KRUGMAN
Krugman nailed
it Friday, as usual. He basically says: this mess is going to take a long
time to get out of, and the government is going to have to resist calls to pull
back on its massive spending. As always, well worth reading.
MAULDIN
The
first of several snippets from his latest letter that
caught my eye concerns the amount homeowners drew down in home equity loans
three years ago versus last year. This was money we borrowed to keep the good
times rolling. And then it stopped:
Quarter 1-2006 we had $223
billion in mortgage equity withdrawals. Quarter 2-2008 it was $9.5
billion. Is it any wonder we were in recession by 2008? By the third and
fourth quarters there was no money to keep the treadmill going. That $50
trillion in credit was shrinking fast. We were imploding it. Further -- just
as a little throwaway slide -- if you look at 2010 and 2011, we are getting
ready for another huge wave of mortgage resets.
☞ It may not be the worst time to remind you of “a safe-ish way to
short the market.” The caveats being, first, that, as explained here, time is not
on our side with RSW and SDS.
And, far more important: this Administration knows all about the
mistakes of the Depression, all about the collapse in consumer demand
and the risks of doing too little . . . and, for this reason alone,
history may not remotely repeat itself. (Another reason: don’t forget Kurzweil and the
on-rush of ever-accelerating technological progress. Indeed, last
night’s “60 Minutes” suggested cold
fusion might not be impossible after all. Free energy.)
So I don’t know how this story turns out.
Mauldin’s prediction: “Understand, the Fed
is going to keep [printing] money until we get inflation. You can count on it.
I don't know what that number is, I’m guessing $2 trillion. I’ve
seen some studies. Ray Dalio of Bridgewater thinks it’s about $1.5
trillion. It’s some big number, some number way beyond $300 billion, and
they are going to keep at it until we get inflation.”
This
sounds right to me, and is good news, because it means we’ll do what
needs to be done to avoid cataclysm and convulsion, even as we embark on a
fairly wrenching decade-long national diet and fitness program – the
Great Transformation instead of the Great Depression. A sort of boot camp to
get lean and – well, not mean, I hope, but efficient.
Finally,
Mauldin says:
Will [all this money
printing] create an asset bubble in stocks again? I don't know, it could. . .
. I would be nervous about stock markets, both on the long side, as I think we
are in a bear market rally, but also there is real risk in being short. Bill
Fleckenstein will be here tonight. He is a very famous short trader. He closed
a short fund a couple of months ago. He says he doesn't have as many good
opportunities, and basically he's scared of being short with so much stimulus
coming in. So it's going to work, at least in terms of reflation, but the
question is when. A year? Two years?
Oh, and there’s an
aside I have to quote as well:
By the way, this AIG thing
and the bonuses, that's so bogus. I mean, the 40 people that
created the problem were gone, they go to 40 other people and say, stick around
because we've got to have somebody who actually knows what these things are to
try and unwind it, and we'll give you a bonus. Some of them worked for a dollar
against getting that bonus, and now we've told the world that a contract isn't
a contract in the US of A, for a lousy 160 million dollars.
NIBBLE ANYWAY?
I liked this story from my
pal Chris Brown of Aristides Capital,
and – despite my guess we may see another drop in the market –
bought a little anyway.
He writes:
Would you like to own part of
a company trading at 2.5 times EBITDA, 3.7 times forward earnings, with
excellent products, a great CEO and CFO, a solid growth strategy, cash in the
bank, and zero debt?
Of course you would. Better
yet, it’s a pharmaceutical company, so I’m certain I understand its
business model and its products. Cornerstone Therapeutics (CRTX) is
the best stock buy I’ve ever seen in my life. [He’s not that old!
– A.T.]
Long story short, a stellar,
profitable private company (Cornerstone) did a “reverse merger”
with a mismanaged, cash bleeding public company (Critical Therapeutics) for the
purpose of acquiring its lead product (Zyflo) that it was doing a terrible job
selling (in spite of its being a good drug), and is quickly demonstrating the
excellence of excellent management. The stock closed today at $3.80. I can see
it easily trading at $9-10 within a year; of course, it’s illiquid and
very underfollowed, so there’s nothing stopping it from trading down
before it eventually trades at some sane valuation, but I really like the odds.
Better yet, it’s market beta is essentially zero, so you can buy it even
if you don’t like the market here. (Disclosure: my Fund is long CRTX.)
☞ There are no free
lunches, but Chris generally does his homework.
COLBERT GATHERS
THE STORM
In case you missed this last
week, here
is Stephen Colbert’s take on the now-famous anti-marriage ad.