Interesting Videoclips of the Week (June 1 – June 7, 2013)

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. The one number that really matters

For the 3rd month in a row, the payroll number set off waves of action in financial markets – Dow rallied 200+ plus points, the 2nd best rally of the year, Treasuries got shot with TLT losing 1.72% on the day, Gold and silver took a shotgun blast to fall 2.1% & 4.6% resp. And all this with a number that was ho-hum.

Once again, this one payrolls number, as it has in the past two months, dramatically changed market’s sentiment. That is the reason for the fireworks on Friday. In April & May, the direction of the move in stocks and bonds on jobs Friday continued for the next two-three weeks. Will that pattern continue in June?

Why the question? Because in 8 business days comes the much awaited proclamation from Chairman Bernanke about his updated views on “tapering”. Bulls tried to squash the upcoming “will he or won’t he taper” discussion by calling this jobs number as “goldilocks”. We also have a BoJ meeting next week and attention will be focused on Kuroda’s comments.

On Thursday, the S&P once again bounced perfectly off of its 50-day moving average. And the Japanese stock market also reversed on Friday in Japan. The S&P, aided by the payroll number, followed up on its Thursday reversal by a 20 handle move on Friday.

2. Greenspan on ability to forecast & his forecast

On Friday, Alan Greenspan told us what we have already known about him and humanity in general:

“I think what we have to be aware of is our ability to forecast is far less than we understand and I’m most concerned about the fact that we have lots of time to decide when we’re going to move. and I’m not sure the markets will allow.”

But in the same appearance, Greenspan recommended that Bernanke end QE now and then delivered an amazing forecast about how the markets will react to his outlandish recommendation:

Kernen – do you at this point feel that the economy is strong enough to go to zero on QE right now?
Greenspan – I don’t even think that’s the question. I think we’ve got to do it, even we don’t think it is strong enough. I happen to think that the thing that is most important positive for us at the moment is the fact that equity premiums are so high, which means the down side on stock prices is quite limited. And I think if we could get stock prices to rise, which they will if this thing stabilizes, then you get a lot of asset growth effect on the economy. and one of the things that I think we underestimate is how important asset prices are in determining the levels of the overall economic activity. so the more asset price expansion we get, the more type of negative bond market reaction we can deal with.

According to Greenspan, downside to stocks is quite limited even if we go to zero on QE right now and he expects stock prices to rise. And the more stocks rally, the easier will it be for markets to digest a bond market selloff. With all due respect, is Greenspan mad or is he feigning madness? Doesn’t he see that bond markets cascade down first and that pulls down the stock markets? Or is he arguing that Bernanke buy S&P futures directly so that “we could get stock prices to rise”?

This is the same 2004 Greenspan who announced a series of 25 bps increases at every Fed meeting because he was petrified of a bond market convulsion. But now that he is out of the office, he is willing to throw a flaming torch into a dry California forest?

Two people who understand the bond markets spoke very differently about how bond markets behave when liquidity is turned off in leveraged markets:

Rick Santelli – Leverage
deleverages, not in a gentle pretty way but in a forceful wild way.. if
you look at our 10-year about an hour ago we touched under 2% ..if
you blinked, you missed it…so we lost 12 bps we have come back…
Dollar-yen is what it is all about, euro-yen, anything yen…a
breath-taking move, we are rattling the cages of the carry trade and it
isn’t just here… look at the 10-year 25bps higher in Spain, 25bps
higher in Italy all those great MF-type invesments – , leverege &
buy the junk… now it is back to junk at least for a moment…

Bill Gross on BTV Market Makers on Thursday, June 6 (see clip 4 below): what we are seeing
now a disappearance of the enthusiasm for growth, not just in Euroland
but in the US and we are certainly seeing a disappearance of liquidity
based upon that growth.

To be fair, Santelli & Gross spoke before the dramatic turn in equity markets on Thursday afternoon.

In sharp contrast to Greenspan, Howard Lutnick of Cantor Fitzgerald emphatically declared “years left of quantitative easing. it ain’t happening anytime soon“.

Frankly, we are not sure Friday’s data changed Bernanke’s mind even a bit. Whatever he meant by his comments a couple of weeks ago, he still means after this number, we bet. Trouble is we still don’t know what he meant then and we doubt the markets do either. But this jobs number has brought relief and respite for the US markets for another 7 full trading days.

3. U.S. Equities

Steve Grasso on CNBC Fast Money on Friday, June 7

I went to 60% cash before we had that selloff; it was more luck than skill, but I did miss this 40 handle run from 1600. I am not ready to get long, I think we are gonna fade again.

Richard Ross of Auerbach Grayson on CNBC Closing Bell on Thursday, June 6

“I am strongly in favor of buying this tape. I think today’s action was uniquely bullish. This was a classic bear trap. … the market has been holding that a 50-day moving average since November of last year. and today we get a false breakdown, beneath that 50-day, beneath the trend channel, and beneath key psychological support. That has set the stage for a massive reversal in risk appetite. I think you’re going to see new highs this summer and a year-end target of the 1779.”
“I would be a buyer of Japan here as well. we have too many armchair economists out there right now. you have to buy the dip, when you’re staring at it right in your face.“

Ralph Acampora on CNBC Fast Money on Wednesday, June 5 (see clip 2 below):

look at the 200-day moving average in these indices and I think that’s where you’re headed. I think from top to bottom you’re talking about 10%. I recently looked at … Dow theory about a week or so ago. That was starting to flash a secondary correction. I think today the transportation index itself closed below its 50-day moving average. So technically you’re getting the sell-off. In fact, this decline is broadening out. I noticed the DAX broke down from a mini double top, emerging markets made new lows. So it’s a global affair. I think it’s long overdue and I’m very happy.

Rick Bensignor of CNBC Squawk Box on Wednesday, June 5

well, we finally had Bernanke give a little whiff of what could be changing. since then, that marked the peak in the market. only off about 3% or 4%. but my guess is we’ll still tuck down probably under 1600. If I had to guess where we stop, at least for this initial decline, it’s probably between 1,590 and 1,560. That’s kind of where we have targeted as a downside area here where we suspect people who have been waiting for a pullback will start coming back.

Lawrence McMillan turned negative on Friday morning:

The pressure on the stock market increased again this week, driving the Standard & Poors 500 Index ($SPX) down through some support levels, and generally turning almost all of our indicators to sell signals.
In summary, we are bearish until proven otherwise. The $SPX chart has turned bearish by breaking support levels, and if the 1600 support is broken, things could get rather nasty.

Louise Yamada on CNBC Fast Money on Tuesday, June 4

we’ve been establishing the evidence over a period of about a year, pieces of evidence that could argue that we are beginning a structural bull market with liftoff and the S&P 500 through the 2007 and the 2000 peak. We wanted to have a significant lift. It’s about 8% through now.
we’re also seeing a little weakening under the surface of the indicators. so typically when you break out from something that major in terms of a multi-year breakout, you get some kind of a pullback possibly to the breakout level. from a shorter term perspective, we could see it come back to 1550, 1500 over the short-term.

4. U.S. Treasuries

Last week, we complained a bit about seeing optimism among the cognoscenti when we expected bearishness, the sort of bearishness we saw in June 2007 when a noted technician said on CN
BC Fast Money about the chart of the 10-year Treasury yield “wouldn’t you buy this if it were a stock?”.

This Friday, U.S. Treasuries got shot again just as they did last Friday and then again this past Tuesday. But on Friday, June 7, Treasury prices dropped to a new 2013 low and yields on 10-year & 30-year Treasuries reached another closing peak at 2.17% & 3.34% resp.

We didn’t see any optimistic tweets this Friday and during the week, we heard a noted technician Louise Yamada talk gently about bond market tops & a regime of rate reversal:

I think the most important thing is that this is representative of what the other bond charts look like tops. And bond cycles historically have run 22 to 37 years. We’re in the 32nd year of our 1980 bull market for bonds. And I think that it’s getting long in the tooth. And we may have a consolidation here that continues to be possibly the final bottoming process before we see a reversal in rates.

Do Treasuries keep selling off next week? What demand will the 10-year & 30-year auctions see next week? As we wrote last week, when Treasuries have suffered a steep sell-off in April-May, they have tended to bottom in June. This seems true whether stocks keep rallying in the 2nd half as in 2009 or not as in 2007. This is simply an empirical observation as the TLT charts below demonstrate:

(April-June 2007) (April-June 2009) (April-June 7, 2013)

The consensus argued in 2007 for a structural move up in interest rates due to inflation. The consensus in June 2009 was about new structural bull market in stocks accompanied by the end of the post 1982 bull market in bonds. The ensuing bond rallies in 2007 & 2009 went on till November 07 & October 09.

Will this pattern hold in 2013 to create a local bottom for Treasuries in June? Or will Treasury yields keep climbing through the summer & perhaps beyond? Bernanke and Time will tell.

5. Gold.

Gold & Silver took a shot gun blast this Friday. GLD & SLV fell by 2.1% & 4.6% respectively with gold mining ETFs GDX & GDXJ down 4.3% & 5.1% resp. This fit what commodity hedge fund manager Renee Haugerud had said on Tuesday on CNBC Fast Money (see clip 3 below):

actually we think there is more downside on gold. And really, it’s the weight of positions and a correction. We still think the market is too long. supply and demand. look at cost production. it’s well below where we are. and we think we should correct to 1200, maybe 1300, and then pause. but unless you get the dollar to really roll over, and that’s the other thing, with rates kept low you might have the dollar turned down again too. If you have a massive sell-off in the dollar, then you could see gold, you know gain a little bit of its luster back.

This was backed by technician Louise Yamada minutes later on the same show:

it certainly is in a bear market, no question about it. it broke a
two-year support when it went under 1539. and you had what a lot of
people are looking at as a test of the low that could be a double
bottom. but it’s not a double bottom until it rise through the may peak,
where the arrow is on the chart. and I think that there is the
potential if it’s having trouble at 1400, there is the potential that it
rolls over again. and if it breaks the old low at 1347, then i can see
that 1300, 1200 that Renee is talking about.

Featured Videoclips:

Jeff Gundlach on CNBC Fast Money Half Time on Tuesday, June 4
Ralph Acampora on CNBC Closing Bell on
Renee Haugerud on CNBC Fast Money on Tuesday, June 4
Bill Gross on BTV Market Makers on Thursday, June 6
Steve Schwarzman on BTV Market Makers on Friday, June 7

1. 10-yr yields top at 2.40% & Apple to $500 – Jeff Gundlach on CNBC FM & 1/2 – Tuesday, June 4

Bond market

I think rates go a little higher but not much higher. They were too low, 1.6% on the ten-year and 1.38 on the 10-year 10 or 11 months ago. There’s quite a bit of support at 2.40% on the 10-year, particularly against an environment where commodity prices are weak and look like they are going to break down. The inflation numbers aren’t there. global growth is no robust. It’s half of what it was several years ago.
I think that interest rates moving higher from here are going to damage sectors other than the bond market frankly. I think the risk that a lot of investors have is they’ve been observing interest rates rising and lost a little money on government bonds. We’re at the point where further interest rate rises start to take out the alternatives people have gone to to try to escape from what they think is unacceptable bond returns. For example, particularly mortgage related rates have super weak in recent time period. They have gotten crushed and the reason is their dividends are going to fall as they are going to have ongoing reinvestment problems. I think higher interest rates from here will start to cause problems. Maybe 20 basis points more on longer term treasury yields. I think you’ll see action like happened last Friday. I know some people say that’s rebalancing and it doesn’t matter but i think it had a lot to do with how weak the bond market was early in the day and really start to make people understandably concerned about what was going on. plus,
let’s not forget, there’s a lot of volatility that entered other markets, in particular, the Japanese stock market which was the killer of them all. obviously it’s down a lot from a huge rally, but volatility showing up in markets like that is not exactly a positive. obviously it’s the opposite. i think rates can rise a little bit more. We’ll be a buyer in our bond funds if increases in treasury rates above where they are today

Japan

I think we’ve seen the best from the middle of November into the peak near 60,000 or so. I don’t think I’ve seen a stock market or any market go up so sharply in search a compressed time frame. I had a target on Japan in December of 13,000, 13,500, I thought that was aggressive, we might get there somewhere during 2013. It blew through that like a hot knife through butter. You should stay long with that momentum move but obviously that’s a market that was crowded, really very, very sharp rally and it’s not surprising that it’s gone down.
I think it’s a buying opportunity in the mid 12,000s in Japan. I don’t think you go from a straight line up type of market behavior to a sudden collapse, a u-turn of that type of that type of shape doesn’t really happen in markets. So this has been a big correction, understandably from a huge monster type of rally. you should have a pretty nice move back up. I don’t know if we’ll see the highs that we saw in the middle of may again, but from 12,000, I think you’ve got a pretty easy 10% you can make in the short term being long japan.

Apple

we first bought at 405 and averaged higher. I think Apple seems to be forming a base to me. It certainly moved down in a way that was frustrating for investors that were long and seems to have a hard time rallying above 450 but I think it’s going to. I think Apple goes to 500 bucks anyway. It seems to me to be too cheap versus a lot of other stocks given their cash flow engine that they have. I‘m not so sure we’re ever ever going to see 700 again in Apple, at least in the context of markets where they are today. It seems like 500 should be a fairly easy place for the stock to go to after collapsing from 705 in the high 300s. Also, it’s basing out in a way that is fairly encouraging. I also think that Apple is a stock — it’s weird. it seems to be anti-stock market, seems to go up on days when the S&P goes down and down on days when the S&P 500 goes up. It’s a pretty darn good diversifier and it seems to hel
p to move in a way that isn’t just all one market type of stock portfolio. it’s a nice inclusion at the levels it is today given how low it is when they strip out the cash and the fact they are working on giving income to investors. which is a big deal.

Income Producing Assets

yeah, I think though that people are going to perpetually given demographics and zero interest rate policy are going to return to a need for income. i really think that the movement down in income payers is a reasonably good buying opportunity. Now they are cheaper. it seems to me utilities and certain bonds, various income paying stocks, there’s no reason to abandon the these. I think the reason for owning them remains intact for quite some time to come.

His last point is very important:

I‘m a huge believer in trade location, in particular when it comes to shorting. Trade location is a big deal

2. Gets to 200-day moving average – Ralph Acampora on CNBC Fast Money – Wednesday, June 5

Ralph Acampora speaks with Melissa Lee, Tim Seymour & Karen Finerman of CNBC FM.

Lee – you first of all, this is the question we posed to the traders, are the pillars of market breaking down and what would you consider to be the pillars at this point?
Acampora – Not at all. Ridiculous. You’re getting quality rotation and quality rotation is you leave one sector, you go to another sector. And the sectors that look spectacular are all the pillars for the next leg up or they’ve been part of it already are the financials, the industrials. no one’s talking about technology. I don’t hear anybody talking about semi conductors. They’re on fire.
Acampora – You know, Melissa, I was very worried about two weeks ago. The market was starting to profile a melt-up. The last thing a bull like me wants to see is buying panic. So I am enjoying this sell-off. I hope it continues and I think it will. And that’s going to be a great opportunity to not only hold those groups but maybe in that decline we start taking a look at the Utilities and the Reits again. I think it’s too early for that.
Lee – even though you say there is a rotation at this point to the more cyclical names, semiconductors or financials, you say there’s enough room to look back at the safety plays like the utilities?
Acampora – yeah, I wouldn’t do it today. But they’re hitting them so hard at some point they’re going to be very, very attractive. I‘ll give it a little bit of time.
Seymour – the pillars for you as technical guy, what are you watching? what breakdown gets you concerned? what level on the s&p, first of all? you said you think we could go farther down.
Acampora – look at the 200-day moving average in these indices and I think that’s where you’re headed. I think from top to bottom you’re talking about 10%. I recently looked at … Dow theory about a week or so ago. That was starting to flash a secondary correction. I think today the transportation index itself closed below its 50-day moving average. So technically you’re getting the sell-off. In fact, this decline is broadening out. I noticed the DAX broke down from a mini double top, emerging markets made new lows. So it’s a global affair. I think it’s long overdue and I’m very happy.
Finerman – a question for you. there is a volume element to this as well that you need to see beyond levels of the S&P?
Acampora – well, when we get towards the end of this correction I would like to see a volume dump. In other words, people panic and you get a spike in volume. That would be on the downside. That to me would be the cathartic phase. I haven’t seen that just yet.
Lee – I want to get your take on the gold. Louise Yamada said yesterday she saw Gold down to 1300 to 1,200 an ounce even with the sell-off. … Where is it headed?
Acampora – well, gold made a short-term low in April around 1321. We tested that in May. I‘d say on a short-term basis, the trading range roughly 1320 to 1480, 1485, something like that. I agree with louise. the longer term is questionable. Until that 1321 breaks, I’d say the odds are that gold stabilizes. … I‘m just trying to put a little bit of a positive spin on gold. And I think it’s going to be
contra cyclical with the current market of equities go down, I think gold will stabilize and maybe try to rally in this corrective phase for equities.

3. downside in gold, shortcovering in indus. metals, buying opp in softs – Renee Haugerud of Galtere Ltd. – Tuesday, June 4

Renee Haugerud is a well-known hedge fund manager who specializes in commodities.

Tapering

actually, we think it’s going to be kind of slow going, and we think the correction on the bond market right now is probably going to pause for a while. And in fact tapering could take a little longer than people expect. … again, at least through the end of this year. we don’t look for anything until next year.

Gold

no, actually we think there is more downside on gold. And really, it’s the weight of positions and a correction. We still think the market is too long. supply and demand. look at cost production. it’s well below where we are. and we think we should correct to 1200, maybe 1300, and then pause. but unless you get the dollar to really roll over, and that’s the other thing, with rates kept low you might have the dollar turned down again too. If you have a massive sell-off in the dollar, then you could see gold, you know gain a little bit of its luster back.

Industrial Metals

the industrial metals we think are going through a short covering rally. 1) the Chinese PMI was a little better than expected. We’ve had growth look like it’s bottoming. And so, 2) it got a little oversold. We think we’re going into a short covering rally, and we would use this to sell into. Overall for the next year on the industrial side, on the infrastructure build, we think there is going to be less demand, and we are overall in a better supply. First time in five years that we’re in surplus in copper, not deficiency.

Oil

you know, oil is a different animal than all the other commodities and it is really a geopolitical index. so we think that the cushion of the geopolitical index has been too wide. much like the spread between wti that that cushion is going to fall away and a correct range for oil should be around 60 to 80.

Softs

on the softs, on the’s, except for the grains which have to go through more downside, And we’re starting to see the on an valuation basis, cotton, sugar, coffee starting to approach some buy levels. And we think the softs in the eggs, depending on the specific market has bottomed and may be coming back a little bit. so it’s a little too early to tell. But, again on a value basis, we like the prices right here. And think we’re moving out of that churning from a lower price.

I like food on the big picture three to five years. I think we’re going through a major regime shift, major repricing. And this year could be down for the rest of the year. If we do get huge crops, if we get the weather, now we have the crops. in we think that new crop corn, there isn’t nearly the acreage that people expect. on soy beans, wheat, crop corn, we think we have to go through a little more of a downside. If we do, this is an opportunity for next three years. We don’t have water priced in to grains and eggs. We have a growing emerging market. 60% of global gdp should come from brick and mist over the next five to ten years. This is coming from a much lower base on the income chain when you move up, and foods, eggs, and softs are undervalued on a big picture that doesn’t mean that short-term we can’t fall and near term supply and demand kind of points towards a little bit more of a correction. Major opportunity over the long-term.

4. whole thing depends on growth – Bill Gross on BTV Market Makers – Thursday, June 6

Kudos to BTV’s Sara Eisen get Bill Gross to speak so candidly and at such length.

Views on Treasuries

bond bull market abruptly ended around April 29th – that was the exact date I tweeted. But Treasuries in the last few weeks have certainly been the place to be. We have seen unwinding of leverage on a global basis, perhaps because of the Bank of Japan, at the moment, markets are in a disarray, not just equity markets, but high yield markets, risk markets currency markets emerging markets – the bid ask spreads in these markets is wide to say the least … the liquidity is low to say the least and to be able to exit markets today or yesterday or last week has been very difficult…so it is good for Pimco to have been high quality oriented and to have recognized the risk in terms of low risks & low future returns..

Central banks – inflection point in fighting the Fed

we continue to say you never want to fight the central banks, they are the ones with the checks with trillions of dollars worth purchasing power.. what we think has happened in the past month or so is the Bank of Japan has set in motion perhaps an unanticipated increase in currency interest rate and spread volatility… they didn’t want to do this but we suppose they expected their QE to act much like the Fed’s QE and that was dampening volatility and keeping interest rates low. … that hasn’t happened perhaps because clearly their policy was directed at Yen weakness.
As long as that weakness was gradual and the yields were low, the levered community, the levered speculators, hedge fund managers etc. that could bank on a cheap and attractive currency funding on the short side … when the volatility and rates went higher, as opposed to lower, as they did in the experience in the US, levered speculators were forced to reduce positions and that’s the story of the past few weeks….it is not that the vigilantes now have control it is that leveraged positions are running for the exits ..

TIPS

we are holding TIPS; it appears that in these delevering moments, anything but a pure treasury, nominal treasury, risk in terms of liquidation, as economic growth weakens and as markets stocks come down, the anticipation would be that inflation continues to be contained if that is the appropriate word that the Fed officials would use and so TIPS are not the most attractive Treasuries in this type of environment… we still feel that on a longer term basis, tha
t’s why we own TIPs, over the next 3-5 years, our secular outlook is all of this spending power, all the $75 billion a month from the BoJ, the $85 billion from the Fed and all of this in combination with the trillions of dollars of checkwriting will ultimately produce not inflation in 1970s mode but in resembling a 2-3% level which gives some traction for inflation insurance on the TIPS side..

Abenomics

When BOJ buys 75 billion a month, then somebody has to sell it; our original assumption would be that internal insurance companies and banks would sell JGBs and then start to look for alternatives in terms of treasury space or emerging space or some higher yielding space… certainly it appears that they haven’t done that… perhaps they simply reduced their duration, raised cash… doesn’t seem that much has come outside the country… perhaps in the retail space what we call Mrs. Watanabe & her preferences .. in the last few weeks, based on the inherent volatility of risk markets, they are staying put.. It is a conundrum to know where this money goes because the BoJ is perhaps buying as much as the Treasury is issuing and so the fair question to know where the money flows to… we do know the Yen volatility and the volatility of JGB market on a nightly basis .. has upset levered holders of not just risk assets but Treasury assets because they are levered holders of Treasury assets.. so when the volatility increases and the uncertainty of the Yen & the positions going forward of yen rates & treasury rates explode then all markets are disturbed …like a little butterfly disturbing the highly levered global markets which the fundamental condition and problem we experienced…

what else

we wouldn’t have expected that the Japan & BoJ would have been the butterfly to have started this all out.. we knew there was a lot of leverage and that was a risk and that is why we owned Treasuries and that is why we suggested those markets were at risk…
where does it go forward & what else could happen? listening to Mario Draghi this morning made me wonder if he was Italian or German .. because it was a very dour, very tight very conservative central banker speaking which someone would say god bless but in terms of the peripheral markets, hasn’t done them very good — Draghi has told peripheral markets that ECB stands ready to act and they don’t pre-commit .. but private market holders – just be patient and let the growth formula work its magic…
I suspect at some point .. some of these investors are saying to periphery – hey if there is no help from you or the EU then don’t be looking to us to help you in terms of your markets… throw in the pot perhaps the Euorpean peripherals in terms of the risk markets, up to this point, they haven’t been there but there is a highly levered global trade that is reaching for yield at perhaps a highly risky period of time .. and these trades are becoming unwound as various policy makers used to basically spend more..

Growth

It all depends Eric on growth, the whole thing depends on growth… the US stock market, the global risk markets, Italy, Spain. can they grow their way out of ? Draghi says yes, just give them time.. they are structural solutions, the labor market will reorient it… labor will become cheaper… Spanish & Italian exports will grow and German imports will absorb that particular growth.. it is all growth dependent…
I would simply say these policies on the part of central bankers & on the part of fiscal agents have been ineffective in producing growth… we have been here for 3-4 years, waiting and the United States has 2% growth plus or minus, now a little minus, but this isn’t something that 2-3-4 trillion dollars worth of funding and monetary check writing logically would have produced… you would have gotten much more .. so private markets are basically saying hey if that’s all you got then this is all you have done..
and so it is growth dependent and what we are seeing now a disappearance of the enthusiasm for growth, not just in Euroland but in the US and we are certainly seeing a disappearance of liquidity based upon that growth and it is not 2008; it is not Lehman; it is not a panic moment in terms of catastrophe but it is a delevering moment in which global markets have to consider how much growth is being generated by these policies and how long these policies can continue…

5. Blackstone growing to $500 billion in assets – Steve Schwarzman on BTV Market Makers – Friday, June 7

Is there a reader who doesn’t know that Steve Schwarzman is the Chairman of Blackstone? We doubt it. The excellent summary below is courtesy of Bloomberg TV PR.

Schwarzman on today’s jobs report and the U.S. economy:

“The economy is moving forward. There are some real pockets of strength. The housing business has been really good and we are the largest owner of houses right now in America. The auto complex — you are producing around 15 billion plus autos and that is up from about 8 million at the bottom of the crisis. Then you have the energy complex which is almost like an energy revolution. You have three big drivers plus technology. That is all to the good and whether we are growing at 2% or 2 .5%, that is in the face of all the government increases in taxes and sequester, so you have to give us a relatively good grade in the economic arena in that sense.”

On whether Blackstone is looking to ramp up hiring:

“We are sort of unusual in that our hiring in the United States over the last several years has been about double what regular companies have been doing in terms of hiring rate. We are hiring on a consistent basis. If the rest of the country did what we did, we basically would not have much in the way of unemployment.”

On what would happen if the U.S. government asked Blackstone for information about those it does business with in China or UAE:

“If you are a business in the United States, that has been happening to you without you even knowing it, and the cyber security issues that not just the United States is facing, but the western world is facing, are very, very significant and what is happening is that almost every business is hardening its silos to deal with that issue. It is a major, major concern.”

On whether it’s a good time to buy or sell:

“Depends on what you are buying and what you are selling. In the buying area there are some very interesting things in each of our businesses. In the real estate area, for example, there are a lot of interesting things all over the world. The U.S. still has a variety of troubled asse
ts that have not been restructured yet…mostly commercial. The number of foreclosures has gone way down. Europe has all kinds of stuff. The banks have really not fully sold their troubled assets the way they have in the States and there are all kinds of other assets available in Europe.”

On whether deleveraging in Europe will still be a big opportunity:

“Big opportunity, and also in Asia, where banks have cut back lending and developers are in trouble. In Asia, for example, you are cross-collateralized with your real estate assets, whereas in the U.S. each asset stands on its own. In other words, you can get in trouble with one, but your empire does not come down. In Asia, they are more linked. As you need more equity and as the prices of assets have come down, all of a sudden there are a lot of sellers and that creates great opportunities for us. In private equity, the whole explosion, if you will, of the energy complex in terms of investment opportunities, presents all kinds of unique things you can do. It is an area where there are way more needs for capital than there are capital to make those investments. There are also opportunities in the financial world because of regulation. There are certain things that traditional financial institutions can’t do anymore whereas people like ourselves can do them and those present very interesting opportunities. In our credit area there is always the opportunity to recapitalize companies. We’ve sold out, if you will, of our long-term bonds with fixed yields, but there are opportunities for investment in the leveraged loan market.”

On low interest rates and whether we’re in for an inflection point related to Fed policy:

“You absolutely will be in an inflection point, but you just do not know exactly where it is. What i have found is when you are in a situation where rates cannot go that much lower, at some point, that will reverse and the issue is: how do you deal with that? What we do is we’ve refinanced all of our companies, and we refinanced with as much fixed rate debt at very low rates. It has been an unusual time since World War II that you can do that. You make sure you are a taker of capital and you do not get caught with rates going up and hurting your prospects.”

On whether there’s a point where big is too big for a firm like Blackstone:

“I don’t think so because we keep going different places in the world and building out our ability to make investments where there is a need for capital where things are underpenetrated. One of the wonderful things about our world is the volatility that is baked in from the internet and the fact that there is virtually no friction regarding information.”

On whether he could see Blackstone being a $500 billion firm:

“Absolutely.”

On how much longer he will stay involved with Blackstone:

“I love what I do. It’s one of the most fascinating jobs you could ever have. You meet with people all over the world. You’re dealing with constantly changing circumstances, new initiatives and virtually everything from macroeconomic policy to politics to investments of all types to various asset classes. I have no desire to stop doing this.”

On whether succession is a legitimate question of interest for shareholders:

“Sure. I could always get hit by a bus apparently from watching the local news in New York — or a taxi. I have a terrific partner, Tony James, who is president of the firm. Tony is great. If anything were to happen to Tony, we have some unbelievably experienced people on our management committee who could also step up — who are themselves are running individual businesses that are the biggest in the world. It’s our obligation to make sure that people are prepared, heaven forbid, if bad things happen to nice people.”

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