Notes From the Big Picture Conference

• Posted by Robert Sinn
• on October 11th, 2011

Today I attended one of the best investment conferences I have ever attended courtesy of Barry Ritholz and Josh Brown. Below I have published my notes from the conference with what I consider to be the most important quotes printed in bold type and my occasional spontaneous thoughts in italics, I hope you enjoy my unedited notes:

John Roque – Rally in a bear market but likely to go higher short term. Task asks crowd how many are bullish/bearish/neutral- majority are neutral, less are bearish, only a few hands are bullish. Utilities and consumer staples are only sectors which have held up, utilities still within range of all-time highs. The decision for investors now is whether to buy what has been sold the most or stick with the best charts. Still likes gold, also likes Southern Company ($SO)-Utility. Gold has averaged 1.5x the price of the S&P, it has peaked at 6x the S&P. “You haven’t seen anything yet with gold”. Slope of moving averages most important, upward sloping 200-day moving average stock gets the benefit of the doubt. Vice versa for downward sloping 200-day moving averages.

Peter Boockvar- “rarely at a loss for an opinion, over the next two months I have no idea where markets are going”. Bull markets in hard assets and commodities are going to continue, saw extreme selling in commodities over last 2 months. Fundamentals for hard assets are still firmly in place. This doesn’t even compare with the 1970’s bull market in gold and it isn’t hard to argue that fundamentals in place are much better for gold than they were then. “The Fed is conducting price fixing on the cost of money on a grand scale”, “when this ends there will be a rapid rise in interest rates” “The Fed can lift asset prices but that does not promote a sustainable recovery in the economy”. Europe- either have to write down the debt, pay it off, or inflate it away. ECB will not allow it to be inflated away, they don’t have money to pay if off, so only alternative is to write it down.

Kevin Lane- Some technical divergences have set-up, rally within a bear market but sentiment became too bearish recently. At the recent peak mutual fund managers had very little cash left. Volatility is the result of widespread indecision. He has been warming up to $ARCO, South American McDonald’s. Would argue that a further 10-12% correction in equities would result in a deeper correction in commodities (Gold/silver).

Jim Bianco on crisis correlations- Conventional wisdom is that correlations move to 1 during crisis. Correlations have never been greater so where is the crisis? Bianco says markets are acting rationally because the primary fundamental driver is government response to crisis and central bank policy i.e. Europe. Correlation between individual stocks and the overall index is currently 83% (S&P 500). Specter of deflation since the late 90’s has changed the correlation between interest rates and stocks. Now stocks move more in line with interest rates due to fear of deflation. Total government intervention between 2007-2009 was 30% of GDP, unprecedented intervention by a magnitude of 6 historically. Explosive growth of $MACRO trading has been greatly exacerbated by the overwhelming quantity of ETFs. In summary, MACRO is really driving the markets now more than ever and this is somewhat rational. Bond market is more of an “individual managers” market where better values receive fund flows while poor values do not. Equity markets continue to be a conveyor belt macro trade where individual stock picking has lost importance (about to change?).

Reason for weak recovery is the lack of debt growth, deleveraging of both private and public sectors make a lasting recovery difficult. S&P 500 vs. TIPS breakevens highly correlated, rents compose 40% of Core-CPI, Bianco says it is a flawed measure. $90 current average analyst 2011 S&P earnings estimate, $103-108 for full year 2012. Upward corporate earnings guidance is at an 18-month low coming into this quarter. www.biancoresearch.com TBP2011….makes joke about Cisco’s Chambers inability to project Cisco’s order book onto the broader economy. Also makes point that using the mosaic theory with corporate guidance and attempting to project it onto the broader economy/market is fairly inaccurate. Dexia was a failed institution in 2008 (they were borrowing $50 billion/day from the Federal Reserve in 2008), and it is still not a failed institution because it has been nationalized.

Altucher leads off with a hilarious joke which breaks the seriousness of the conference. Altucher stresses honesty, says he does not like the term “personal brand” because that implies the person is stressing their image which naturally leads to dishonesty.

Blodget – Altucher is successful because he has a great product, he’s a great writer. Altucher shunned the old school theory of being paid to write exclusively or not allowing syndication, allowed his writing to be published in many different places.

Doug Kass- Europe is where we were 3 years ago (not sure I agree with this?). Commodities turning higher during late Feb/early March 2009 helped to give confidence in calling the March 2009 market bottom. Net hedge fund long exposure was also at a record low, as it is today- this leaves a multitude of marginal buyers. Kass says that Howard Marks book – the most important thing- is the best book he has read recently. Jim grants “minding mr. market” is 2^nd, Bernstein’s “navigating the noise” is 3^rd. Market is increasingly short term oriented (no surprise there!). Leverage ETFs create exaggerated moves at the end of the day due to the daily reweighting process. Leadership vacuum is big reason for low equity valuation multiples – historically leadership emerges during crisis, Kass isn’t so sure it will this time. Investors and US citizenry do not have patience. Real structural problems which offset the value in the market which makes Kass a market agnostic. Trading sardine market analogy, “these are trading sardines not eating sardines”. Kass is in favor of a financial transaction tax for trading transactions.

Kass’ worst trade of the last 12 months was shorting the US Treasury market, he set an amount that he was willing to lose and took his loss. Increasing evidence of hard landing in China, Europe already in recession. Asked to give advice to a new trader: Kass says “find a new profession”. Two most crowded trades right now are AAPL and gold he says.

Asked why this isn’t an historic buying opportunity, if the only way out of a debt overload is inflation? Because our leaders are dealing with widespread popular sentiment in favor of paying down the debt and reducing government spending (deflationary). We also aren’t through the middle stage of the crisis (not sure what this means exactly).

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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