the way up to 30 years. They have actually been a very good investment.”

• “a lot of their [Goldman’s] call is really on the last page of their report which says you are going to have 10-year growth from 2010 to 2019 of 4.3% globally…the assumption of 4.3% growth to drive that [equity] call is really aggressive.”

• “After speaking with many senior Israeli leaders and chiefs of the military and the intelligence, I have come to believe that Israel will indeed strike Iran in 2012”.

• After interviewing many people with direct knowledge of internal government thinking,..I’m highly confident that Netanyahu isn’t bluffing – that he is in fact counting down to the day when he will authorize a strike against a half-dozen or more Iranian nuclear sites.
• One reason I’m now more convinced is that Netanyahu and Defense Minister Ehud Barak are working hard to convince other members of the Israeli cabinet that a strike might soon be necessary.

We confess we are just as excited as Jim Rogers about the opening of Myanmar. There is just so much history there and pristine natural beauty. The Free India Army marched in mid-1940s from South East Asia all across China through Burma to enter the northeastern states of India in the war against the British. And you know that any site of interest must have a Bollywood song. This 1949 song about Rangoon (now Yangoon) has become a cult song. For those who care, the You Tube clip is below:

Richard Bernstein and David Rosenberg were for years the strategist and economist at Merrill Lynch. They added tremendous value to client of Merrill Lynch during their tenure. It was a very smart idea to get them together in one segment. CNBC even played the Reunited & It Feels So Good at the beginning of the segment. They were interviewed by Steve Liesman and Kelly Evans, the new talent at CNBC.

• Liesman – Richard, you think has the American economy turned the corner here and have stocks fully priced in that turn?

• Bernstein – I think the corporate sector is starting to come under pressure. The last reporting period was kind of disappointing. Largest number of negative surprises since 2007. However, the household sector continues to improve. Is it good on an absolute basis? No way. But I think it continues to improve.….Dave was the one who  pointed out many years ago corporate profits in 2007 were the largest percentage of GDP ever. I think that was a very important insight.

• Liesman – David, the bearish call on the economy has not been the right one to date. Are you saying you’ve been early here and the worst is yet to come?.

• Rosenberg – I would argue on the premise,,,We went into last year believing we would have 3-4% growth. We had 3% growth in 2007 and we would hit escape velocity and even improve on that. Last year, the real GDP growth came in at 1.7%, about half of what the consensus thought. normally going into the full 2nd year of recovery, GDP growth is closer to 4-5%. ..If you want to take a big picture perspective, this goes down as the weakest economic recovery ever, despite all the ramp in government stimulus. That really tells you something.

• Liesman – ..in order for that argument to stand, you have to ignore the recent stuff. We had fourth quarter growth that was 3%. We’ve had several months in a row now of 200,000 plus growth, a pretty precipitous decline in the unemployment rate. So I wonder if you’re missing the current boat that’s leaving the dock here.

• Rosenberg – no, I’m not. I‘m basically doing what I do, which is dig beneath the veneer of the headline data, which makes for nice headlines. 3% growth in the fourth quarter, True. Two-third of that growth was just inventory. Real final sales were 1%. that’s very weak. In the first quarter, we’re coming off a January and February where the weather both months were 5 degrees above normal. That’s a 3-standard deviation event.…you had $30 billion of low are utility bills bring up cash flow for the household sector. So Rich is talking about the household fundamentals improving. well, you had basically a tax — a de facto tax cut for the personal sector that’s run its course. We haven’t seen $4 gas hit yet. The employment data were affected by seasonal adjustments. It felt like March and February, okay? If you apply the March seasonal actors to February, employment would have declined.

• Bernstein – I think this has been going on for two or three years. I think stock markets respond to better or worse, not the absolutes of good or bad. It hard to argue that the U.S. economy has not improved over past two or three years, even over the past year.

• Evans – …if we get data that says we’re losing momentum, we’re worried about year up, Asia, Global Growth slowing, do those negative surprises make it harder for stocks to keep climbing?

• Bernstein – In the short term of course. The next reporting period could be messy in my view. But as you look out and look at the US economy over the next year, two years, three years, is the US economy going to improve more or less than other economies around the world? I think it clearly more, that we are in the early stages of a long term period of U.S. asset outperformance.

• Liesman – how many jobs are because of the heat?

• Rosenberg – I would say over 40% of the jobs created was weather related. What’s productivity doing? It’s going negative...Output is lagging well behind. This is what we had to last year’s first quarter, Steve. we have four months in a row of private payrolls over 200,000, same sort of sentiment about escape velocity productivity was negative in the first quarter last year, corporate CEOs responded to that by curbing rehiring plans over the next six months. We are basically reliving what happened last year.

• Evans – Dave, I‘m curious how you express your views at this point? Do you like fixed income?

• Rosenberg – what started really performing last year is what I call safety and income investing – so I think dividend growth, dividend yield themes will claim leadership in my opinion. Corporate balance sheets, we know are in great shape. You still pick up what 500 basis points spread in the high yield market over Treasuries. That’s still a pretty good place to put money.

• Bernstein – I will just say, one has to be careful beating up Dave because Dave has an uncanny ability to be right when people think he is really stupid.

• Liesman – I just want to get your investment outlook. Do you think the market continues higher because of the outperformance of the United States to its recent past and to others around it.

• Bernstein – I think expectations for the United States among investors are extraordinarily low. If you see where expectations are high, they are in emerging markets.

• Liesman – where do you want to be Richard, if David is right?

• Bernstein –  I want to be in 30-year Zero coupon bonds.

• Liesman – I want to be under a desk (instant thought – does CNBC have that broad a desk? Sorry Steve).

This was a real interview.  Liesman & Evans are a pair who know their stuff. That made the interview fast paced and informative. Steve Liesman is a talent that doesn’t get the recognition he deserves, we think. But Liesman and Evans did not ask the key final question. They did not ask Rich Bernstein whether he owns 30-year Zero Coupon Bonds in his fund and managed accounts. We wish they had. Because that would have told us whether he believes in Rosenberg’s prediction or not.  

2. Start of Long Term Structural Improvement in US + China is Phenomenal – Jim O’Neill on CNBC Squawk Box – Wednesday March 21 

Jim O’Neill is the Chairman of Goldman Sachs Asset Management. He is of course the man who created the acronym BRIC. Here he takes a position that is directly opposite of both Richard Bernstein and David Rosenberg.  In other words, he is extremely bullish on BRIC/EM outperforming US-Europe and he is bullish on American economy, a believer in the escape velocity that Mr. Rosenberg referred to in clip 1 above. 

• O’Neill – … we find ourselves for the past period, particularly since August but on and off since ’08 with two key things about that. 
• one is we have low levels of real bond yield because many including policymakers don’t believe things can ever return to normal, and 
  
• the other one is we have people that don’t believe world growth can ever do better than it did at point x in the past. Being Mr. BRIC, in reality despite western problem the world’s economy growth rate is trending higher than it has been for the 30 years of my existence. all together it’s really bullish for equities.

• Kaminsky – Jim, good morning it’s Gary and I’ll say I was with Jim in early January and he was very bullish, very bullish in early January especially about US equity markets. Jim, let me ask you this.…if the S&P essentially flat lined or maybe traded off the rest of this year, under what circumstances do you foresee something like that possibly happening?
• O”Neill – well, I guess a couple of things. 
• one is, of course,…the economy loses the improving momentum it’s had. that is, of course possible but I don’t see that either.….it seems to me we’re right at the start of the system of big long term structural things improving for the U.S. I‘m not, you know, if that’s wrong, then that would be one of the thing. 
  
• the second thing is, of course, rising oil prices could cause at some point some pretty serious damage for the consumer,  and separately from both of those, 
  
• if the Fed suddenly changes its mind abruptly and have a huge quick rise in bond yields that would become a threat to the equity market. short of those things I’m not s
  ure. 

• Ross – it’s Wilbur Ross, given that everybody feels the bench rate is low on the historical basisand the next move will probably be upward why wouldn’t you focus on absolute returns available in equities rather than simply the relative returns compared to the artificially low treasuries?
• O”Neill – well, I do….. that’s why the case is so powerful. The current consensus for worldGDP growth is about 3.5%, the current consensus for the U.S. is closer to 2.%.  I think the recovery momentum in the U.S. is at least 2.5% moving possibly towards 3% and for the world, you know, I get more concerned from an absolute perspective if the market price is in a world of 4% or more which is where we are trending up. So it’s not just a relative thing it’s an absolute thing as well.
• O’Neill –  I’ve become fond of saying this year that China creates the equivalent of another Greece every 11 1/2 weeks. Guess what there is today their loss? 11.5 weeks into 2012. So today is the day that China has created since January another Greece. Who cares about Greece?…So long as Italy is supported and Italy does the right thing, people exaggerate still the global importance of all this stuff. Greece is a lovely country, wonderful people, have big influence on the world. But as an economy and its debt individually on its own it’s meaningless.
• O’Neill – I mean the structure of European Monetary Union has been shown to be flawed, and there are lots of issues that remain unresolved and not easy to resolve. Yeah, those things will bearound for probably considerable time in the future. But the idea that they are going to be the source of putting an end to the global bull market in equities I just don’t buy that at all.
• O’Neill – the whole reason why the world economy is trending higher is because of the BRICS. Even though China is clearly deliberately moving to a somewhat softer growth path, you know, as the place gets bigger, its impact on the world alone becomes more and more. We’re only three years off maximum, maybe two years before the 4 BRIC countries become bigger than the United States. These guys between them are driving the world economy. So they are the biggest global story, the next 11 you referred to involves a few of the countries that are also becoming more important such as Indonesia, Turkey, Korea, Mexico. if you put those 4 together with the BRICS, this decade, those eight will create double the amount of global GDP that Europe and the US will do put together. 
• O’Neill – last year, China went from 5.7 trillion to 7.3 trillion = 4 trillion in change in one year. Greece is 300 billion. so you take 300 billion into 4000, it’s 11.5 weeks. So China creates the economic equivalent of another Greece every 11.5 weeks. They are not far off creating half the United Kingdom these days every year. or 1/10th of euro every year. China thing is phenomenal. Even with it slower rates of growth itself. my opinion on that part it, I’m a bit of a mystery as to why people were freaked out when Premier comments of 7.5% growth. The Chinese latest five year plan which is now over 12 months old told us they were assuming 7% growth. that’s because the Chinese are deliberately focusing on the quality of growth and decidedsometime ago that the days of 10% plus growth were no longer persistently helpful to deal with their ongoing challenges.

Jim Rogers, the famous investor and lover of commodities through thick and thin, woke up early in Singapore to speak with the CNBC-FM crew, Anchor Melissa Lee, trader Guy Adami and guest trader Keith McCullough. We are glad he did.

• Lee – Jim, in terms of the pullback that we’ve seen most recently on these China concerns and they started before the HSBC PMI numbers were out today and started this week with the comments from that BHP executive about slowing iron ore demand. Where did you look to first take advantage of this pullback? 
• Rogers – Melissa, China has been trying to slow its economy down for three years. They have been trying to pop the real estate bubble for three years, so it’s finally bearing fruit, and I’m delighted to see it. They need to do that. It will be good for China, good for the world and it will present opportunities for all of us. I hope that the Chinese market collapses so I can buy Chinese shares.
• Lee – So at this point, you’re not using minor pullback because you’re anticipating a bigger one which will be a bigger buying opportunity in your view?
• Rogers – I certainly expect the world to have more of a slowdown in the next year or two and that will be an opportunity for all of us.
• McCullough – Jim, if you look forward and you see a potential sovereign debt crisis in Japan,  so think about Japanese yen down 10%, U.S. dollar up 10% from here. How do you think about risk managing your long commodities exposure in that environment?
• Rogers – Well, I usually try to have some shorts of something. I‘m long commodities. If the world economy gets better, commodities are going to do better because of shortages. If the world economy doesn’t get better, they are going to print money. It’s the wrong thing to do, but when they print money, you should own real assets, So what I will do is I will have shorts, probably in the stock market, to protect myself. I’m nearly always hedged one way or the other. For instance, right now I’m short emerging market stocks as a potential hedge.
• Adami – Jim, thanks for waking up so early. If the collapse in the Chinese shares come to fruition, my belief is that this whole run up shares is predicated on continued China growth. What does that mean for the U.S. stock market?
• Rogers – well, I’m very pessimistic about the U.S. stock market. Certainly, by the end of this year and into 2013 and 2014, it doesn’t even mean it won’t continue to rally this year. There’s an election this year. Obama wants to get re-elected. He’s doing everything he can to get re-elected, spending money, printing money, putting out good news, artificial or not, but later this year it’s all going to catch up with us. I happen to agree with you 100%. I’m really worried about 2013 and 2014.

At this point, CNBC-FM decided to make money and took a rather unnecessary break. In the process, they hyped up the next big opportunity Rogers sees. Every investor should learn from the investing discipline of Mr. Rogers – He is “nearly always hedged one way or the other”. Investing is always about risk-hedged reward and not based on hope. 
 

• Lee – Let us go directly to what you see as Asia’s best kept secret, Myanmar? How the heck do you invest on Myanmar?
• Rogers – well, Melissa, Myanmar, is an astonishing opportunity. 50 years ago, the richest country in Asia and now it is the poorest country because they were closed off. Now they are just opening up as China did 33,34 years ago. I find it wildly exciting. The problem though is that for Americans it is illegal to invest there. We live in the land of the free, Melissa and so we can’t invest where we want to. The rest of the world is pouring in there. There is nothing I can do right now except wait and watch and hope that the day they say you can invest I can jump in.
• Lee – You want to short long term US Government Bonds. Are you short right now?
• Rogers – Yeah, I shorted some yesterday. But Melissa, I hasten to tell you, my timing has not been very good in the bond market the last 2-3 years. So if I am doing it,  it is probably the wrong timing.
• Lee – And you have been long Gold & Silver for quite some time. You are advising people to wait for a pull back? what sort of pullback would attract you to add to your positions?
• Rogers – If Gold and Silver go down, again I am a bad market timer, if they go down, I will be buying more. If it goes under $1,600, I will buy a little. If it goes $1,500, I will go a little more. Who knows how low it can go? Gold has had big corrections during bull markets in the past, if it got down to $1,200 or $1,300, I hope I am smart enough to buy a lot more. That is not a prediction. I am just saying, if it happens, I hope I can jump in and buy a lot more. Because Gold is going to go much higher and silver too over the next decade. 

Recall that Jim Rogers advised CNBC viewers against buying Gold on November 29, 2011 (see clip 3 of Videoclips of November 28 – December 2, 2011 article) when it was fashionable to do so. Kudos also to Mr. Rogers for admitting he has been wrong on the bond market for the past few years. Just search for Rogers with this Blog’s advanced search function for evidence. Mr. Rogers does great service to CNBC;s viewers by pointing out his mistakes. Will Doug Kass follow his example and admit to his mistakes in advising CNBC viewers to short TLT or Treasury Bonds?

Mr. Kapito is the President of BlackRock, the largest asset management firms in the world. Here he reiterates the message that Larry Fink, BlackRock’s Chairman/CEO, has been sending since June 2011. Listen to the clip or read the summary article Trillions Could Rotate into Dividend Payers on CNBC.com. We include key excerpts below:

• $10 trillion is
  sitting in bank accounts – and at these low rates,” he
  says. Eventually he thinks people will grow tired of earning almost
  nothing on their savings. “If only 10% of that money comes out of banks –
  that’s $1 trillion that could go into the market
• Although he thinks commodities, real estate and MLP’s will all benefit, he’s particularly enthusiastic about dividend-payers.
  “We love the equity dividend story,” he says. “Companies are the
  beneficiary of low rates, so what are they doing, they’re raising
  dividends and buying back stock.”
• if you’re looking for individual names, “Merck, Pfizer, Verizon, and Johnson & Johnson are all yielding between 3-5%. There are  lots of opportunities,” he says.

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