Editor’s Note: This is an article about comments and interviews on financial television. This is not an investment article. It does not seek to or intend to offer investment advice or strategy of any kind 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 that should only be taken after a detailed discussion with your investment advisor and should be subject to your objectives, suitability requirements and risk tolerances. .
On February 21, 2009, we featured a series of interviews that CNBC’s Maria Bartiromo had done with Larry Fink, the CEO of BlackRock. (see our article “Thank You Maria Bartiromo For The Larry Fink Interviews” – https://cinemarasik.com/2009/02/21/thank-you-maria-bartiromo-for-the-larry-fink-interviews.aspx ). These were among the most important interviews of the past two years. Any one who followed the thoughts of Larry Fink made positive returns on their money in 2008, one of the worst years in investment history.
Last week, Maria brought us another great interview, this one with Peter Fisher, Co-Head of Fixed Income at BlackRock. To us, this is the investment interview of the year so far. We found Mr. Fisher’s opinions about the US Economy and the US Treasury Market to be lucid, simple, profound and very actionable.
Maria had the uncommon sense to ask the critical question and then let Peter Fisher speak without interrupting him. This may look simple, but it is not. This may look humble but it is not. Only a truly assured interviewer has the self confidence to remain quiet and let the subject speak. Viewers like us watch CNBC to listen to experts like Peter Fisher and Maria knows that. (New anchors like Trish Regan, CNBC’s anchor for the 11 am show, should learn from Maria Bartiromo. Ms. Regan frequently interrupts her interviewees to make her own, often meandering, points. It is almost as if she is trying to compete with her interviewee).
Maria Bartiromo asked Peter Fisher for his opinion about Warren Buffett’s description of the 2008 Treasury Rate levels as a “bubble”. (for a discussion of these comments, see our article “Again Jim Cramer & Rich Bernstein Will Be Proved Right and Warren Buffett Wrong” – March 7, 2009 – https://cinemarasik.com/2009/03/07/again-jim-cramer–rich-bernstein-will-be-proved-right-and-warren-buffet-wrong.aspx ).
Peter Fisher said “I see it a little differently. There is uncertainty in the treasury market. We don’t know what the right answer is because we don’t know if we are facing 2% inflation or 2% deflation”.
This, we think, is the central question for all markets in 2009. If we are facing 2% inflation, then all treasuries are very expensive. It means that treasury rates will go higher and much higher. This is the view of many large investors, especially the large macro hedge funds.
Many other investors and strategists are in the opposite camp, arguing that inflation is not a near term prospect. Our own mantra is “Recession Kills Inflation” and that we are in a “doozy” of a recession. So we are far more worried about deflation.
We were keen to hear what Peter Fisher had to say. In his words, “how quickly will the fed get inflation going? I am worried that it will take a little longer… a normal cyclical recovery meaning positive inflation is several years off in the future..that means we are looking at high real (after inflation) interest rates, almost 3% on a 10 year Treasury Note &, imagine we have a bit of deflation here, that means may be it is 4% real – 4% real is a very high treasury rate..that is going to slow the economy. & so the fed’s got to do something about that..”
That seems very definitive to us. The Co-Head of Fixed Income of the smartest Bond Firm in the world is telling us that today’s 3% yield on a 10 Year Treasury Note is very high, high enough to slow the economy down. Imagine slowing down an economy that is already in free fall. (The comments we quote are from minute 5:00 to minute 6;10 of a 10;52 minute interview clip – See http://www.cnbc.com/id/15840232?video=1057265870&play=1) .
Yet, our friendly CNBC Anchors like Michelle Caruso Cabrera continue in their anti-Treasury mission (see our article “Are CNBC Anchors on a Mission Against US Treasuries? – A Viewer’s Perpsectives” – August 23, 2008 – https://cinemarasik.com/2008/08/19/are-cnbc-anchors-on-a-mission-against-us-treasuries–a-viewers-perpsectives.aspx )
CNBC’s Larry Kudlow asked Michelle on late Friday, March 13, 2009 “Did you buy US Treasuries, Michelle?” . Michelle laughed, almost sneered and replied “Not that these low yields, Larry”.
So there you have it. You can listen to Peter Fisher of BlackRock or you can listen to Michelle Caruso Cabrera of CNBC.
Editor’s Post Scripts:
Real Treasury Rate – Market Treasury Rate minus Inflation Rate. So if the market Treasury rate is 3% and inflation is (-1)%, then Real Treasury Rate = 3% – (-1%) = 4%.
How high is this? It is twice as high it was in June 2007. In 2007, inflation was at 3.5% and Market Treasury rate was 5.5%. So Real Treasury Rate was 5.5% – 3.5% = 2% half of today’s Real Treasury Rate of 4% as calculated by Peter Fisher.
- Not all CNBC Anchors remain anti-Treasuries. We were pleasantly surprised to hear CNBC’s Joe Kernan draw viewer’s attention to an article in Barron’s that suggested that 10-Year Treasuries at 3% were cheap. This was before the Peter Fisher interview by Maria Bariromo.
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