Editor’s Note:
In this series of articles, we include important or interesting
videoclips with our comments. 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.
1. Insanity Now but Serenity Later?
The title is, of course, is a paraphrase from the famous line & episode of “Seinfeld”. Characters in that episode loudly repeat the “Serenity Now” phrase to curb their anger at seemingly simple or even trivial things. It works for awhile and then the suppressed anger bursts forth in an outburst of insane rage, a condition that completes the phrase “Serenity Now, Insanity Later”.
We were reminded of this phrase when CNBC’s “brain”, otherwise known as David Faber, reacted to the Sequester with typical left-of-center name calling against America’s tendency to fight rather than settle political differences. People like David Faber feel ashamed about what they see as America’s sorry spectacle before the world. They would rather choose the “Serenity Now” approach.
We don’t. We prefer the insanity now approach, the one that has led to the Sequester. President Obama & his party have a completely different view of Debt & Deficits than the House Republicans do. There is no way to bridge this chasm. So we get a fight, a sensibly fought fight in this case. From a political angle, the Republicans trumped Obama in the poker game, as Michael Novogratz of Fortress put in on Thursday (see clip 1 below). They proved the wisdom of the tactical retreat engineered by Senator McConnell on January 2, 2013.
The Sequester is a skirmish, an engagement. Who wins the battle will depend on how the American people react over the next few months. If the American people take these cuts in stride, then spending cuts will be the now movement. If not, we go the other way. This continues until the November 2014 election.
Regardless of what happens, America will have cut at least $3 trillion plus in actually planned cuts. No other country is even in this ballpark. A lower trajectory of debt is why America, in our opinion, will lead the world in the next ten years.
This is how “Insanity Now” will lead to “Serenity Later”.
2. Sequestration, U.S. Economy, and the U.S. Dollar
We will let the words of Stanley Druckenmiller describe the impact of Sequestration on the U.S. Economy (see clip 6 below):
- “it’s just a
little ridiculous to say a $600 billion tax increase over ten years and
$150 billion increase in the payroll tax is going to have no affect on
the economy. But an $85 billion cut in discretionary spending is going
to tank the economy? If the economy were to soften, I can tell you it
won’t be because it will not be because of this $85 billion.”
Regarding the impact on the U.S. Dollar, we quote David Woo of BAC-Merrill Lynch (see clip 3 below):
- “If they implement
the sequester, its going to be very good for the Dollar. It will be
better for the budget deficit as well as the current account deficit.”
In contrast, we see the British pound going downhill, the Australian Dollar weakening steadily and the Euro/USD threatening to break 1.30. And commodities seem to be in an inexorable downtrend. Is that a sign of continued Dollar strength or a deflationary signal or both?
3. U.S. Treasuries
With a large tax increase, a payroll tax increase and now spending cuts, should interest rates be going up? This week the bond market said No. The yields on the 30-year & 10-year Treasuries dropped 9 bps & 11bps resp. to 3.06% and 1.85%. Kudos to Holly Liss of ABN Amro who said last week on BTV Street Smart:
- if stocks fall and yields move
lower because sequestration impacts us then yields go to 1.80% very
quickly…1st support level…you could clearly go much lower if you see sequestration really hit hard”.
How low could the 10-year yield fall? David Woo of BAC-Merrill Lynch answered this week on BTV Street Smart (see clip 3 below):
- “We think we can actually retest 1.60% (in the 10-year yield), sometime in the next 4-6 weeks.”
This forecast assumes that the markets will factor in a consumer slowdown in March-April. With the largest one-month drop in 20 years in personal income and a steep drop in the personal savings rate, a slowdown might be an even-money bet at least.
4. U.S. Stock Market – “lone man standing“?
When a strategist, one praised normally for his correct bullish call, changes his mind, we take notice, serious notice. The strategist we refer to is Tom Lee of JP Morgan. In what he called “a short-term tactical call“, Tom Lee told CNBC Fast Money (see clip 2 below):
- “We are starting to feel that equities are the lone man standing.
- If you have fresh money to put in, we would rather put it in at 1450 rather than at 1515.”
Mark Newton of Greywolf Execution also sees signs of momentum deterioration and feels S&P cash could test 1475 (see clip 5 below). We are disappointed in Mark Newton because he did not follow up on his tweet of Friday, February 22 – “Grinding rally over next couple Trad days to 1517-SPX & close next
Fri over 1513.17 would satisfy both Daily, Weekly SPX Demark
requirements.”
Both the conditions were satisfied this week. So have Daily, Weekly DeMark requirements been satisfied? Mr. Newton has remained quiet on this score. May be this is a trait of DeMark followers and not only of Mr. DeMark.
An excellent summation of the week came from Lawrence McMillan of Option Strategist on Friday:
- “The quiet sleep-walking phase of the market seems to have ended, although that doesn’t mean that the bulls have relinquished control.”
- “Market breadth indicators rolled over to sell signals with last week’s decline, but those signals have since been canceled out by the strong rally this week.”
- “$VIX exploded from 12 to 19 in just a few days, and then fell back to almost 14. That spike peak in $VIX was a buy signal for stocks.”
- “In summary, the bears may have dropped the ball this week, but they are likely to get another chance very soon.”
Tom McClellan discussed the correlation between the Euro/Yen Cross Rate & the S&P 500 in his article this week:.
- “That divergence, with the euro/yen cross making a lower high and the SP500 making a higher high, was a big sign of the trouble that is just now coming around to the stock market. And even though the SP500 was knocked down pretty hard in February, it appears to be trying to get back up off the mat.”
- “The euro/yen cross rate does not offer any hope that the SP500’s recovery effort will be successful. The stock market might still ignore that message, as there is no guarantee that the euro/yen cross rate has to be “right” this time. But there is considerable historical evidence that when they disagree, it is more often the euro/yen cross rate that knows the real story.”
Another important divergence was discussed by Jeff DeGraff on CNBC Futures Now (see clip 4 below):
- “A pretty clear message over the past 4 years – bond yields higher, market higher; bond yields lower, market lower. and most of the time when bond yields contract, it has been because there has been a withdrawal of stimulus or QE”,
- the divergence that has developed in the last 3 days is an important one; we have had this week a pretty significant decline in the 10-year yields and last 3 days the market has rallied pretty briskly..and yields have stayed relatively stable.
- An important part of our thesis for breaking out through 1530 and having a healthy leg of this ongoing uptrend is having the confirmation from 10-year yields going higher, not lower.
5. Druckenmiller on BTV vs. Tepper on CNBC!
Over 99.9% of gurus, strategists, investors are eager to appear on Financial TV because it provides them national exposure and free advertising. Then there is the very rare echelon that does not need exposure or publicity, that rare echelon of the best of the best hedge fund managers who actually shun exposure on Financial TV. When they choose to appear on Financial TV or give interviews, they do so because they have a higher message they want to convey to society.
Two such managers are Stanley Druckenmiller and David Tepper. This week, Stanley Druckenmiller granted a long, extensive interview to BTV’s Stephanie Ruhle mainly to talk about his deep concern about the risk to America from the demographic-entitlement bubble. David Tepper came on CNBC in September 2010 mainly to talk about the work he was doing in the non-profit area for the needy. CNBC’s Joe Kernen admitted this fact in that September 2010 session with David Tepper.
These interviews test the skill of the TV anchor. These are sort of an exchange of favors – the platform & audience provided by the TV anchor to the guest in exchange for investment analysis & insight from the guest for the viewers of the TV show.
Think back to the David Tepper appearance on CNBC Squawk Box on September 24, 2010. Recall what Joe Kernen and his colleagues got out of David Tepper (clip 1 of Sept 19 – Sept 25 videoclips):
- “EITHER THE ECONOMY IS GOING TO GET BETTER BY ITSELF IN THE NEXT THREE MONTHS AND WHAT ASSETS ARE GOING TO DO WELL? YOU CAN GUESS THE ASSETS. STOCKS ARE GOING TO DO WELL. BONDS WON’T DO SO WELL. GOLD WON’T DO AS WELL. OR THE ECONOMY IS THE NOT GOING TO PICK UP IN THE NEXT THREE MONTHS AND THE FED IS GOING TO COME IN WITH QE. THEN WHAT’S GOING TO DO WELL? EVERYTHING. IN THE NEAR TERM. EVERYTHING.”
This created what we were the first to call & print as The Tepper Corollary – buy stocks if the data comes in strong and buy stocks if the data comes in weak because the Fed will do QE. This one single interview set the investment direction for the rest of 2010. This was a major coup for CNBC Squawk Box.
Similarly this week’s Stanley Druckenmiller interview by Stephanie Ruhle was a major coup for both Ms. Ruhle and BTV. They released it in small segments all day on Friday. Ms. Ruhle appeared in virtually every single BTV show to talk about the interview. Kudos to Ms. Ruhle.
Now compare her Druckenmiller interview with the David Tepper interview by Joe Kernen & Co. Read the detailed summary provided by Bloomberg TV PR in clip 6 below. You can see that Stephanie Ruhle got virtually nothing from Druckenmiller about the macro landscape, nothing about how he is invested and absolutely nothing about what opportunities he sees in either stocks, bonds or currencies. Ms. Ruhle is a bond expert. Why didn’t she ask him about direction of interest rates, about narrow credit spreads, about emerging markets debt vs. US high yield? She asked nothing and got nothing.
This was her Superbowl. She seemed so thrilled to be just in the game that she forgot to try to win it. In contrast, Joe Kernen played his game with David Tepper to win and he won huge. There may be another aspect to how Ms. Ruhle conducted the interview. She used to a saleswoman, an elite relationship manager at Deutsche Bank. Her job was to keep her DB’s biggest customers happy and satisfied with her Firm. Watch her interview with Mr. Druckenmiller and you will see her behave exactly as a saleswoman does. You will see that Stanley Druckenmiller enjoyed speaking with her. She is a superb saleswoman indeed.
But that is not her job at BTV. Ms Ruhle does not understand that her “customers” are viewers like us and not hedge fund managers like Mr. Druckenmiller. She wins only when she gets something from her guests for us, something that helps her viewers . This is why Stephanie Ruhle lost her game with Druckenmiller while Joe Kernen not only won his game with Tepper but won the
MVP trophy for that game.
We praised Stephanie Ruhle in our Macro Viewpoints 2012 Awards article. We tend to hold those we praise to high standards and our critique of Ms. Ruhle’s performance is an example of our high standards. We still think she has been a sensational hire for BTV but we also think she still acts more as a saleswoman than as a journalist.
Featured Videoclips:
- Michael Novogratz on CNBC Squawk Box on Thursday, February 28, 2012
- Tom Lee on CNBC Fast Money on Thursday, February 28
- David Woo on BTV Street Smart on Thursday, February 28
- Jeff DeGraff on CNBC Futures Now on CNBC Futures Now on Thursday, February 28
- Mark Newton on CNBC SOTS on Thursday, February 28
- Stanley Druckenmiller with BTV’s Stephanie Ruhle on Friday, March 1
1. Staying Long Risk – Michael Novogratz on CNBC Squawk Box – Thursday, February 28, 2013
Michael Novogratz is the President & Director of the $53 billion Fortress Group.
Fed Minutes & QE Exit
- You mess up by thinking anyone else is important at the Fed other than Bernanke, Yellen & Dudley. So when you read the minutes and you see all people worrying about exit and whether the growth of the balance sheet problematic – those three don’t think so. And what always happens is, you get comments from other Fed members, people get nervous that it is about to change and then the Chairman or his two acolytes bring things right back….
- [buying on dips created by such talk] is 100% the right mindset.. when you read these guys, they believe we are at low rates for a long long time; they think if they are wrong and the economy does accelerate, if we get credit growth then they raise the interest they charge on excess reserves and they don’t even need to sell all the assets they hold on their balance sheet.
Staying Long Risk
- you don’t fight the fed in this environment. you want to stay long risk…. I run the macro fund there so we try to be very agile. but we’ve been buying into any weakness. you know, we’ve had big bets in Japan, as well, so that’s been the bigger focus.
Italian Election
- I think the Italian thing was worrisome. It created a decent sell-off, and it’s probably to be bought into, in that you’re going to have no real change in government now for six to nine months. So positive progress but no real negative progress. …. Italy’s got a self-regulating mechanism on the deficit. their real problem wasn’t fiscal. it was reform. so the reform agenda has gotten put off for at least a year. so that’s not a positive. but it’s not a huge negative.
Great Rotation & Equity Bubble
- all right. so, again, there’s so much liquidity in the world. people are stretching for yield. we continue to hear this idea of the great rotation- out of fixed income and into equities. we haven’t seen any indication people are leaving the bond funds.
- ..when we started our hedge fund in 2002, the cover of Barron’s was the housing bubble. five years later the housing bubble popped. this idea we’re in a credit bubble, we don’t see great value in credit but I think credit will be rich and stay rich for a long time and that’s going to drive money into equities.
Sequester
- in the short run, certainly [care about the sequester]. I do think fiscal is going to be a boogeyman this year…but we’re not really going to have to worry.
- when I think about the big picture, the grand bargain was $4 trillion. if we could get to $4 trillion. that was going to bend the curve and we were going to be okay. we’re going to get to 2.5 to 2.7 trillion. growth was a little better than expected.
- If you look at the ten-year forecast which everyone talks about, you know, Debt-to-GDP stays around 80% and doesn’t get any worse. In a world with reserve currency, that’s fine.
- the dirty secret is looking at year 11 to 20, when the hockey stick goes straight up. no one talks about that. the markets don’t look that far ahead.
- Listen in the short run, I think the Republicans are going to finally, you know, trump Obama in the poker game. I think we’re going to push through the sequester, they’re going to be tough, .
Buying in Europe
- I am buying Italian & Spanish bonds every time they sell off. The ECB, the day before the Olympics started, came out and said we are going to buy these bonds if they sell off and so they gave you a put to the market. And so every time they sell off, they seem to be a pretty easy place to put capital. And when they rally, Spanish, Italian European banks are going to rally. So I am bullish…Everyone worries about we are going to have social unrest
, in Greece the single worst place you never had looting, you had a couple of protests but no real destruction. I was just in Spain; it doesn’t feel like a country on verge of …
2. Put new money in at 1450 than at 1515 – Tom Lee on CNBC Fast Money – Thursday, February 28
- I think it’s really been a constellation of factors that are getting us nervous.
- the cyclicals have been underperforming since January,
- …you’re going to be facing headwinds in the next couple of weeks from higher gasoline, just the under known effects of the payroll tax.
- and there could be some fear mongering related to sequestration.
- and the last thing I point out, credit which has been such a big part of our bull call has been acting in a mixed fashion the last couple of weeks... We are starting to feel that equities are the lone man standing.
- I think in a way, you know, the big picture for us is, we’re bullish. We think we’re in a secular bull market but we want to defer purchases until the index levels come in or the market starts to act broader.
- we like to look at this chart. this is hedge fund beta. it’s measuring the tracking area of a group of hedge funds against the S&P. And the reason we like to look at it is, we think hedge funds are the incremental buyer for the market. And as you can see, when you get to near this dashed green line, it occurs around market peaks. and so what we’ve been watching is this recent thing has spiked, yeah, and we’re getting nervous. we would sell in front of that peak.
- well, this time series actually is five years. we’ve been using this among several indicators as a constellation, when we get a cluster of these signals is when we get cautious or sideline on the market and actually we got that level last week.
- this is a tactical short-term call, okay... We think hedge funds are very predictive. So, when it’s at the low, when that beta is low, markets actually rise. The problem is, when it rises to the dash line, it means hedge funds are basically all in.
- and, yes, we want to be dip buyers. If you have fresh money to put in, we would rather put it in at 1450 rather than at 1515.
- I think you still want to be overweight equities all year. Buy the cyclicals on dips... The one group that’s really lagged has been basic materials. Actually historically, a great fifth-year sector to own. But the global data has been kind of mixed and China’s been weak…
- if you’re a dip buyer, you want to be buying individual stock dips. I think one of the great themes this year has been M&A. I was just at our high yield conference this week and one of the interesting stories is, issuers feel comfortable with the debt market. they are doing more things for equity holders right now.
3. 10-year yields to retest 1.60% & US Dollar to rise – David Woo on BTV Street Smart – Thursday, February 28
David Woo is the Head of Interest Rates at BAC-Merrill Lynch.
Treasury Yields:
- We think we can actually retest 1.60% (in the 10-year yield), sometime in the next 4-6 weeks.
- There is a lag effect (in consumer spending slowdown) that is waiting to happen. As we go into in late February-March, you will see a sharper slowdown. A lot of people have seen such a slow down but they are basically making excuses for it because of delay in the tax refund.
- But I think as we go into March, if the data persists to be on the weak side, I think the market will have to basically capitulate and that will be the reason for a risk-off move that will send Treasury yields lower.
US Dollar
- There are two reasons why we like the Dollar:
- If they implement the sequester, its going to be very good for the Dollar. It will be better for the budget deficit as well as the current account deficit.
- 2nd reason is Energy Independence. If you look at US Petroleum trade deficit, it is now at the lowest level since 2004 when oil prices were $40 a barrel. The fact is USA is on track to pump another 800,000 barrels this year .
- I think you are talking about smaller budget deficits, stronger growth, positive trade – all these good things – that’s very supportive for the US Dollar. Especially against currencies like Canadian Dollar.
4. divergence between stocks and interest rates – Jeff DeGraff on CNBC Futures Now – Thursday, February 28
Jeff DeGraff is a well known technician with Renaissance Macro Research.
- It lasts until they take QE off the table and the economy doesn’t need it any longer. A pretty c
lear message over the past 4 years – bond yields higher, market higher; bond yields lower, market lower. and most of the time when bond yields contract, it has been because there has been a withdrawal of stimulus or QE, - the divergence that has developed in the last 3 days is an important one; we have had this week a pretty significant decline in the 10-year yields and last 3 days the market has rallied pretty briskly..and yields have stayed relatively stable.
- An important part of our thesis for breaking out through 1530 and having a healthy leg of this ongoing uptrend is having the confirmation from 10-year yields going higher, not lower. So if we get up to 1530-1550 which is our valuation target and yields are still below 2%, I think you are in the latter stages of this move…
- from the breakout since 1470 which we took out in the 1st part of the year, we are talking about a technical count of somewhere around 1590…our valuation work right now is closer to 1550 by June and earnings do what we expect them to do, that is come down…then you take some off the table.. right now the level is 1550, and 1590 is closer to the end of the year….
5. Signs of S&P peaking out – Mark Newton on CNBC SOTS – Thursday, February 28
Mark Newton is the Chief Market Technician at Greywolf Execution Partners. The interview began with anchor Melissa Lee pointing out that the Dow is close to new all time highs while S&P 500, Nasdaq and Russell have made lower highs. She asked Mark Newton if that was a concern.
- still a little bit of a concern. Look, the Dow yesterday made highs, the Nasdaq and S & P did not.…that is going to continue to be a concern, in regards to what we call inter market divergence, not all indices hitting the thighs same time.
- the last couple of days, the S & P has shown signs of peaking out. It got to 1525 and pulled back. My thinking is a short term is still a big issue. We could actually pull back to levels near 1475 regards to S&P cash, 1450 regards to the S&P future, those are levels on the downside. Those would still be within the broader uptrend since November So a sell off would provide a better buying opportunity in short run.. That’s the downside.
- On the upside, 1525 to 30 is very important. If the S & P gets above 1530, it is likely to challenge its own 2007 highs, near 1576.
Lee asked and Newton replied that he does like the longer term price action.
- mostly just short-term concerns only. A lot of it is in regards to momentum deterioration. Last week, we broke down in serious volume and breadth, more negative. Regardless of this new “don’t fight the Fed mentality“, the rally yesterday did not help us to get back a lot of what’s been done.
- you see this trend line from the last month, that really was broken last week. We have had a series of lower highs, now up near 1520. Regards to S & P futures, that’s a key level in the short term. Momentum right now is negative on a short-term basis, you have the inter-market divergence, you have a huge run-up in sentiment the last couple of months,
- They (sentiment indicators) all follow price action. The S & P is up 12% since last November’s lows, as expected, sentiment gradually followed this move up to new high territory. Now we have a number of different indices all near former highs, the U.S. is starting to play catch up with what’s happening in Europe. Europe peaked in late January. We saw China one of the biggest declines in the last few weeks. S & P finally showing signs of deterioration,
- Not all the stocks are following this move to new highs, seen deterioration in technology and materials, those under constant pressure. market up 7% this year but largely defensively lagged. consumer staple, health care, a big move in utility, the last week, by and large, a lot of the sectors have made their moves, like financials, up record highs. important to be selective at this stage…
6. “I don’t believe equities are cheap” – Stanley Druckenmiller with BTV’s Stephanie Ruhle – Friday, March 1
If you have not heard of Stanley Druckenmiller, then you probably are not familiar with global macro investing. Mr. Druckenmiller is probably the 2nd most well known macro investor after George Soros, the man with whom he worked before starting Duquesne. Suffice it to say, when Mr. Druckenmiller speaks, everyone listens. Unfortunately, Mr. Druckenmiller only speaks loudly what he wants listeners to hear. That is why it is incumbent on the interviewer to get him to talk about investing ideas. Alas, Stephanie Ruhle failed in this regard in this interview.
The detailed summary below is courtesy of Bloomberg TV PR.
Druckenmiller on why he’s speaking out now:
- “I see a storm coming, maybe bigger than the storm we had in 2008, 2010. And really, the reason could happen without people looking as for a lot of similar reasons that we could get into. But the basic the basic story is, the demographic bubble I was looking at way back in ’94 that started in 2011, we are right at the first ramp-up of this thing that is about to hit.”
On U.S. demographics
:
- “Something remarkable has occurred since 1994 until now, which is entitlement spending, or let me say transfer payments to be a little more correct. Transfer payments which were 28% in ’60, and were 50% when we were in the budget mess in ’94. Lo and behold, they’ve gone up to 67% of government outlays. But they haven’t gone up because of demographics. They’ve gone up because the seniors have a very, very powerful lobby. They keep getting more and more transfer payments from the youth. But the demographic storm is just starting now. It reminds me of ’05 when people just extrapolated housing prices going up for 50 years…Everyone sorta lives with their rulers in the past and doesn’t look at coming changes. So what’s going to happen is we now have a working population, this is the way entitlements work, where the current workforce is paying for the benefits of the seniors. And since 2000, we’ve had about 4.5 to 4.8 workers for every retiree. By 2050, that number will drop to 2.4 workers per retiree. Another catchy way to say it is by 2030, the average population of the United States is gonna be older than the average Floridian right now.”
On who is going to stop seniors from stealing from the next generation:
- “You asked me why I’m here. And I think people like me and others need to speak out. It’s about the future, not about the present where the problem is. And let me just say one thing. I am not against seniors, okay. I love seniors. Unfortunately I’m going to be one in the not-too-distant futures. What I am against is current seniors to me stealing from future seniors.”
On who should be blamed for hurting the economy:
- “It’s hard to tell who’s going to be blamed– if we don’t act and this occurs…There’s plenty of blame to go around. If I had to analyze how do we get into the financial crisis, I would say it started way back in the ’90s when then-Chairman Greenspan refused to address the dot-com bubble, came up with some new theory of productivity and therefore we’re not going to have a problem, so all these NASDAQ companies who were never going to earn money went to hundreds-of-times earnings and then of course, we had a major bust. And instead of taking a recession and having the cleanup…they needed an offset. So they created the housing bubble. So now by hindsight, everybody says, ‘Well, you had these horrible Wall Street actors,’ and I’m sure there were quite a few horrible Wall Street actors. And I don’t doubt that they were part of the problem. In fact, I know they were part of the problem. But I also know it was negative real interest rates for 12 outta 20 years that enabled these actors to do the things they were doing and incented, yes, incented them to go out and gamble the way they were gambling.”
On gridlock in Washington:
- “I’m pretty frustrated. This sequester thing– if you just look at how it came about, first of all, every five minutes all the suffering and all this horrible stuff is going to happen in various sectors if this goes through. But there’s three things that are not on the table in the sequester. I know you’re gonna be shocked by this. Medicare, social security and Medicaid, okay.”
On why Medicare, Medicaid and Social Security are not on the table:
- “I’m sure it’s because of short-term politics. The problem with politicians is, they really only do have a four-year life cycle. The rest of us should have the responsibility to look a little further than that ahead. But yeah, I don’t know whether ‘mad’ is the word. I’m extremely frustrated by their refusal to deal with this problem. And the sequester thing, I think the president made a deal. It was a deal so they would extend the debt ceiling, which they did, all right. I am very much for tax reform. But I don’t think it should be part of this particular thing and we should be parading out the crowd we’d been parading about to say how horrible this is going to affect the economy. Let me tell ya, I don’t know what the economy’s going to do. But it’s just a little ridiculous to say a $600 billion tax increase over ten years and $150 billion increase in the payroll tax is going to have no affect on the economy. But an $85 billion cut in discretionary spending is going to tank the economy? If the economy were to soften, I can tell you it won’t be because it will not be because of this $85 billion.”
On equities vs. bonds:
- “One of the things that is kinda one of my pet peeves is hearing all these people on TV say, ‘Well, you gotta go into equities ’cause they’re so cheap relative to bonds and there’s no other game in town.’ They are cheap relative to bonds. But everything is cheap relative to bonds…So just because equities are cheap relative to bonds doesn’t mean their price isn’t subsidized. I’m not making a forecast here because the subsidization could go on for a long time. But real estate, gold, equities, they’re all priced off of ZIRP, zero interest rates, and they’re all subsidized.“
On whether the hedge fund industry could be in hot water 12-24 months from now and become even further consolidated:
- “Oh, I don’t know. I think the hedge fund’s short-term thinking is just a manifestation of our entire society. Whether it’s the fed or whether it’s– the administration or whether it’s Congress, no one bothers to think about the long term anymore. And the hedge funds are just one more manifestation of that.”
On where investors should put their money right now:
- “That’s hard for me to answer. Because I have the luxury of a lot of experience in sitting in front of a screen. And I can go into currency markets where it’s at a relative price. So it’s the one area where prices aren’t subsidized. And I’m arrogant enough to think I can time these things. But I don’t really know how to answer that question for public invest– but let me just say that this idea that you’ve got go plowing into risk because rates are zero, that they will rue the day one day. The music will stop. And I would probably be invested right now thinking I’m smart enough to know that we’re quite away from the music stopping. I don’t think Bernanke is about to end these policies for a while. But let’s just know what we’re dealing with here.”
On whether there needs to be more consolidation in the banking industry:
- “I’d like to see them be more like utilities. I could care
less whether they make money, unless I happen to own equities in it. But if we’re talking about as a United States citizen–I have no problem with banks being utilities and going back to what banks used to do…”
On whether banks should just be making loans:
- “Yeah.”
On whether the most sophisticated bankers should work at hedge funds, not on sell-side trading desks:
- “You said it, Stephanie, not me.”
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