Editor’s Note: In this series of articles, we include important or interesting videoclips with our comments. Our Web Software does not permit embedding of the clips into our articles. So we shall have to be content to include the links to the actual videoclips. We are very happy with the tremendous response from readers to this series of articles. We thank them sincerely and profusely.
This is an article that expresses our personal opinions about comments made on Television and in Print. It is NOT intended to provide any investment advice of any type whatsoever. No one should base any investing decisions or conclusions based on anything written in or inferred from this article. Investing is a serious matter and all investment decisions should only be taken after a detailed discussion with your investment advisor and should be subject to your objectives, suitability requirements and risk tolerances.
The Week That Was
The End – That is usually the last frame of a motion picture. The Bond & Stock markets should have flashed The End sign at the close on Friday. Because, this week ended any doubt about the trajectory of the US Economy. The awful manufacturing data, the fresh low in the ECRI index and then the steep drop in consumer confidence revealed on Friday at 10:00 am – thus endeth the lesson that the US economy is at best stalled and at worst could fall into a double dip.
This is not just the story in America. China is clearly slowing and on Thursday night, Japan revealed its own deflation sickness. Is this why Arun Motianey, Director of Fixed Income at Roubini Global Economics, told CNBC that “the global economy is at risk of unfolding in on itself“? We would rather you hear him in clip 1 below rather than have us describe his theory of supercycles.
The fear of deflation has become the topic du jour in markets. No wonder long duration Treasuries are again trading below the small figures of 3% for the 10-Year and 4% for the 30-Year. The stock market was already down 100 points when the Consumer Confidence numbers hit at 10:00 am. That began the serious drop which ended at the lows, down 261 points. This was no swoosh drop; it was a slow steady sustained sell off on low volume that drew no bids or quick rallies. Frankly, this gives us greater worry than a sharp, fearful drop.
Usually some seers sneer at macro data and insist on looking at company earnings. Well, these folks got Bank of America earnings on Friday morning. No one could find anything remotely positive to say about the numbers revealed by the largest bank in America. Demand was practically non-existent; deposit-to-loan ratio exceeded 125%; credit lines to wealthy consumers and corporations remained unused. It was as if Bank of America drew a picture of a US Economy at a virtual standstill.
No wonder the euphoria created by the SEC-Goldman settlement evaporated on Friday morning. May be, the selloff was just the old adage of Sell the News of the settlement, passing of FinReg and finally the relief of seeing oil stop gushing out of the BP oil well. Well, if the powers that be knew this would happen, they might phave postponed at least one of these news stories to late next week.
Stocks & Treasuries
As we wrote the section above, we wondered ourselves whether our writing or the story reflected in our writing was just too pat. For some time, we have believed that that there is a choppy rally underway and that we shall see higher stock prices into August. As naive simpleton observers, we have neither the knowledge nor the organizational standing to justify this belief. All we have is the memory of prior years, especially of 1997 & 1998, the two years dominated by currency crisis.
So we felt relieved to hear Mary Ann Bartels, Chief Technical Analyst, at Merrill Lynch discuss her decennial theory on CNBC (see clip 2 below). Ms. Bartels has argued for some time that we would see a rally into fall and then see a sell off followed by a year end rally. But she warns, that this is a rally only for traders and not for investors.
Market forecaster Charles Nenner also expounded a part of this belief on Thursday as a part of his long term call for Dow 5,000 within the next two and half years (see clip 3 below). But before that, Nenner said he expects a climb for stocks for the next month. However, Mr. Nenner refuses to play this bounce and would rather hide in cash, even in zero-return cash.
Too pat or otherwise, the signs are mounting for the Bernanke Fed to do something. Jim Cramer delivered his “They know Nothing” rant in August 2007, if our recollection is correct. If the Non Farm Payroll report in the first week of August is as much of a bummer as the previous two, then many observers might rant for Bernanke to do something.
But, could he with the dissenters at the Fed getting bolder by the week? This week, Thomas Hoenig said that the Fed should raise rates to 1% and keep them there. May be Mr. Hoenig is right.
There is no doubt that lack of income is today’s great American problem. Is Bernanke to blame for this? Savers today are in deep distress because nothing safe delivers decent returns. Unless savers, especially baby boomers, get some level of return on their safe investments, can they be persuaded to save? We doubt it.
Safety as the Momentum Play
Just look at the CFTC figures. The net position of Large Speculators in the 30-Year Treasury Bond is now 100%, the highest it has been all year. Conversely, the position of the Hedgers/Commercials is 0%, the lowest of the year.
Anyone with doubts should look up the level of Dollar-Yen. Gold was struck down hard on Friday perhaps on deflation fears or perhaps on rumors of selling by a prominent hedge fund which has Gold as its largest position.
The only animal spirit we see is the spirit of hibernation in a cave for the long winter.
The Strange Saga of Steve Cortez & CNBC
You would think that a financial network, especially a First In Business WorldWide network, would bring on “experts” who have been proved right in their views and shun “experts” who have been proved wrong. But not CNBC.
We have written about Steve Cortez a few times in our articles. He is a quick, incisive macro analyst who has been proven right far more often than he has been wrong. He is articulate and carries himself well on TV. So we wonder again this week what is CNBC’s problem with Steve Cortez? Why doesn’t CNBC give him a fair deal? Why is he not invited to speak more often?
In contrast, an analyst like David Kelly, a salesman-strategist at JP Morgan, is invited regularly by CNBC on various shows. We have yet to hear one insightful idea from Mr. Kelly. Yet, CNBC keeps promoting him as the $450 Billion dollar man and last year CNBC used to promote him as the $500 Billion dollar man. Arithmetic was never our forte but even we can subtract. What we do find in David Kelly is a strategist who LOST $50 Billion in assets in the last year.
So on what planet or network would you see David Kelly more often than Steve Cortez? On CNBC USA, of course. So we ask today what we have wondered privately for some time. Is David Kelly adored on CNBC because he is Irish and is Steve Cortez shunned because he is Hispanic?
We do recall CNBC’s vetran anchor Mark Haines expressing his ardent admiration for the lilting Irish accent of David Kelly (see clip 3 of our March 14-20 Videoclips article). May be, this is the answer to the charm CNBC sees in Mr. Kelly. The fact that he is from a major advertiser doesn’t hurt, we are sure. We do not wish to be personally unfair to Mr. Kelly. But, as far as we can recall as CNBC viewers, Mr. Kelly has been dreadfully wrong in his forecasts on CNBC and we find the adoring treatment showered on him by CNBC to be in stark contrast to CNBC’s treatment of Steve Cortez.
There was a time (way back in 2007, for example) when almost every day show on CNBC had an Irish American anchor. That is less so today. But even now, there is clearly a demonstrated preference for Anglo Anchors at CNBC. This may be why CNBC has gone around the world to find anchor talent that is and looks Anglo, like for example, Amanda Drury from Australia. When compared to others on CNBC, Ms. Drury seems to us to be the weakest and the least insightful of CNBC anchors. Yet, not a day passes without Ms. Drury in the anchor seat of some CNBC show.
CNBC is a global network but its thinking seems so parochial. They have yet to find any acceptable (to them) anchor talent anywhere in the non-Anglo world. In contrast, Citibank, Pepsi, IBM and other US corporations have no trouble bringing fine talent to America from all over the world.
So Steve Cortez, don’t take it personally. At least, CNBC has Michelle Caruso Cabrera and Carl Quintannia. Look, despite the success of Maria Bartiromo, CNBC cannot find another Italian-American anchor for its network. Hey CNBC, how about trying out Guy Adami as an anchor for a regular CNBC show?
Let us be clear. We have absolutely nothing against Irish Americans. In fact, for much of our career, we were suspected of Irish Envy. This was because the majority of our team was Irish American. We simply picked the best talent among what was available to us. We regret that CNBC does not do so.
Let us also be clear. We do not know Steve Cortez. We have never spoken with Steve Cortez and we do not get his research. Our entire relationship with Steve Cortez is that of a CNBC viewer who likes hearing Steve’s macro views on CNBC.
The Third Musketeer?
We believe in offering a solution when we criticize. So here is our solution to CNBC’s problem with Steve Cortez. CNBC has a tradition of successful, outspoken reporters who specialize in specific topics. These reporters come on any & every show when they have something to say.
We are of course speaking of Rick Santelli and Steve Liesman. Our suggestion to CNBC is to make Cortez the “Macro Specialist” like the Bond Specialist Santelli and the Fed/Economy Specialist Liesman. Then Steve Cortez can be asked to appear on any show at any time when he has something worthwhile to add.
Today’s markets are dominated by macro events, events from China, Brazil, Europe. These macro events impact the US market in a much more dramatic way than ever before. Unfortunately, CNBC Anchors are singularly unequipped to understand or discuss these macro events or news items.
This is where Steve Cortez can come in with his Breaking Macro comments. So CNBC can keep its preferred Anglo Anchors and we can hear the views of one of the smartest tactical traders we have seen on CNBC. A Happy Solution for all!
Featured Videoclips
- Deputy Doom, Arun Motianey, on CNBC on Thursday, July 15
- Mary Ann Bartels on CNBC Closing Bell on Tuesday, July 13
- Charles Nenner on CNBC Closing Bell on Thursday, July 15
- Gary Shilling on CNBC Fast Money on Monday July 12
- CNBC’s Herb Greenberg on CNBC Strategy Session on Friday, July 16
1. Global Economy at Risk: Deputy Doom – Arun Motianey of Roubini Global Economics on CNBC – Thursday, July 15
In a week dominated by deflation concerns and bearish sentiment, surely the pole position should go to Dr. Doom Roubini. Well, we could not find Signor Roubini himself. So we found Deputy Doom, the Director of Fixed Income Strategy at Roubini Global Economics. We owe thanks to Michelle Caruso Cabrera who drew attention to the CNBC.com article World at Risk of Folding in on Itself featuring this interview.
This is an interesting clip in which Mr. Motianey discusses his concept of SuperCycles. His main point is that the American & European Central Bankers will find it very difficult to create inflation because they simply don’t know how. And without their ability to create inflation, the developed world will fall into a Japan-like problem. This will be exacerbated by the new intolerance of financial markets about governments acting as the source of final demand in developed markets.
2. Talking Numbers – Mary Ann Bartels with CNBC’s Maria Bartiromo – Tuesday, July 13
Mary Ann Bartels is the Head of Technical Market Analysis at BofA Securities-Merrill Lynch (what a way to butcher a great brand name, we ask?). Ms. Bartels discusses her decennial theory with Maria Bartiromo.
- Bartels – The summer rally, we are already in it. The midterm election year with the decennial pattern in “0′, we are really surprised how well we are following it. January is generally a down month, we had a down month in January followed by a very strong spring rally which we got and followed by a correction with an important low around June which we also got. Now we are in the rally. So, we think it is important for investors to follow this pattern, July is normally up 2.8%, but with the exaggeration we might get a little bit more. But the important thing to note is that you get another correction which leads to a lower low in October and then you get a year-end rally. So we think the summer and the holiday season are going to be the best times for the markets this year.
- Bartiromo – So if I want to trade this move, I want to be a buyer and then I want to start peeling back as we approach October when we could see a low and then you are looking for a year-end rally. Why is there a difference between the years ending in “0”?
- Bartels – well, we just look at the “0” year without the midterm election year, and that is looking at all the years within the decade, the “0” year is actually the worst year. So we start off the decade actually down and when you look why that happens, it is because the back end generally is so strong and 09 was a very good year for the markets. In fact, from the March low of 09, we were up 80% without a 10% correction.
- Bartiromo – You are still telling investors to maintain a defensive posture though right?
- Bartels – Yes we are because we are concerned about another low in October. But for traders, we would be long the market for the summer months, but looking to take profits looking for a deeper correction.
- Bartiromo – Alright. Got it
Maria, could we make a suggestion? When you get a guest like Mary Ann Bartels, please insist on obtaining a full copy of their published report to put on cnbc.com. That would really help us simple investors.
3. Get Ready for Dow 5,000: Market Forecaster – Charles Nenner with CNBC’s Maria Bartiromo – Thursday, July 15
Maria announces market forecaster Charles Nenner by saying “he says stocks will peak in about a month and head south from there“. This is why we like Maria Bartiromo as an anchor. She brings us interesting interviews from both bulls & bears.
- Nenner – well, as you may be know, most people know that I developed models many years ago and I did market timing for Goldman Sachs for 12 years, and these models use data of the last 100-150 years. Now based on this data, you know the future and whatever we do or the government does short term doesn’t make much difference. So the cycle work I do comes up exactly with dates and with levels, for instance in 2006, I was on CNBC and I said that the Dow will go to 14,300, it will reach the end of December 2007. At the end of 2007, I was honest, everybody out, this is the target, now we are gonna crash, we are gonna go down, we go out. So I don’t do so much with Why, I just want to know what is going to happen.
- Bartiromo – I see and what is your time frame on this? When do you expect the Dow to go to 5,000?
- Nenner – It is gonna take two – two & half years. I think this was all only bear market rally and the bear market will continue. We went out at S&P 1200 a couple of weeks ago and I don’t think we will go in again. And I think we will see a bit of a Japan scenario which means it is a long, prolonged bear market with big upswings, rallies may be up to 40% and down again, and 40% up and down again, and so the opportunities, but in the end it will take a couple of years until we will go down to 5,000.
- Bartiromo – And in about a month, you are expecting stocks to peak right? So, you think we have this short term rally that continues and things peak out in about a month?
- Nenner – well, like I said we are on the same side when we reach upside target of 1200 on the S&P, we sold everything and I said may be we test it one more time but I am not counting on it. Just as more cycle pressure coming in August, so we standing aside, we don’t have any stocks right now.
- Bartiromo – and really quick, Charles, where do you think the money moves? If it comes out of stocks, where do you think it goes?
- Nenner – well, what we did is that when the 10-Year Note hit 4%, we moved all the money to 4% and I still think there is going to be a deflationary problem and deflationary problems, there is nowhere to hide, I know you don’t get any return from cash but then it is still the safest place.
- Bartiromo – Alright, we will leave it there.
4. Bull market or BS? – Gary Shilling on CNBC Fast Money – Monday, July 12
Remember last Monday? The Dow was up after a great rally during the prior week. The market was experiencing a Panglossian wave. Everything seemed to come up bullish. Remember that? Actually after this awful Friday, that bullish period seems aeons away.
But you can see what a bullish period it was from the smile on Melissa Lee’s face and the happy tone with which she greeted Gary Shilling. In fact, there was a note of “when are you going to cave in Gary and embrace the rally” in her first question.
Well, Gary Shilling has seen just about everything and he was not ruffled. He made his case eloquently and withstood the attacks of Tim Seymour and Joe Terranova. We think listening to Gary Shilling is a very rewarding exercise and we leave it to readers to do so.
Suffice it to say that Gary is a bear and thinks that the first bear market is not over yet. He is sceptical of global growth and he sees China slowing down. He views the current rally as vicious short covering.
As we said, listen to Gary Shilling speak. Watch this clip.
5. The Fix Is In – CNBC’s Herb Greenberg on CNBC Strategy Session – Friday, July 16
In this so-called journalistic segment, Herb Greenberg looked at bond funds in today’s low yield environment. The journalistic misconduct we discuss below was initiated by anchor David Faber who opened with:
- Faber – for those investors looking to get into fixed income through bond funds, Herb Greenberg is here to tell you that there is a dirty little secret when it comes to these funds, there is one word, it is called fees.
- Greenberg – Bond funds have been sucking in money like a mop in recent months, I have to tell you something, in the past year, investors have been coming in, I say about a quarter of the money has been flowing into short term and intermediate term bond funds, you know you look at the prospectus, you see expenses are on these, ah less than a percent, no big deal, but that gets to the story. If you take the expenses you are paying on these funds and you taking them consider them relative to your performance, you basically have a situation where you are basically paying exorbitant fee.
Then Greenberg showed a slide of US Corporate funds (yielding 2.61% with 0.87% expense ratio), US Governments funds (yielding 2.02% with 0.67% expense ratio) and Short Term Bond Funds (yielding 2.21% with 0.74% expense ratio). He used this chart to make his utterly distorted case.
Frankly, in our opinion, this is the worst example of Journalistic Misconduct we have seen on CNBC in a very long time. Let us tell you why we think so:
- Take stock funds. For the past 10 years, the performance of stock funds is NEGATIVE but investors have paid approx. 1.5% in expense ratio for 10 years. So, investors have been charged 15% of their money in fees over 10 years WHILE getting a NEGATIVE performance. Are these fees exorbitant? Does Greenberg think so?
- So why won’t Greenberg tell you this? Is it because CNBC lives to push stock funds on their viewers? Or is it because Stock Funds are considered inherently performance oriented while Bond Funds are mistakenly considered stable?
- Greenberg NEVER tells his viewers that Bond Funds are pure equities. That investing in a Bond Fund is investing in the stock value of the portfolio of the Bond Fund. In other words, investing in Bond Funds is like investing in stocks.
- It is a deliberate false statement to say that investing in Bond Funds is the same as investing in Fixed Income. Investing in Fixed Income gives you principal protection. Investing in Bond Funds does not.
- But David Faber actively and deliberately engaged in this disinformation with his opening line by equating investing in fixed income with bond funds.
- Then, Greenberg made a factually false statement by terming the yield of a Bond Fund as its performance. This is as false as saying the performance of a stock fund is its dividend yield.
- Greenberg knows, we think, that the performance of a Bond Fund is = its yield PLUS the return of its Net Asset Value or the principal value. This is exactly like the performance of a stock fund that is = its dividend yield PLUS the return of its Net Asset Value.
- Therefore the performance of a Bond Fund may be much much higher than its yield OR it may be much much lower than its yield, even a negative performance.
- In other words, comparing the expense ratio of a bond fund with its yield is distorted and false in an investment sense. It is exactly as false as comparing the expense ratio of a stock fund with its dividend yield.
We are not sure whether David Faber understands much of this but, based on watching Herb Greenberg over the years, we believe he certainly understands all of our above points.
So why did Herb Greenberg make these misleading and false points? We do not know for sure because we have not spoken with him. We would love to speak with him but no one at CNBC ever responds to our requests.
But, based on our experience in watching him speak on TV, it is our opinion that Herb Greenberg said what he did to create a sensationalistic investigative journalism type segment. It is our opinion that Greenberg made the above erroneous points deliberately. He is too smart and too experienced to not know the above basic facts.
This is why we believe that Greenberg’s behavior can be termed as journalistic misconduct. This is our opinion and we leave it to our readers to form their own by watching the clip and reading our rebuttal of Greenberg’s points.
We are deeply disappointed with CNBC’s Strategy Session. This is a show that began with a mission to educate CNBC viewers about Strategy. And look what it produced – the same journalistically sensationalist segment that pretends to be investigative but is full of false descriptions and erroneous interpretations.
This is why we have tried to send a message to CNBC to hire professionals and not self-congratulatory journalists like Herb Greenberg. All professionals, including some Fast Money traders we have criticized in the past, have a basic core of ethics. Professionals respect markets. None of them would have stooped to the level Greenberg stooped to in this segment.
Finally, we point out that we have been complimentary of Gary Kaminsky since he joined Fast Money earlier this year. So we feel we sort of have the right to say:
- “Shame on you, Gary Kaminsky! You are the co-anchor of this show. How could you allow such misleading and distorted statements on your show? You can tell a deliberate misconduct from a frank, factual journalistic report. You are probably better than us in tearing apart what Greenberg said on your show. Yet, you did not do so. Actually, you joined David Faber in the fun and in the process damaged the knowledge of viewers who trusted you to speak the truth and to educate them on strategy. As we said before, Shame on you, Gary Kaminsky“.
As readers might be able to tell, we are absolutely livid at this segment. We apologize to readers who might have taken offense at our emotion. But when we see what we consider to be such journalistic misconduct, we find it hard to restrain our outrage.
We do not wish to be unfair to CNBC or to Herb Greenberg. So we offer to come on Strategy Session to debate Herb Greenberg on air about why we think his segment constituted journalistic misconduct. He knows our views because we have disclosed them publicly above. We do not know his defense. So Greenberg will have the advantage and he can tear us part on National TV. We would gladly give him that opportunity to make sure that CNBC viewers understand the truth.
CNBC Management, you have a track record of damaging your viewers at every major inflexion point in the markets – in 1999-2000, in 2007-2008. If you tolerate segments like this one, you will add another notch to your record. This year, you have made good strides by adding professionals to your team. Do not waste it away. Insist on absolute fealty to truth from your journalists.
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