A good friend of Research Edge is currently enrolled at Yale Law School. This future Supreme Court clerk was kind enough to give us the heads up that former Treasury Secretary, Robert Rubin, was speaking at the Yale Law School yesterday. While Keith briefly touched on Rubin's hour long lecture plus Q&A in the Early Look, we wanted to more broadly highlight some of his comments.
Rubin is clearly relevant in current investment discussion given his role in both working with and mentoring Treasury Secretary Timothy Geithner and National Economic Council Chairman Larry Summers. Given the background that both of these men worked for Rubin for extended periods, there can be no doubt that Rubin has some influence, if not a great deal, over current events. As a result, it is worth understanding just how the economic godfather, Robert Rubin, thinks.
Keith and I attended the presentation with two current students of Yale Law School. No doubt I was the least intelligent (except for maybe Keith) of our group, with very likely the most partisan Republican views. Interestingly, despite widely varying political beliefs among our four person Rubin lecture watching cohort, we all come to the same conclusion: Rubin was radically underwhelming. Moreover, it was scary to think that he was at one point one of the most important economic policy makers in the world, who still has incredible influence today.
In lieu of actually transcribing his comments, I'm just going to "You Tube" various quotes from the lecture. While this may read as a bit laughable, just remember this man has real influence.
Rubin: "No one saw the extreme confluences of events that led to this recession."
Research Edge: We went to 96% cash in September 2008 and we were hardly alone in this call.
Rubin: "Everyone missed it."
Research Edge: Everyone who owned Citigroup stock or was on their Board, definitely missed it.
Rubin: "The most important academic experience for my career in finance was my first year class at Harvard in Greek Philosophy."
Research Edge: Not a lot of quantitative analysis was taught in Greek Philosophy as I recall from my first year Greek philosophy class.
Rubin: "I do not believe there are bad assets."
Research Edge: So there are only good assets? What about highly levered banks that ostensibly have no equity value . . . bad assets?
Rubin: "I called for more regulation on derivatives in my 2003 book." (said this about 4x)
Research Edge: What did you DO when you were in those board meetings at Citi?
Rubin: "There is no risk of any defaults on sovereign debt globally."
Research Edge: History tells us that sovereign defaults will likely increase dramatically in the coming months.
Rubin: "A key problem in our Democracy is that our electorate is not informed."
Research Edge: My mom didn't go to Harvard, Yale Law School, or work at Goldman Sachs, but I'd consider her very informed. She also does math.
Rubin: "I ran the whole bloody thing (sales and trading) at Goldman Sachs, so I think I understand a thing or two about markets."
Research Edge: I guess experience at Goldman makes any opinion valid.
Rubin: "Psychology changes (and thus markets) move for no reason."
Research Edge: This is an interesting comment for a guy that ran sales and trading at Goldman for so long.
Rubin: "I think there is something in human nature that causes euphoria in markets."
Research Edge: Gee, thanks Ruby.
Rubin: "The criticisms of the Clinton years' major economic policies, repealing of Glass-Steagall, lack of regulation of derivatives, and the creation of the CRA, as contributing factors to this crisis are unwarranted."
Research Edge: We don't necessarily blame Rubin or Clinton, but certainly they are far from blameless. A little accountability could be a start.
Rubin: "That little group (referring to President Obama's Economic Recovery Advisory Board) is having good meetings."
Research Edge: This "little group" includes Paul Volcker, David Swenson, Bill Donaldson, and John Doer, to name a few.
Arrogance is scary in its own right, but can be outright dangerous when it is the key characteristic of a person of real influence. Perhaps Mark Twain summed it up best when he said: "The offspring of riches: pride, vanity, ostentation, arrogance, tyranny." The minute any of us believe that our resume or wealth makes us impervious to criticism is a dangerous time indeed.
Daryl G. Jones
The Shark Line (great white line in the chart below at the SPX 821) is the line that continues to matter most to my model.
The intraday moves we have seen above and below that line today speak to The New Reality of it all. If we Break the Buck, probability plays to the favor of the bulls. If we let the USD strengthen, the SP500 will weaken further.
Downside support is 783 (dotted green line) and upside resistance is 851 (dotted red line). Trade this very trade-able range.
Keith R. McCullough
Chief Executive Officer
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Below is a chart outlining the current Cash Flow multiples for the casual dining stocks! As we sit here today, two names stand out as being mispriced - MSSR and PFCB.
In very short order, RT is now being valued at a premium to the FSR stocks. If that were to happen to PFCB, there would be nearly $8 of upside or 31%! If MSSR were to be repriced over night, there would be $3 of upside or 74%.
The shorts need to be very careful!
Today the Fed announced that they've purchased another $3B worth of US Treasuries. These were all bonds with 2010 and 2011 maturity dates. One of the ways that Bernanke can Break the Buck is by buying Treasuries. After the Fed's announcement, the US Dollar rolled over and is currently trading down on the day down at $85.14.
Not surprisingly, as the buck breaks down, US Equities are testing the short selling community here right at the breakout line. The SP500's breakout TREND line remains 822, while the USD's breakdown TREND line remains 84.87.
In yesterday's Q2 Macro TREND conference call I walked through the theme of The Queen Mary Turning (cost of capital breaking out to the upside). While the likes of Timmy Geithner doesn't get this, I am certain that Heli-Ben does. Now that he has cut rates to zero, the only way Bernanke can stop the upward inertia in the chart below (10-yr yields), is to buy Treasury Bonds.
(chart courtesy of stockcharts.com)