Posts Tagged 'FCX'

Damn! I know That Invite Was Here Somewhere

merci, ben

danke, ben

謝謝你,本

Gracias, Ben

ベン、ありがとうございました

σας ευχαριστώ, ben

شكرا لكم، بن

 

The world over, in every language, from French to Mandarin to Greek to Arabic, the same words are being spoken with incredible enthusiasm, often in a voice that cracks with unbridled emotion and gratitude.  They are 3 simple words: Thank you, Ben.  But there are always the forgotten ones, those who declined the invite. Now, they lay in their beds, pulling their pillows tightly over their heads, cursing the loud music and laughter coming from next door as they hold firm to their righteous beliefs that such frivolity does no one any good, it’s too late, it’s too dangerous, it’s sacrilege, it’s too Keynesian.  Good luck with handling the outflows.

 

Frankly, I don’t care if Keynes is throwing the party, or Bernanke or Draghi.  All I want is to have a good time.  I don’t care if the host pays the caterer after I leave or doesn’t – ain’t my problem, ain’t my job.  And cleaning up – that ain’t my job either, I’ll be long gone before the mess has to be cleaned up.

 

I was in a similar situation once.  I was in college, working weekends at a job that started at 6 AM so I decided to go to bed early. It wasn’t my usual M.O. but I had peaked earlier in the week and was exhausted. With the party in the dorm just getting going, I found myself tossing and turning and cursing out those morons next door.  Finally, I threw off the covers and threw on the jeans and joined in.  Someone else would have to throw the towels in the washer at the tennis club (or I would just fold the dirty ones – who would know? They sweat like pigs anyway).

 

So the bears have a choice: let common sense and a strong belief that what Bernanke is doing is wrong and miss the party or say “what the hell” and join in. If they’re smart, they took the latter route and realized that it’s not their job to debate economic policy and what the long term impact of QE’s will be; it’s their job to make money and when the world over is easing – except for the Chinese who’s contribution is to pay lip service to it – you have to lift the glass.

 

Thus the only question is how much of a good time is too much?  Can I throw back that lost jelly shot or is it time to hail a cab and head home.  For me, my margin of error is sometime before Rosie O’Donnell starts looking like Kate Upton and when I start talking about how, at 5’8” inches (maybe), I used to be able to dunk a basketball. But having been around long enough, I’m not going to get greedy.  I’ll be back to shorting materials soon but for now I drink the castor oil and am long some of the worst positioned companies I could find: steel and iron ore. I do feel guilty going to the dark side but these are only trades.

 

My favorite quote of the day comes from Home Depot as they announce the closure of 7 big boxes in China:

 

“China is a do-it-for-me market, not a do-it-yourself market, so we have to adjust,” the company said, although the country’s slowing economy is also not helping.

 

Are these really the same people that are going to take over the world?  They can’t even find their Chosen One although I had heard he was spotted in Macau driving a Ferrari with a Pamela Anderson look-alike (circa 1998) in the passenger seat while looking for a role as an extra on The Hangover III.

The European Spring: Why Caution is the Best Market Position

In typical Hollywood fashion, the producers of the successful Arab Spring

have announced the sequel,  The European Spring, starring the people of

France.  In fact, pre-filming has already begun for the 3rd installment in

the series, The US Spring which will be airing the first Tuesday in

November.

The French

The French hosting elections on a Sunday is itself an interesting issue; I

have to assume they value their days off during the work week too much to go

to the polls than they value their leisure time on Sundays.  Logistics

aside, the polls point to a victory by François Hollande and socialism again

taking front and center stage in the City of Lights.  (Why shouldn’t

Parisians leave the lights on – the government is footing the bill.)   Of

course, Sarkozy can pull it out in the final days if he is able to draw in

the fence sitters and Le Pen acolytes; this should not be completely

discounted.  But assuming Hollande wins, I have heard the argument that this

event is already priced into the market. So will the rhetoric about

endangering the EU fade as political campaign promises often do?  Not on

your life.  With legislative elections upcoming on June 10th and June 17th,

the rhetoric is just beginning.  Those arguing against France’s

participation in the bailout fund and austerity as the path to growth will

be emboldened to speak even louder.  That, after all, will be the proven

path to winning a seat in the National Assembly of the Fifth Republic.

The Greeks

The Greeks have their own election on Sunday.  With massive unemployment,

there is hardly a reason to hold their elections on the weekend. Don’t these

people need something to do during the week or is that when the beaches are

less crowded?  From all reports, it looks like the coalition will survive by

the slimmest of margins. The rhetoric here too will build as their exit from

the EU remains the likely end game.  But if the coalition falls apart,

either on Sunday or near term, then the collapse of the EU is an immediate

fait accompli.

The Rhetoric

So the chatter will increase as the citizens of France, the Netherlands,

Italy, etc., continue to question with increasing authority and anger, why

they should labor under austerity programs in order to support the

irresponsible governments of Spain and Greece.  This will continue to

pressure the indices particularly as Spain and Italy continue coming to the

market to roll over their debt. At present, there is no avenue to growth and

Draghi seems unwilling to inject anymore stimulus into the markets until

governments put forth growth initiatives (and maybe, actually do cut

spending).

The Sequel

So this is the sequel to the Arab Spring as the Europeans rise up and say no

mas.  It is a more civilized uprising, as they perhaps torch candles instead

of themselves, but an uprising nonetheless. And then, in November, it will

be our turn.

Add to this the slowing US economy – yes, slowing, not a pause, and the EU

and China continuing to slow, and you have a rather poor outlook for US

equities.  But Brazil is the bright spot, isn’t it?  Nope. China is the

economic delta for Brazil.  We had an earnings season that few had expected

in terms of growth and outlook but the skepticism about the future is what

preys most acutely on the market, and, the economy.  Sure there are bargains

to be had but like most retailers, there is never one clearance price.  And

yes, Treasuries are fully valued and arguably in a bubble, but that’s been

the story for a while too.  I don’t know who is good picking bottoms and

tops so I’m staying low beta and fairly neutral.  There is very little

chance that under this scenario, allocators have a call to arms for

equities.  That will happen but not now. Not perhaps unless there is a

Romney victory and Europe puts forth some plans for growth.  I would

actually support a position that puts Greece in default, cuts back on

austerity in favor of responsible spending for growth  but I’ll leave my

daydreaming for when I’m at the chick flicks my wife occasionally drags me

to.

I continue to be short global cyclical stocks such as materials.  I hate

beta, except perhaps on the short side and bunting instead of the long ball.

As my favorite metals and mining analyst, Pete Ward, said to me yesterday,

“steel has very high barriers of exit.”

During your market respite, you may want to read an excellent new book: The Big Win.

Europe Falls Short Again: What’s Next for Commodities and Stocks

“I could not have been more clear, I specifically asked for a bazooka and all I got was this little long range pea shooter,” said Mr. Market, clearly dejected.

Europe has done it again, taken the markets to the brink of despair, then sweet talked investors off the edge.  Frau Merkel has proven herself to be as alluring as the mythological Greek Sirens, her sweet songs of a stronger European Union with tighter budgetary controls enticing enough to convince unsuspecting traders to increase their risk.  But like a pimply faced teenager stuck at first base, they too will feel unsatisfied and longing for more.

At least they got smart about one thing, or so they believe, extending the deadline for the seminal announcement until March.  After the last two short window lead ins, they realized it takes months, or more, to craft a plan rather than a fortnight.  They will still come up short as each country realizes what Britain did which is they have no interest in being governed by the same country they had major problems with, well actually not exactly problems, more like out and out war.  However, even if reasonable  minds say that was then and this is now, the cultural divide between each country will prey upon this agreement.  But even if it does pass – it has not been officially ratified – and the countries needing approval from their broader government secures their assent, the very core of the agreement is flawed.  Let me see if I get this right: a country fails to either establish or enforce a budget in line with the requirements of the EU so the EU will then assess heavy sanctions upon the profligate nation.  Yup, that will work.

Candidly, as to my kids, I was not much of a disciplinarian. “If you do that again…,” I would say, both they and I knowing they would do it again and I would say that again.  Thankfully they turned out great.  Not so with Greece.  Without moral hazard, countries will continue to do what is in their politicians’ best interests.  Greece lied their way into the EU and the EU is responding with bailout after bailout.  I still believe allowing them to fail would be the best result.

This is the fifth bite of the apple for Europe and they continue to come up short, lagging a step behind.  Still no ring-fence, still no plan to save the banks, still nothing of substance; just words.  They are behind in everything, even video games.  The Mario Brothers went out of style a long time ago and the Italian version – Monti and Draghi – are not showing themselves to be Super Marios at all.  Draghi can get there if he opens the purse strings with a massive liquidity push, buying even more bonds than the ECB has in the past,  but despite two easings, he is still prone to alligator arms like the clients I used to wine and dine from my perch at Lehman;  his hands don’t reach the bottom of his pockets.   And with the most recent cut in rates being the result of a divided vote, it may get tougher for him to cut further given the European single mandate.  However, as the global economy slows and the USD strengthens, inflationary pressures will ease providing cover more rate cuts.

The banks still need $153 billion in new capital which I don’t see how they can raise without nationalizing some of the banks. But Santander does have a solution: they will just lower the risk level on their assets. Yup, that worked for Lehman.  So much for paying heed to the EU.  And should there ever be  a default and the CDS insurance kicks in, the global financial system will see a bigger meltdown than a forty-year old Japanese reactor.

The AAA ratings in Europe will be a relic of the past, no question as they are in virtually everyone’s mind, the only unknown is whether this will mark a near term bottom.  These ratings agencies continue to be an embarrassment, always multiple steps  behind.  Rumor has it that S&P management is urging their employees to contribute to the Herman Cain campaign for President.

Meanwhile, China continues to be slowing and I believe there is little they can do, or want to do, about the real estate bubble popping.  This bodes poorly for commodities.  With construction slowing, China has enough stockpiles of needed commodities to wait for a further decline in prices.  This is what they have always done when able and this is what makes them great traders.  They are like a private company, not worried about quarter to quarter earnings, taking a long-term view.  They were Warren Buffett before Warren Buffett became Warren Buffett, buying when others are fearful.  But with their primary end market, Europe,  going into a recession, possibly depression, the Chinese are limited in terms of what they can do to drive growth.  They would rather look for defaults and then step in and buy Greece or maybe even Hungary – its time to move on now that Taiwan seems under control.  India, though, not so much. The slowing in their economy, while not a complete surprise, is not welcome nonetheless.

This slowing will also hurt crude.  If Iran were not in the mix, we would already be trading in the 80’s to low 90’s.  Inventory figures have not been very good.

Euro short/ dollar long continues to be my favorite position.  As to stocks: I remain very light in exposure and tilted toward defensive.  Commodities look cheap but they always look cheap on the way to the bottom. I can be patient.  There has been too much beta chasing recently, in stocks such as X, that has to unwind.

The strengthening of the dollar will be as much a result of the strengthening US economy as well as the crumbling European economy.

So where can I go wrong?  The only way out of this is for massive stimulus by the ECB.   IMF rescues haven’t necessarily helped in the past. I am again inserting these charts I borrowed from JP Morgan:

IMF

Short the Rumor; Buy the Disaster

One of the best performing funds this year – actually any year – would be one that shorts the pop on every rumored takeover target. Here is what a partial holdings list would have looked like – all at much higher prices: HPQ (pure lunacy that ORCL would buy them); GM; X: AKS; NFLX (still a short); WLT; RIMM; POT; MU; FCX, CREE; AKAM; SHAW. Of course some of these turn out to be good longs at some point and I own HPQ, RIMM and WLT but bought after rumors didn’t pan out. Ironically some become more attractive after large declines such as WLT and RIMM. Rumors are usually code for someone saying “How the heck do I get out of this bad position!”


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