Category: magazine covers

Barbarians at the trough

“Activist investors” have become momentum chasers, another example of how far the market has untethered from reality.  Is Time magazine tempting the investment gods with this cover?



USA Today: Bull market on solid footing

“The dizzying 2013 stock market rally was reignited Tuesday by multiyear highs in home prices and consumer confidence, a sign the bull run reflects a healing economy and not just the Federal Reserve’s easy-money policies.”  The front page USA Today article quotes two popular permabulls: Brian Belski…

“The economic numbers we’re seeing are confirming what the U.S. stock market has been telling us all year: The economy is on a stronger footing and improving longer-term.”

… and Jim Paulsen:

People are having trouble understanding why the market is going up when the economy is growing slowly, jobs are hard to find, and corporate profit growth is slowing, and they are left with the idea that the rally is just a sugar high from the Fed.  My take is that rising confidence is driving the stock market higher, [adding that investors now believe the worst-case fears they’ve harbored since the 2008 financial crisis won’t be realized].

So there you have it: the 2008 meltdown in the stock market and economy was simply a technical malfunction caused by credit locking up.  The Fed diagnosed the problem correctly, applied some anti-freeze to the credit radiator, and got the economic engine back up and running.  Mission accomplished.  The Fed’s mechanics can now do a victory lap and go back to their auto repair shop and watch paint dry. But what if the sugar high metaphor is more appropriate?  Could the recovery in housing be artificial?  Consumer confidence baseless?  The economy on quicksand?

Does a bull on the cover of a popular mainstream newspaper signal misplaced optimism and impending doom?

Another bullish Barron’s magazine cover…

Barron’s Big Money poll shows most bullishness in its 20 year history

This 4-year stimulus/sovereign debt/reach-for-yield bubble continues to set new records for optimism, both in magnitude and duration.  Case in point, the latest Barron’s semi-annual polling of money managers:

In our latest survey, 74% of money managers identify themselves as bullish or very bullish about the prospects for U.S. stocks – an all-time high for Big Money, going back more than 20 years.

Meanwhile, just 7% considered themselves “bearish” while none were “very bearish.”  (Obviously, we didn’t take the poll.)

Favorite assets classes: equities (86% were bullish) and commodities (50% bullish).  Least favorite asset classes: fixed income (89% were bearish), cash (79% bearish), and gold (65% bearish).  Basically, they’re all in the economic risk pool.

Despite overwhelming optimism, growth fund manager Robert Lutts of Cabot Money Management seems to feel stocks are climbing a wall of worry:

“Main Street isn’t yet in Wall Street.  It is still scared to death.  In the past couple of years, the professional money started to flow in.  This is just the beginning of new flows that will push indexes even higher.  [Lutts expects Dow 17,500 by mid-2014.]  I love it when my clients push back.  They’re reading the headlines too closely, and coming away with myopic negative impressions.  Folks continually underestimate the resilience of the American economy and entrepreneur.”

This is what a bubble looks like: no shortage of delusion thinking.

They’re back!

Don’t look now, but those masters of the universe who arrogantly whistled past the greatest credit bubble and bust in history are again gracing the covers of popular business magazines. For example, the October 12 issue of Barron’s featured none other than Bill Miller “riding high again as one of America’s top fund managers.” Yes this is the same Miller who beat the S&P 500 15 years running, was named “Fund Manager of the Decade” by in 1999, and anointed “greatest money manager of our time” by Fortune in November, 2006.

To say Bill Miller didn’t see the financial train wreck of 2007-2008 coming is an epic understatement. For the 18-month period ended this March, his Legg Mason Value Trust lost 72%, wiping out a decade of gains. When the first subprime cracks appeared in March, 2007 he thought Countrywide Financial would be a long-term beneficiary. When the Fed began easing August 17, 2007 he chose not to fight the Fed:

“We bought financials after the Fed [first] injected liquidity. That’s what you do in a liquidity crisis… This turned out to be a collateral-driven crisis caused by underperforming debt… We’ve analyzed that mistake and tried to make adjustments to risk management and the portfolio-construction process.”

Besides Countrywide, his fund’s investors were buried in Bear Stearns, Lehman Holdings, Fannie Mae, and Freddie Mac. He even had the audacity to blame the government for his mistakes:

“Lehman was investment-grade Friday and worthless short-term paper on Monday,” Sept. 15, 2008, Miller notes. Miller blames the feds for the Lehman debacle, saying their “pre-emptive seizure” of Fannie Mae, another ill-fated Value Trust position, and Freddie Mac caused the other financial dominoes to fall. “It was a gratuitous wiping out of equity capital,” says Miller, referring to the preferred shares issued by the mortgage giants as their troubles grew. The government, he adds, “told them to sell capital.” He bought the stock because they both met capital requirements and Fannie had been bailed out once before. “I expected forbearance like in the early 1980s, but they didn’t do it this time.”

Like at least 90% of those in the investment industry, Bill Miller expects – no, demands – that government to step in and backstop his risk taking. When the feds are powerless to do so and overwhelmed by market forces, he whines like a baby. When he rides a wave of artificial stimulus (Value Trust is +37% year-to-date) he attributes his oversized gains solely to his guts and acumen.

What does Miller like now? More than 25% of his portfolio was in financials as of June 30, 2009 and positions included State Street, NYSE Euronext, and Goldman Sachs.

Bear markets do not end until behavior changes and the necessary lessons are taught. By all appearances, this process has been subverted by trillions of dollars in bailouts, stimulus, credit backstops, and injections of liquidity. Old habits die hard…, i.e., the secular bear is still a cub.

"America’s hottest investor" turns ice cold

Fund manager Ken Heebner, who Fortune deified one month ago (we blogged about it here), appears to have succumbed to the magazine cover curse. His CGM Focus Fund – packed with commodity, cyclical (steel), and emerging markets stocks – is down 11.55% for the first five trading days in July. The S&P 500 is -0.49% over the same period.

"America’s hottest investor" rings the commodity bell

Ken Heebner graces the cover of the latest Fortune with the title, “America’s Hottest Investor.” While we won’t begrudge Heebner the honor (his CGM Focus Fund returned 24% per annum over the past 10 years vs. 4% for the S&P 500), we’ll simply point out that such fanfaronade often tempts the investment gods.

Predictably, Heebner is making a concentrated bet on – drumroll, please – commodities. In fact, as of March 31, 71.8% of Focus’s assets were invested in commodity-related stocks:

  • Aluminum – 5.9%
  • Copper – 9.9%
  • Fertilizer – 9.7%
  • Food – 4.7%
  • Oil drilling & oilfield services – 7.5%
  • Oil producers – 10.8%
  • Steel – 23.3%

If that weren’t enough, another 21.7% is invested in emerging markets:

  • Brazilian banks – 12.4%
  • Foreign telecoms – 9.3%

Ken Heebner is known for rapid trading (387% annual turnover) and pulling the plug quickly if he senses the investment winds changing. In any event, a 93.5% of portfolio bet that gains the adoration of a popular financial publication strikes us as some sort of bell-ringing event.

Addendum: The banner at the top of the November 28, 2006 issue of Fortune read “The greatest money manager of our time.” That distinction went to none other than Bill Miller, whose Legg Mason Value Trust underperformed the S&P 500 by 7.60% in 2006, 12.21% in 2007, and 12.81% so far in 2008.

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