Apr 26, 2011

Ben Stein is not a fan of hedge funds

These simulacra of hedge funds are going to completely change that world. That is the wave of the future. If you’re getting the same results as you get if you’re paying 2 and 20, why not go with the $5,000 minimum investment and the fee of $100?

Financial theory tells you that you cannot beat the large indexes unless you are getting inside information, and I don’t want to be part of anything that involves inside information.

~Ben Stein, actor, investor, financial markets observer, Bloomberg Brief, April 26, 2011

China analyst says ride the real estate bull

The long-term structural trend for China's real estate is up, so long as its economy continues to grow at 8% to 10% per year. 1.3 billion people, increasing affluence and more rural-to-urban migration can only mean higher demand for housing and generally higher real-estate prices. At any given time, some areas may be overpriced or have an element of speculation, but is there is no nationwide real-estate bubble in China.

~Kevin Gin, head of Greater China Property Research, Yuanta Securities in Hong Kong, "Mulling a Play by Superman", Barron's.com, April 23, 2011

Apr 25, 2011

Wall St "Big Money" bulls say this is a run-of-the-mill cyclical recession

We've said time and again this is a business cycle playing out. Cyclical elements like autos and housing that have been a drag will add something nontrivial to growth in the next 12 months. You don't need to get clever or cute. Buy quality names such as Corning, Cisco Systems and Dow Chemical. There are great returns to be made in big-cap, blue-chip equities in the coming quarters.

~Charles Lemonides, founder, ValueWorks, "Money Managers are Cautiously Bullish", Barron's.com, April 23, 2011

("Lemonides expects the Dow to hit 13,450 by the end of 2011, and 14,000 by June 2012. He sees the S&P 500 closing in on 1500 by the middle of next year, and the Nasdaq reaching 3200.")

Wall St "Big Money" bulls say we're clear for takeoff

The path of least resistance is upward. Right now, the market isn't particularly expensive, and, for the most part, the fundamentals have been pretty good. Interest rates remain low.

~Jacob Gottlieb, chief investment officer of Visium Asset Management,"Money Managers are Cautiously Bullish", Barron's.com, April 23, 2011

("In keeping with that forecast, Gottlieb expects the industrials to clear 14,000, and the S&P 1550, by the middle of next year.")

Apr 20, 2011

Ben Stein says monetary stimulus is generating a recovery, housing is next

I wouldn't say [the recovery] has come from federal stimulus, I would say it's come from incredibly accomodative monetary policy. The next natural driver will be the consumer recovering and the consumer feeling more confident, it's already happening in autos. If someone had predicted, a year and a half ago, that the auto-business would be whirring, no one would've believed him. But, because of very accomodative credit terms at the car dealerships, the car dealership business, the car selling and making business, is booming!

I think the next stage is, if somehow the Federal Reserve can convince the banks to be accomodative about lending for housing, housing will recover. I mean, there's no reason that the banks can not get back into housing. They don't have to be as wild and crazy as they were in the late '90s and early 2000s, but they should get back into lending. And when they do, then that will recover, too, and that will be another leg of the recovery.

~Ben Stein, actor, author and economist, WSJ's Markets Hub, April 19, 2011

Ben Stein says it's bad out there, but the forecasting accuracy of S&P is questionable

I think what we're seeing is the chickens coming home to roost. We had excessively large tax cuts in the Bush-era, I don't blame them for cutting taxes in the early stages of his administration, but once the economy recovered fully, he should've raised taxes again. We've had wild overspending under Mr. Obama without any clear results from it. So, the combination of too low taxes, too much spending, has just been a disaster and the disaster is getting worse.

We have a hundred percent ratio, roughly a hundred percent, of the debt to the GDP. That has not happened since 1945. After that, we got rid of that enormous ratio by inflation and by the economy growing and the deficit stopped. The deficits are stretching out as far as the eye can see. There's no end to them in sight. So, it is a worrisome situation.

On the other hand, to strike a little lighter note, in terms of the accuracy of the S&P's predictions, they're also the ones who said there were no problems with the mortgage-backed securities. So, we don't know whether there as good at forecasting these things as they say.

~Ben Stein, actor, author and economist, WSJ's Markets Hub, April 19, 2011

Ben Stein says the recovery is in full swing, but market 'scarily' buoyant

This is still a very good place to invest. People realize that we're still in the early stages of a recovery, the recovery will probably strengthen. But still, the market is very, very buoyant. I must say that as a long-time watcher of the stock market I would consider this market a little, 'scarily' buoyant.

~Ben Stein, actor, author and economist, WSJ's Markets Hub, April 19, 2011

Apr 19, 2011

Doug Kass does a mea culpa on his bearishness

Conditions are not as bad as I had once feared.

~ Doug Kass, "Kass: Mea Culpa," TheStreet.com, March 2, 2011

Apr 17, 2011

Jim Grant on gold standard

If I am right about the dynamics of the Federal debt, not only is the mathematics for a gold standard compelling but so are the politics. In other words, and this should be no surprise to anyone, the transition to real money will continue until the fraud that is unbacked fiat is finally eliminated, with or without the Fed's support.

Jim Grant, Consuelo Mack Wealthtrack, April 14, 2011

Todd Salamone on how a "low" VIX does not signal a top

With April expiration now behind us, the CBOE Market Volatility Index (VIX - 15.32) enters the week trading in the 15 area again, which has been a floor since December. Evidently, those seeking protection against a downturn view portfolio insurance as "cheap" when the VIX ventures down into its present area. And with many protective puts expiring this past week, it wouldn't be a major surprise to see index put buyers active in the days ahead. Such activity can be a headwind for equities, as sellers of portfolio insurance hedge by shorting futures.

But the VIX is not as "low" as it appears on the surface. For example, in late December and early February, the SPX's 20-day historical volatility was registering readings of 11.0 and 11.3 when the VIX was trading in the 15-16 area. Right now, SPX 20-day historical volatility is just over 8.4, which would suggest the VIX is relatively high, even as it trades at chart support and may be considered relatively low by most portfolio managers. The bottom line is: Based on SPX historical volatility, the VIX has room to move lower.

~ Todd Salamone, "Putting a 'Cheap' VIX in Historical Context; Despite near-term hurdles, bulls still have the upper hand," Shaeffer's Monday Morning Outlook, April 16, 2011

Paul Krugman can't see a reason to call inflation a problem

Wage growth hasn’t fallen as much as I expected a couple of years ago; it’s now clear to me that I failed to put enough weight on the downward wage rigidity literature. But there’s nothing here to suggest any reason to consider inflation a problem.

~Paul Krugman, NYT columnist, "Inflation, Here and There (Wonkish)", NYTimes.com, April 16, 2011

David Stockman on the Fed's Zero Interest Rate Policy

The destructive result of the Federal Reserve's earlier housing and consumer credit bubble became the excuse for embracing a destructive zero interest rate policy which is self-evidently fueling even more destruction. This destruction is namely, the exploitation of middle class savers; the current severe food and energy squeeze on lower income households; the illusion in Washington that Uncle Sam can comfortably manage $14 trillion in debt because the interest carry is close enough to zero for government purposes; and the next round of bursting bubbles building up among the risk asset classes. [...] So in the present circumstances, ZIRP and QE2 amount to a monetary Hail Mary. There is no monetary tradition whatsoever that says the way back to US economic health and sustainable growth is through herding Grandma into junk bonds and speculators into the Russell 2000.

~ David Stockman, "Federal Reserve’s Path of Destruction," MarketWatch, 2011

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Apr 10, 2011

Marc Faber on gold

At a conference in Singapore yesterday which was sponsored by a large wealth manager I asked the audience of 200 people how many of you own gold and nobody raised their hand.

I think gold is trading below where it was in 1999 based on the worlds expansion of money.

Marc Faber, CNBC.com, April 8, 2011

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Apr 8, 2011

Tony Dwyer on Q1 expectations and bullish corporate earnings for years to come

We're expecting another great quarter. At the end of the day, Maria [Bartiromo], the yield curve is steep, the economy keeps beating expectations. Look at retail sales this week: the comp store sales were above expectations even though Easter comes three weeks later. You know, our view is that the economy is kind of on fire, here, in a good way. The employment picture is dramatically improving and that creates, for us, probably out most differentiated call right now, is that the Fed is going to raise rates much sooner than most people think, probably in the early part of the second half of this year, but the language is going to aggressively become more hawkish as we get there.

I'm a little bit more cautious on the commodity trade, but very bullish... at the end of the day, the market correlates most directly with the direction of earnings and that is going to be positive for years to come.

~Tony Dwyer, chief equity strategist, Collins Stewart, CNBC, April 8, 2011

Apr 7, 2011

Bill Miller on the risk of a black swan in Saudi Arabia

The chances there [Saudia Arabia] of a very significant shutdown of oil are relatively, I'll say relatively, small. They're not vanishingly small, but they're relatively small.

~Bill Miller, chairman and CIO, Legg Mason Capital Management, CNBC's Squawk Box, April 6, 2011

Bill Miller on how he's limiting his downside potential

Oh not at all [does Miller have to worry about limiting his upside by pursuing a more conservative, risk-attuned strategy]. I think what's limited is the downside.

You know, had we gotten defensive back in the fall of '07, and then gotten offensive in the fall of '08, that would've worked out very well. Right around the time Warren Buffett wrote his editorial about 'time to buy America.'

~Bill Miller, chairman and CIO, Legg Mason Capital Management, CNBC's Squawk Box, April 6, 2011

Bill Miller on how he's adapted his management style to the existence of black swans

We've always had a very robust set of strategies for dealing with all kinds of different kinds of markets, but I think the big mistake that we made, or that I made, was effectively to say, "We need a strategy to deal with anything that's happened in the post-war period." So, inverted yield curves, inflation, a crash like in '87, all different kinds of panics.

But I explicitly ruled out a return, in essence, to depressionary conditons, just like I ruled out a new Civil War, for example. Well, the answer, I think, is you can't rule out anything. Anything. I think you have to look at anything that can hit aggregate demand or aggregate supply. And that's the thing I think we're well prepared for now.

And also, understanding that there are two types of financial crises: one of them, which we've navigated in very well, like the crash of '87, which are liquidity-driven crises. The strategy in a liquidity-driven crisis is pretty simple, which is, when massive liquidity is injected, you buy what the center of the crisis is; in an asset-based crisis, like we had in 2008, that strategy is very bad, as we found out to our chagrin. The proper strategy there, in an asset-based crisis is, you don't do anything until the authorities move to stabilize asset values and preserve them. That was TARP. Everything the Fed had done or the government had done, the Treasury had done up until TARP destroyed equity value. So, wipe equity holders out at Bear Stearns and wiped them out, and even creditors, at Lehman Brothers.

Once they decided to preserve equity values with TARP, that was the beginning of the end of the crisis. That was the time you go in and buy. So, I think we're covered on both kinds of crisis in the future.

~Bill Miller, chairman and CIO, Legg Mason Capital Management, CNBC's Squawk Box, April 6, 2011

Bill Miller on the Fed's ability to avoid hyperinflation II

Well you never know [if you're headed for a big, surprise shock], the markets, everything is uncertain. But, you have history to go on, you have theory to go on, you have enormous slack in the economy, what you've got, you know, is the unemployment rate is still 8.8%, you're a long way away from wages, which are 70% of corporate costs. You'd certainly need to be closer to capacity utilization in the 80s instead of in the 70s [percent] where we are right now, you'd need unemployment down probably 5-6 [percent] before you're going to have any type of a cost-push in things.

~Bill Miller, chairman and CIO, Legg Mason Capital Management, CNBC's Squawk Box, April 6, 2011

Bill Miller on the Fed's ability to avoid hyperinflation

[The Fed has] already monetized a huge amount of this, they've provided an enormous amount of liquidity, there's a trillion dollars of excess reserves sitting on the Fed balance sheet. The issue is, how do you move away from that? I personally wouldn't go so far as Chairman Bernanke that he's a hundred percent certain that they can do it, but, you know, call it eighty-five to ninety percent, because the Fed's balance sheet will normalize on its own. If they don't do anything, all of those mortgage-backed securities will mature and they'll just drift away over the next 7-10 years.

~Bill Miller, chairman and CIO, Legg Mason Capital Management, CNBC's Squawk Box, April 6, 2011

Bill Miller on historical Fed-induced buying opportunities

Historically, when the Fed starts to tighten, when it moves from 'accomodative' to 'neutral', you get a pretty significant correction in the overall market. That's always been a buying opportunity. The real problem comes when you move from 'neutral' to 'tight'. When the Fed starts talking about imbalances and they're trying to correct imbalances. So, you could get a correction, and there are going to be corrections along the way, but anywhere from the zero-bound right now to, call it 2-3%, is not going to be a significant drag on equities.

~Bill Miller, chairman and CIO, Legg Mason Capital Management, CNBC's Squawk Box, April 6, 2011

Bill Miller sees room to grow for stock prices and earnings

The market's up about 90% or more from the bottom, but earnings are up about 90% from the bottom. So, we're really looking at a market where forward twelve earnings multiples are not much higher than they were at the bottom. The difference of course is that the market as a percent of GDP is a lot higher than it was then, so the slack is not what it was. But you still have great values in this overall market.

You're going to see margin headwinds and that kind of thing and also just consumption, because of oil prices, will be a bit of a drag. But at the end of the day, you're looking at companies with great free cash flow yields and rising dividends and low P/E ratios and I think the overall earnings growth is not going to be what we've seen but you'll see earnings growth over the next few years be at least equal to nominal GDP, maybe a little bit higher.

~Bill Miller, chairman and CIO, Legg Mason Capital Management, CNBC's Squawk Box, April 6, 2011

Apr 6, 2011

Abby Cohen on recession, the Fed, and inflation (2011)

We don't see a recession anywhere on the horizon.

I think the Fed has done a terrific job overall these past several years.

It's hard to see where a dramatic rise in inflation will come from.

~ Abby Cohen, Goldman Sachs, as appeared on CNBC, April 6, 2011

Apr 2, 2011

Paul Krugman denies efficacy of routine Keynesian stimulus

I know that some people find this hard to understand — perhaps because they don’t want to understand — but people like me have never claimed that fiscal expansion is always and everywhere the right policy, even in response to recession. Nor are other arguments, like the argument that falling wages reduce, not increase, unemployment, universal. All of the unorthodox policy recommendations and conclusions are contingent on the economy being in a liquidity trap, in which short-run nominal interest rates are up against the zero lower bound and can’t go lower.

And liquidity-trap conditions are rare; in fact, they’ve only happened twice in US history. Unfortunately, we’re living in one of those episodes right now.

~Paul Krugman, Nobel laureate, New York Times, "Even More on 1921", April 2, 2011

Apr 1, 2011

Argentine central bank chief denies monetary connection to price increases

The price problem doesn’t have monetary roots. The conditions that could cause inflation to accelerate don’t exist in Argentina.

~Mercedes Marco del Pont, president, Central Bank of Argentina, Bloomberg Markets Magazine, "No One Cries for Argentina", March 28, 2011