Man Love is very respected in many arenas in life. For example, in sports, men can wear their favorite athlete’s jersey or hat and it is a sign of respect and appreciation for that athlete. There is never any ridicule or whispering about the state of someone’s manhood just because they wear a replica jersey or uniform. The fact that you wear the Zubaz pants to match and might be over the age of 40 brings up a whole new set of issues, but we won’t get into that.
My question developed based on responses from two videos I had posted and got feedback on through video websites. Does Man Love have a place on Wall Street? Can you respect and admire someone to the point of openly professing your Man Love for them? I wrote in a previous article that Jamie Dimon was a “Hall of Famer” and a great CEO. I guess that was my little admission of Wall Street Man Love.
The first video was a “tongue and cheek” video about the “5 Most Overrated Value Investors”. It poked fun at Warren Buffett and Charlie Munger among other people, and pointed out that their track record since the age of 70 has been very ordinary.
The feedback was overwhelming! The comments were personal and they were menacing. If you criticize the Oracle of Omaha, you are criticizing apple pie, Mickey Mantle, and Old Glory. I can only image what Doug Kass must hear when he walks the streets. Obviously, if you go against the flow of main stream Wall Street Man Love, you take your life in your hands.
The second example of Man Love is the clear appreciation Jim Goldman of CNBC has for Steve Jobs and all things Apple. If you follow Jim, the reporter for Silicon Valley for CNBC, you will notice his IPHONE mapping system must not be working well , as Silicon Valley is defined as “Cupertino Ave and the surrounding buildings”. The feedback on this video was pretty light hearted and fun, with such comments as “thank god for saying it” and “Who pays his check, Apple or CNBC?”
So, where does Man Love fall on Wall Street? Is it okay to openly support your favorite company or bank leader? Bank leader will be a tough sell in this world, but what if you are a big John Mack or Jamie Dimon fan? Are JP Morgan shirts and Berkshire Hathaway replica jersey far behind?
I have been beta testing a new software that predicts niche markets at The Internet Time Machine and I am going to have to get my dibs in for the first Dick Fund sweatshirt with the Ghostbusters’ “not allowed” logo over his face. There could be a huge niche market for anti-Man Love Wall Street items!
I am sure you have heard of the term “urban legends”, or at least seen the movie based upon superstition and coincidence. Urban legends go something like this, “If you put alka-seltzer in your bird seed and a bird eats it, his stomach will explode” or “If you go past the graveyard on the night that so and so died, the light will flicker 3 times”. Fear and the “unexplainable” factor make for a juicy urban legend. Since our investment decisions are driven by either fear (running for safety) or greed (joining the bull run), lets take a look at some of the urban legends on the Street today.
1. China and other foreign buyers will stop buying US dominated government bonds, hence sending us into The Next Great Depression. (Play spooky music here). The funny part here is that China increased its purchases of U.S. Treasuries last year by 46 percent to $696.2 billion. Guess what? We are stuck with each other now. The biggest net exporter in the history of the world is married to the biggest consumer nation in the history of the world. China would be cutting off its nose despite its face if they stopped supporting US government debt. That is why Fang Shangpu, deputy director at the State Administration for Foreign Exchange, told a press conference in Beijing today. “We hope countries whose currencies are the main holdings in our international reserves will take effective measures to cope with the financial crisis. They should work to maintain economic and financial stability, and protect the interests and confidence of investors.” This is basically screaming “Holy Smokes, we are in deep here, you scratch my back and I will scratch your back. You cover us for what we already own and we won’t pull the rug out on you.” This is a classic win-win situation or lose-lose situation, and neither party wants the lose-lose outcome.
The other part is the fear monger factor. If the end of the world is just around the corner, and you had to bet on one country surviving and someday prospering, what country would it be? When push comes to shove, and you need to make sure you at least get your money back so that you can live to fight another day, US government debt is what the world will buy with the thinking being “If the US government goes under, I think we have bigger problems then our investments”. If the end of the world happens, do you want to be long the Euro? How about government bonds from Vietnam or Brazil? If safety is of the utmost importance, as it will be if the Dow hits 5000, the world will still turn to the US government as safest play since they will be the last man standing if we turn into Planet of the Apes, enormous debt and all. You will see Charlton Heston gazing at a buried Statue of Liberty, kneeling in wet sand screaming, “Damn you apes, what have you done!! And by the way, what is the 30 year trading at!!???”
2. The US financial systems, and the financial systems the world, are insolvent. The interesting part of this one is the sentence that is never said after this sentence. “What does that mean, I mean, in real life?” Do we wake up one day and all the banks are closed or bankrupt? All our money on deposit is gone or only insured up to $100,000? Do people go from millionaires to hundred-thousandaires?
Even if we get clobbered on real estate and deleveraging for years, there will always be banks. Just like there will always be a police force. Banks and police are part of keeping law and order, just in different terms. Governments will take on massive debt and deal with inflation before they allow the world wide banking system to go belly up. Is it fair to the taxpayer? No. Will some rich bankers make a killing? Yes. Are the consequences of not bailing out banks far greater than the alternative? Yes! Call it the IOU bank, the World Bad Bank, the Badass Bank of the Word, we will create it, we will fund it, and life will go on.
How do we know this is a headline urban legend? Google is trading at $351 and Apple, without Steve Jobs, is trading at $95. Really? So we are about to experience the world-wide financial meltdown to end all meltdowns, and two tech companies that are completely non-essential to human survival are finding buyers to drive them up. One company makes high-end, non-essential, although very nice, gadgets, and they are up almost 20% since their November lows? The other, the advertiser of last resort, caught in the biggest consumer and retail pullback of 5 generations, is up 40% since its November lows? How can we be in the biggest consumer driven recession and the biggest advertising network in the world is up 40% in 90 odd days? Which begs the question, are people using their IPHONES to search Google for the best deals on rifles, bread, and clean water, as they prepare for the end of the world?
3. Times are horrific, this is the next Great Depression. Do you know how this is an urban legend? Check out every story about unemployment, contracting GDP, or any other bad news out there and you will see a common theme. They all either go back to 1981 or 1970. “This is the worst report since 1981” or “This is the lowest level for this since the 1970s!” Really? The country was founded in 1776, and we have to go back a whooping 20 or 30 years to find when times were this bad? I am not saying things are good, or aren’t going to get worse, but does a generational changing recession only go back to 1970? I checked and every Super Bowl and World Series was played in the 1970s. I even found out Disney World was open everyday it was suppose to be open in the 1970s. I don’t remember the world ending then. I remember gas lines, license plates, stagflation, and tough times, but no shot guns and food riots. The only thing I can find that tells me we are pricing in for the next Great Depression is the corporate bond default rate. I guess that is why everyone is piling into corporate bonds now, getting ready for some deflation and stagflation.
In conclusion, don’t get carried away by headlines and urban legends. They are made to sell newspapers, get you to click your mouse, or open an email. Check out Bob Doll, vice president of Blackrock, and his cautiously optimistic views. Check out Warren Buffett loading up on fixed income type convertibles of US companies. No gold or US treasuries in his latest Berkshire snapshot, no end of the world prognostication from the Oracle of Omaha. As Jamie Dimon said recently, “This country has had big problems before. This is not the first,” he said. “If we face them head-on and look at the full set of problems that were made and created, we have real solutions and policies for them, we will reform like we have in the past and we will move on like we have in the past. Hopefully that will be this year, later this year, as opposed to sometime in 2010, but we don’t know.”
“Buy and hold, Mr. Market will correct itself!”. If anyone out there tries to have a conversation with a value investing friends and it seems to turn into a religious or cult like debate. Send them over to watch this video.
Why did value investing fail so much this year? Why does it hurt so bad? Well, it only takes one horrific year to wipe out 5 years of “Mr. Market correcting to intrinsic value”. Why so much pain this time around? Well, how long ago did the baby boomers start retiring? Hmm…how about 5-7 years ago. Throw in the fact that the baby boomers are the most active retirement generation ever, they probably let their investments ride in “safe” managers like Warren Buffett, Mohnish Pabrai, Bill Miller, and Ezra Melkin.
I mean, if you buy something at a discount to intrinsic value, how much farther can it go down? The whole reason you are buying the stock is that it is already beaten down, so haven’t we limited our downside?
Problem #1. Mr. Market can take a very long time to correct
Problem #2 Time cost money, in order to stay with your value investments you need cash
Problem #3 What if Mr. Market doesn’t correct to historic valuation, but instead is efficient in telling you the company you just bought a discount, is at a DISCOUNT for a reason.
Problem #4 Value investors usually have a strict rule on when to sell, like a company reaching intrinsic value or once they get a 10% return on investment. They never usually “let it ride”. So when they have a year where they lose 45%, they don’t have the upside to get it back very quickly. Unlike sector funds like biomedical or technology funds, you may have a -34% on year, but the next could be up 40%.
I thought the song “When I’m Right….I’m Right” by Slotmachine was perfect for this video.
The song is used with full permission and was very enjoyable to the band!
Update on January 27th…
Just to let everyone know I am not the only bat in the bellfry..
I got a call today asking what I thought about using the last few trading days of the year for buying stocks. Although no one can time the market, remember it is all about “time in the market, not timing the market.”.
On one hand we have the Obama presidency coming up and thinks are so bleak that IS it the the time to buy? On the other, things ARE so bleak, why jump in now, as opposed to a few weeks or months from now?
Here is what I think. A few notes, one, the US consumer is still contracting, so that is bad. (I.E. see the retail sales figures from Christmas and the “now poplular - Who is going to close their doors” game). Credit is still frozen, starting to show a few drips here and there of thawing, but still very frozen. Unemployment is still going up, and I think the estimates at a 9% peak are too low. Home prices are still falling (Can they still do that? Aren’t we at zero yet?). Retail space and commercial real estate is very much starting to show signs of trouble, starting with the malls and working its way up to office space, but…
The one reason I would not invest this week is hedge fund redemption. All the billions of dollars in hedge funds that investors have decided to pull out get priced at the closing price of the fund on December 31. Although many hedge funds have liquidated positions, no one knows how many more need to free up money in the next few days to pay out to investors. Is it only a few that need to sell? Are there some that liquidate on the last possible day based on algorithms and computer trading? Maybe. I have no idea, and neither does anyone else really.
I think there is much more downside risk to jumping in now than waiting a few weeks. Are you going to miss a 1000 point move up based on the above reasons? No, probably not. Could you get in the way of a 1000 point move down based on world wide hedge fund redemption computers selling and allocating cash? Maybe. Why risk it over the next few days. Relax, enjoy the new year, and get back at it on Monday.
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