“Invest at the point of maximum pessimism.”
-John Templeton
On Friday, there were plenty of opportunities to invest at Sir John Templeton’s point of max gut check. The VIX was at 80 and capitulation volume was at hand. The S&P500 ending up closing +6.3% on the day, after having a +7.4% rally from its intraday lows. If you can’t buy them when they are on fire sale, managing money in a bear market is probably not for you. Bear market rallies are more powerful than those in bull markets.
Not too long ago, a lot of people thought that all investing required was other people’s money. After all, one of the men who I learned from in this business told me once, “you see Keith, the art of managing money, is having money to manage.” Some of the best lessons in life come when people teach you how not to think. That fee hoarding approach doesn’t do the client a whole heck of a lot of good if all you do is freak-out at market lows and lever up long at market tops. If the vaunted Portfolio Manager doesn’t get that, guess what? His or her client will remind them of as much come redemption day. They wear the pants in this relationship.
Admonishing the do whatever it takes to “make money” mantra is what this country needs. We need the return of principles based leadership. Plenty of capital will be made if we do this right. This is going to take time, but this is America… and if I trust in one thing out there in this country, that’s it. Alongside the change in economic leadership that Obama is going to instill, we are going to see the same in the asset management business. Both are long overdue.
We’ve been pointing to firing Hank “The Market Tank” Paulson as one of the major pending catalysts for a short squeeze. With Tim Geithner and Larry Summers respective appointments to “The New Reality”, I was smiling on Friday. No matter what your politics, you have to be proactively preparing for structural change in the leadership of this country. Whether a $500B two year stimulus plan will work or not is not the point. The point is that change matters. Particularly when the media will have you believe that pirates and the apocalypse cometh…
Getting Hank and Mark Cuban out of the game isn’t going to hurt anyone. That much I can say with a high degree of certainty. Turning Citigroup into a government office is probably the right thing to do so that America can get the “Pandit Bandit” on shore, under supervision. Citigroup’s stock is down 86% year-to-date, and while that still may rival Pandit’s Old Lane hedge fund performance, we’ll never know. “Investment Banking Inc.” has a creative way of instituting narrative fallacies into the market’s daily dialogue, so that we simpleton folks forget such non-trivial issues like facts.
The facts are on the scoreboard and it’s time for the compromised to walk the plank. Goldman’s stock broke its 1999 IPO price of $53/share. The Big Mack’s Morgan Stanley, which we remain short in the ‘Hedgeye Portfolio’ trades at $10/share… and according to the analytical savants of yesteryear, both are “trading well below book value.” Ah, right… and what exactly is on those books these days anyway? Now that the Fed is levering up to almost 60x with a capital ratio nose-diving under 2%, will there be enough cash in the pirate ship’s hull to get to the Black Pearls of GS and MS? Or will they too surrender to becoming dry docked government museums?
Citigroup reminds us this morning that the “Pandit Bandit” has no idea what his book value is. You see, that’s a shareholder equity thing… and he gets paid out of the income statement. Pandit also reminded us that he was comfortable buying insider stock ahead of the most certain investment thesis on Wall Street – that Hank Paulson will give $20’s of billions of dollars to his banking cronies in the form of “preferred stock” investments. “Preferred” … Hank and the boys love that, and they will do whatever it takes to “have money to manage.”
With 3-month US Treasuries at 0.01% this morning, money is free. BUT… only if you are in the “Investment Banking Inc.” club… so don’t get all excited and stuff… if you’re like me, flying coach out to California and staying in a Residence Marriot, being a capitalist, you’re not getting any of it. And you know what, you shouldn’t – it’s un-American.
The good news is that if you have proactively prepared for this mess, you are liquid long cash, and have nothing but the blue deflationary skies of opportunity created out of crisis to look forward to. I am looking at office space in San Diego, CA today that’s going to run us a buck a foot. Remember how hard your grandparents had to grind to earn a buck? Maybe someone should fire that memo over to that Target “activist” who is still running around putting leverage on top of leverage with other people’s money.
If you want to manage other people’s money, start by respecting that it’s not yours to lose.
Best of luck out there today,
Long ETFs
OIL iPath ETN Crude Oil –Crude futures rose above $51 per barrel this morning on a weakening US dollar.
EWA –iShares Australia – In a speech in Melbourne today Rio Tinto (EWA: 3.1%) Chairman Skinner predicted the slowdown in Chinese demand for base metals will be short, forecasting a rebound within 2009.
EWG – iShares Germany –  IFO institute business confidence survey fell to its lowest level in over 15 years  at 85.8 in November, down  from 90.2 in October. Moody’s maintained German sovereign debt at Aaa: Stable.
FXI –iShares China –The CSI 300 Index, declined 83.09 points (4.3%) in a broad based sell-off.
 VYM – Vanguard High Dividend Yield ETF --Shares of JPMorgan Chase (VYM:2.33%) and  Bank of America (VYM:2.14%) each rose over 5% in trading in London after the Citi announcement.
Short ETFs
UUP – U.S. Dollar Index –Currency Trading was dominated by the Citi announcement with the Dollar declining against the JPY and EUR.
FXY – CurrencyShares Japanese Yen Trust – The Yen rose to 95.25 USD on news of the Citigroup bailout.