'Companies are not saving cash for a rainy day, but a rainy decade,' said Tanya Beder, chairman of SBCC Consulting.
Featured Trades: (POT), (MON)
4) More on the Grains. I managed to catch an interview with Charlie Rentschler at New York boutique investment bank, Morgan Joseph, one of the top agricultural analysts in the industry, known as the 'Farmer from Harvard.' He says that investment in the sector is a frustrating and unpredictable mix of bugs, weeds, and weather, tossed in with capricious government policy and volatile commodity prices. The industry is enjoying enormous productivity increases, thanks to new genetic seed varieties, narrowing rows for planting which accept more corn seeds in the ground,? automatic GPS steered tractors, and farms requiring less tillage, enabling more acres to be planted. Ethanol now accounts for a staggering 10% of the arable land in the US and one third of the corn crop, and is having a huge upward push on prices. It has ratcheted corn up from the $2 to $4/bushel range, and soybeans from $4 to $10/bushel. His first pick is Saskatchewan fertilizer producer Potash (POT), which is benefiting greatly from rising prices and soaring demand from China, followed by Monsanto (MON), which I, myself, have been pushing for a year. After a period of weakness triggered by the government's January crop report predicting huge increases in corn plantings this year, which is cutting the knees from under prices, I expect to see a long term bull market in food prices. Wait for the markets to price in another perfect year, buy, and then wait for the weather to turn bad, as it invariably does.
'There is no such thing as an isolated economy anymore,' said Alan Greenspan, former chairman of the Federal Reserve.
Featured Trades: (AMZN), (KINDLE)
1)? Amazon Conquers All With the Kindle. I knew Jeff Bezos back in the eighties as this always cheerful quant in Morgan Stanley's bond department who had this incredibly annoying laugh.? He blew us all away when he took off on his own, used innovative technology to discover the immense profits to be found in long tale markets, and built Amazon (AMZN) into the world's largest book seller, practically overnight. Now I learn that the alpha male of internet distribution is selling more Kindle books than old fashioned hard copies, at a ratio of 1.8 to one. I expected this, but not for another five years. Once again, the rate of technological progress has caught me flat footed. This development is the result of a brilliant strategic move by Bezos to slash prices of his Kindle eReader from $259 to $189, thus, under-pricing Steve Jobs' cheapest competing IPad by a stunning 62% (click here for Apple's Next Stop: $1,000). Kindle books are vastly cheaper than hard copies that range from $20-$40, carry no shipping cost, and are delivered instantly. Some 81% of Amazon's Kindle book offerings cost less than $9.99, and 1.8 million pre 1923 published books are free.? Kindle books are even price competitive with paperbacks. Some analysts believe that the 3 million new IPad owners are buying more ebooks from Amazon than Apple, whose offerings are pricier. I will miss the musty smell of an old, hand tooled, leather bound tome almost as much as my wooden slide rule, six track tapes, and manual adding machines. In order to get the new price for a Kindle at Amazon, please click here.
Featured Trades: (SINGAPORE), (EWS)
Singapore iShares ETF
2) Singapore Sizzles. I have always had a love/hate relationship with Singapore. During the seventies, the autocratic Prime Minister, Lee Kuan Yew, regularly locked up journalist friends of mine and banned magazines like The Economist that published my stories. The country is also notorious for public canings of offenders who had the audacity to discard chewing gum on public streets. On the other hand, my hedge fund was once one of the largest commission generators on the Singapore Monetary Exchange (SIMEX), and there is no better place to spend a weekend with ten grand burning a hole in your pocket. I spent more than a few nights closing down the bar at the Raffles Hotel, home of the Singapore Sling. Today, Singapore has won the sweepstakes to become the world's fastest growing economy, bringing in a white hot first half 18.1% GDP growth rate. Analysts believe that the full year number could come in as high as 15%. Global equity investors have taken notice, pushing the stock index up 5%, making it one of the best performers (EWS). The Singapore dollar has also been appreciating against its competitors. Even a slow ratcheting up of interest rates by the Monetary Authority of Singapore has done little to cool things off. The results were powered by a booming financial sector, which saw assets under management soar by 40% to $871 billion last year, thanks to an explosion of newly minted Chinese millionaires and billionaires. Foreign banks are jumping on the gravy train, with Goldman Sachs and Morgan Stanley scrambling to add local staff. Tourism has received a huge shot in the arm, thanks to the recent legalization of gambling. Drug giants like Pfizer, Sanofi Aventis, Roche, and Glaxo-Smith Kline have gravitated there to ramp up large scale manufacturing for export to the rest of Asia. The country's leaders have wisely parlayed decades of trade surpluses into Temasek Holdings, one of the largest sovereign wealth funds, and long a major player in the foreign exchange markets (click here for their link at http://www.temasekholdings.com.sg/). You heard international stock guru, Vivian Lewis of Global Investing, list this island nation as one of her favorite picks on Hedge Fund Radio (click here for the link). You also listened to Adrian Day of Adrian Day Asset Management extol the virtues of Singapore because of its believable accounting and super strong balance sheets (click here for the link). I'm not one to let an old grudge steer me away from a great investment opportunity, so better pick up a position in the best managed country in the world on any serious dips, even if the train has already left the station.
My Old Singapore Hang Out
Singapore is Caning the Competition
Featured Trades:? (US ECONOMY), (BAC), (C), (MS),
(ANTI BUSINESS OBAMA)
3) The Hard Numbers About Obama's Anti Business Campaign. I'm a numbers guy, OK? Give me a set of hard data, and I'm happy to draw my own conclusion. Save the argument, the persuasion, and the spin for someone else. You may have heard from the media lately that President Obama hates business, is anti business, and is derailing the economic recovery with his anti business policies. So I set out on a hunt for the hard numbers to support these assertions, and found the chart below of S&P 500 earnings going back to 1935. When the diligent former junior Senator from Illinois took office in January, 2009, inflation adjusted earnings, at $7/share, were the lowest in 75 years. They have since rebounded 857% to $60 a share, and most analysts are pegging $75 a share for 2011, close to an all time high. This has been the most rapid recovery of corporate earnings in the history of the country. So, I thought, this can't be right. What about Obama's relentless attacks on greedy banksters and Wall Street fat cats? So I hurried to www.stockcharts.com to see how these pariah institutions have fared. Since inauguration day, Bank of America's (BAC) stock has rocketed by 220%, while my alma mater, Morgan Stanley, is up a healthy 32%. I thought the financial reform bill was supposed to drive these people out of business. What about GDP? It must be terrible. But when I check the data it showed that the economy has grown during the last 18 months, and that GDP is actually at an historic peak. No matter how hard I searched, the only data I could find showed that business has prospered mightily under Obama, with many, like Citigroup (C), up 102%, rescued from the edge of bankruptcy. Then I had my Eureka moment. There has been so much talk about jobs lately that maybe the Department of Labor would help. Aha! Sure enough, the unemployment rate has plunged, and I mean absolutely crashed, from 7.8% to 9.5% (click here for the link at http://www.bls.gov/ ) . That explains why jobs have emerged as the central issue in this year's congressional races, how Sarah Palin has suddenly become a labor economist, and how Fox News has morphed into the 'Where Are the Damn Jobs' channel. Wait a minute! Didn't the Bush administration create only 1 million jobs in eight years, compared to 23 million by President Clinton? Wait a minute! This must be some sort of statistical anomaly. What about the talking heads on TV? Isn't employment supposed to be a deep lagging indicator? I'm confused. Help me out here, guys. I think I'll go back to looking at my numbers.
'Hedge funds started out delivering equity type returns with bond type volatility. They now generate bond type returns with equity like volatility,' said my former Morgan Stanley colleague, Byron Wein, now co-chairman at Blackstone Advisory Services.
Featured Trades: (FXE), (IRELAND)
Currency Shares Euro Trust
1) Ireland Points the Way for the Euro. When you bend over backwards to kiss the magical stone at Ireland's Blarney castle, you can't help but notice a sign assuring you that your won't catch AIDS in your effort to obtain the gift of persuasion. However, the ancient stone is completely covered with lipstick. Investors in Ireland national debt certainly must feel like they contracted the dreaded disease this morning after rating agency Moody's announced a downgrade of the country's debt from Aa2 to Aa1. Ireland saw a real estate boom even more frenzied than our own, at the eventual price of $32 billion in bank bail outs. That has driven the country's debt/GDP ratio from 25% to 64%, and Moody's thinks it will eventually get to 100%. The bigger question is what all of this means for the Euro (FXE), which has spent that last two months getting talked down from a suicide leap (click here for my piece). Suddenly, the European currency has gone from being the leper with the least fingers to the most, thanks to the sudden economic slow down in the US. Credit default spreads for the PIIGS have been narrowing, traders are willing to give the European Central Bank's rescue package some grace, triggering a speedy unwind of one of the largest short positions in history. The European bank stress tests are expected to deliver the same arbitrary seal of approval that the American ones did. Hedge fund managers are choosing to take extended vacations at the Hamptons, Cannes, and Newport Beach than re-establish their Euro shorts. All of this means that the Euro could remain muscular through the summer. We'll get the first hint tomorrow when the troubled Irish tap the market for ?1-1.5 billion in new debt, and we find out how powerful that Blarney Stone really is.
Featured Trades: S&P Composite Real (Inflation-Adjusted) Total Returns
2) How we are Ten Years Into the Bear Market. As part of my never ending quest for truth, accuracy, and insight into the future direction of stock prices, I thought I'd pass on this chart from my friends at Business Insider showing that things are much worse than you think they are. It compares the current stock market performance with that seen after the 1929 crash, and makes the assumption that stocks peaked not in 2008, but in 2000. That means we are ten years into a bear market, not three. While our market is down during this period by 34% on an inflation adjusted basis, the previous Dark Age for stocks was down only 16% at this stage of the cycle. What's more, if you look at the second chart of Robert Shiller's cyclically adjusted PE multiples for the last 130 years, stocks are still over valued by 20%. The chilling conclusion here is that shares may have another decade of downside left, and the fair value for the S&P 500 is around 850. A momentum driven sell off, or another flash crash could easily take us lower. It is all just another excuse for me to avoid equities generally and to direct my advances towards commodities, currencies, precious metals, and emerging market stocks and bonds.
Featured Trades: (GS)
3) Way to Go, Goldman! I am somewhat annoyed with the SEC's settlement with Goldman Sachs (GS) last week, as I was within a hair's breadth of putting out a buy recommendation. The stock hit a low of $130, but being the tightwad that I am, was holding out for $125. The deal was clearly a win-win for both sides, the announcement causing the stock to pop an instant 15%.? The Obama administration can now rightly claim that they have punished the evil banksters, extracting $550 million, the largest settlement in history. The cost to GS came in at only 1% of the high end estimate that analysts were looking at, and they are now free to rape and pillage as they wish. Best of all, they ring fenced their civil liability, shattering the wistful dreams of countless class action attorneys. 'Kill all the lawyers', as Shakespeare wrote in King Henry VI! Who can argue with that? The 'fabulous' Fabrice Tourre was hung out to dry, which we all knew was going to happen. I still think GS is the preeminent powerhouse of the financial markets, and that their shares will outperform every measure. When the fox is still running the hen house, I'll bet on the fox any day of the week. Keep GS on your 'buy on meltdowns' list.
