The 50% cash guy - Sanjeev

[alertmeipp]

Sanjeey, nice call on set aside 50% cash.. when do u think it's a good time to go in?

[Parsad]

Sanjeey, nice call on set aside 50% cash.. when do u think it's a good time to go in?

 

Not yet!  You can find the occasional thing that is getting beaten up now, but people are still really only worried about Greece.  Once Greece exits, it opens the door to everyone else.  In the long-run, the Euro will be better for it, because they would get rid of the reckless and lazy countries.  But we aren't anywhere near that yet. 

 

The other thing you guys may have noticed, is that gold is finally getting killed when people are concerned about Europe, rather than them running to it.  I think Prem's call on commodities peaking last year was correct.  Sometime in the next year we are going to see a mini-version of 2008/2009, and then you should jump in with both feet!  Just no substantial bullets left! 

 

Europe has to now work itself through the process of deleveraging, and that will be uncomfortable.  Not as bad as 2008, but it will be uncomfortable for most investors.  Cheers! 

[alertmeipp]

with all these in your mind, you still think BAC could trade at tbv by xmas?

[Parsad]

with all these in your mind, you still think BAC could trade at tbv by xmas?

 

I think it has a good chance, but remember I said it would trade there barring a severe economic slump.  Eventually it will hit tbv and book, and I think as earnings continue to come out through the year and they settle more cases, it will move up.  Alot of pressure has suddenly been put on JPM now...presently, BAC is now the second most-hated bank rather than the first.  Although that will probably go back to normal after JPM gets these investment losses and investigations behind them. 

 

Remember, if there is any slump, U.S. banks are in far superior shape to last time.  It's like night and day this time around.  The more unloved they get, the better investment they become.  Cheers!

[alertmeipp]

Huge amount of  money on the sideline.

Many retail investors are out of the market..

The biggest economy is on right track. EU is still growing.

Low interest rate, lower energy cost. Recovery in house price.

Well capitalized banks and corps.

QE on the trigger.

 

I can't be very bearish with all of the above.

[bmichaud]

Huge amount of  money on the sideline. - money on the sidelines stays on the sidelines because someone always has to hold that money

 

Many retail investors are out of the market.. - is isn't going to change. Market is being driven by institutional investors being forced into stocks as a result of ZERO alternative options.

 

The biggest economy is on right track. EU is still growing. - US is slowing down (ECRI call materializing before our eyes), EZ entering deflationary spiral.

 

Low interest rate, lower energy cost. Recovery in house price. - seems reasonable

 

Well capitalized banks and corps. - US fiscal cliff very much staring US market in the face. Lower deficits = less money available for US consumers to pay down mortgages held by BAC.

 

QE on the trigger. - likely to have muted effect in US. IMO, biggest bullish catalyst for global markets is ECB/Germany getting their head out of their ass and coming to grips with the fact that printing is the only way out of this barring a fiscal union.

 

 

Tough to be bullish with all of the above.

 

[alertmeipp]

Huge amount of  money on the sideline. - money on the sidelines stays on the sidelines because someone always has to hold that money

 

Many retail investors are out of the market.. - is isn't going to change. Market is being driven by institutional investors being forced into stocks as a result of ZERO alternative options.

 

The biggest economy is on right track. EU is still growing. - US is slowing down (ECRI call materializing before our eyes), EZ entering deflationary spiral.

 

Low interest rate, lower energy cost. Recovery in house price. - seems reasonable

 

Well capitalized banks and corps. - US fiscal cliff very much staring US market in the face. Lower deficits = less money available for US consumers to pay down mortgages held by BAC.

 

QE on the trigger. - likely to have muted effect in US. IMO, biggest bullish catalyst for global markets is ECB/Germany getting their head out of their ass and coming to grips with the fact that printing is the only way out of this barring a fiscal union.

 

 

Tough to be bullish with all of the above.

 

That's what makes the market.

It's all relative to what prices u paid. Banks are selling at 7x PE, energy selling at 2-3x cash flow (some sell at less than half of NAV). Big Pharm selling at less than 10 P/E. All yielding well above Treasury Real Inflation rate way over 2-3% as posted.

[Uccmal]

I wouldn't say I am bullish, but I generally think we are getting over reactive swings to the downside right now.  The EU continues to muddle through.  I see that Greeks are pulling money from banks in Euros in a big way the last few days.  This says to me that they want Euros not drachmas.  They have a total of 150 billion of cash sitting in Greek Bank accounts. 

 

I am totally invested right now, as usual, with my FFH put still in place.  My portfolio is truly bi-polar in nature.  Roughly 35-40 % in Us financials including AIG, and some GE, and 35 % in FFH.  I dont do well trying to time markets.  If I did I would have locked in my BAC gains a few weeks ago and rebought now. 

 

I figure that the US and then Europe will inflate their way out of their respective government deficits

 

So I am definitely bearish on bonds.  I dont see either FFH or Berkshire slowing down on their non-insurance investing despite their respective hedges (berks being cash).

[bmichaud]

Huge amount of  money on the sideline. - money on the sidelines stays on the sidelines because someone always has to hold that money

 

Many retail investors are out of the market.. - is isn't going to change. Market is being driven by institutional investors being forced into stocks as a result of ZERO alternative options.

 

The biggest economy is on right track. EU is still growing. - US is slowing down (ECRI call materializing before our eyes), EZ entering deflationary spiral.

 

Low interest rate, lower energy cost. Recovery in house price. - seems reasonable

 

Well capitalized banks and corps. - US fiscal cliff very much staring US market in the face. Lower deficits = less money available for US consumers to pay down mortgages held by BAC.

 

QE on the trigger. - likely to have muted effect in US. IMO, biggest bullish catalyst for global markets is ECB/Germany getting their head out of their ass and coming to grips with the fact that printing is the only way out of this barring a fiscal union.

 

 

Tough to be bullish with all of the above.

 

That's what makes the market.

It's all relative to what prices u paid. Banks are selling at 7x PE, energy selling at 2-3x cash flow (some sell at less than half of NAV). Big Pharm selling at less than 10 P/E. All yielding well above Treasury Real Inflation rate way over 2-3% as posted.

 

I think the last month has proven how even undervalued securities get obliterated in a broad decline - hence the wisdom of Sanjeev's move to go to 50% cash...

[elltel]

They (Greek people) cant withdraw Drachmas even if they wanted to... and why would they want to? If and when they exit the euro the New Drachma (or whatever is will be called) will get killed in the markets. Holding euros is the sensible option.

[MrB]

Q20 – Cliff Gallant: In this drunken market, have systemic fears ever made you pause?

WB: You’ll probably find this interesting. CM and I have never had a discussion on buying or selling a

business where we have talked about macro affairs. If we find a business we understand and we like it

we buy it.

[rranjan]

Sanjeey, nice call on set aside 50% cash.. when do u think it's a good time to go in?

 

Not yet!  You can find the occasional thing that is getting beaten up now, but people are still really only worried about Greece.  Once Greece exits, it opens the door to everyone else.  In the long-run, the Euro will be better for it, because they would get rid of the reckless and lazy countries.  But we aren't anywhere near that yet. 

 

The other thing you guys may have noticed, is that gold is finally getting killed when people are concerned about Europe, rather than them running to it.  I think Prem's call on commodities peaking last year was correct.  Sometime in the next year we are going to see a mini-version of 2008/2009, and then you should jump in with both feet!  Just no substantial bullets left! 

 

Europe has to now work itself through the process of deleveraging, and that will be uncomfortable.  Not as bad as 2008, but it will be uncomfortable for most investors.  Cheers!

 

I thought your 50% cash level was mainly due to averaging out as your positions went up and it's not based on market level or Europe issue.

[rranjan]

Q20 – Cliff Gallant: In this drunken market, have systemic fears ever made you pause?

WB: You’ll probably find this interesting. CM and I have never had a discussion on buying or selling a

business where we have talked about macro affairs. If we find a business we understand and we like it

we buy it.

 

I have seen many members having opinion about macro but I am not sure how many actually end up buying or selling based on their opinion on macro. I find it very difficult to make any macro call and even more difficult to take advantage of it consistently without hurting myself. Buying cheap and selling at full value is difficult enough for me. Hat's off to people who can make reasonable macro call and also able to take advantage of their calls consistently.

[moore_capital54]

Huge amount of  money on the sideline.

Many retail investors are out of the market..

The biggest economy is on right track. EU is still growing.

Low interest rate, lower energy cost. Recovery in house price.

Well capitalized banks and corps.

QE on the trigger.

 

I can't be very bearish with all of the above.

 

Albert I agree with you and respectfully take the exact opposite side to Sanjeev's position. In no way shape or form do I foresee a 2008/2009 style crisis. The fed would step in way before that.

[Uccmal]

I also think FWIW that the markets have already discounted the EU situation, and are ignoring the positives in other jurisdictions right now.  Markets, collectively hate uncertainty.  Whether Greece and Spain leave the EU, or get bailed out will be irrelevant to the world at large.  It is the uncetainty that drives markets down not the act itself.  The US banks are a case in point, and the JPM announcement didn't help clear the cloud.

[twacowfca]

Huge amount of  money on the sideline.

Many retail investors are out of the market..

The biggest economy is on right track. EU is still growing.

Low interest rate, lower energy cost. Recovery in house price.

Well capitalized banks and corps.

QE on the trigger.

 

I can't be very bearish with all of the above.

 

Albert I agree with you and respectfully take the exact opposite side to Sanjeev's position. In no way shape or form do I foresee a 2008/2009 style crisis. The fed would step in way before that.

 

The probability of a financial crisis is almost certainly underestimated by most other than permabears.

 

It's not a stretch to imagine a sovereign bank defaulting if that country exits the Euro.  Suppose that bank decides to pay off its interest rate swaps in Drachmas or lira instead of Euros.  Then, their counterparties are on the hook for the notional amount of the contracts instead of the net amount.  Then the other Dominos start falling.  The increased liability of those banks would then be not billions of dollars, but trillions of dollars.  Real quick it's 2008 all over again -- or worse.

[matjone]

I am wondering if the move to cash is just so that if a crash does come he doesn't have investors freaking out and redeeming.  Individual investors and buyers of private businesses wouldn't need to worry about that.

[Parsad]

Sanjeey, nice call on set aside 50% cash.. when do u think it's a good time to go in?

 

Not yet!  You can find the occasional thing that is getting beaten up now, but people are still really only worried about Greece.  Once Greece exits, it opens the door to everyone else.  In the long-run, the Euro will be better for it, because they would get rid of the reckless and lazy countries.  But we aren't anywhere near that yet. 

 

The other thing you guys may have noticed, is that gold is finally getting killed when people are concerned about Europe, rather than them running to it.  I think Prem's call on commodities peaking last year was correct.  Sometime in the next year we are going to see a mini-version of 2008/2009, and then you should jump in with both feet!  Just no substantial bullets left! 

 

Europe has to now work itself through the process of deleveraging, and that will be uncomfortable.  Not as bad as 2008, but it will be uncomfortable for most investors.  Cheers!

 

I thought your 50% cash level was mainly due to averaging out as your positions went up and it's not based on market level or Europe issue.

 

It was partly that and partly concern about what we were seeing.  The more the risk/reward ratio gets skewed, the more cash we are comfortable with.  I'm not particularly concerned about the U.S. and I think long-term investors in the U.S. will do better than most other regions.  But in the short-term there is going to be some opportunity to get better long-term returns...better than last year, and not as good as 2008/2009. 

 

I'm finally at the point where I would consider looking at Europe as well now.  We've never gone outside of North America, but distressed environments breed good investments, and I'm finally slowly looking.  Probably a whole lot won't happen, but it's finally piqued my interest.  Cheers!

[Parsad]

I am wondering if the move to cash is just so that if a crash does come he doesn't have investors freaking out and redeeming.  Individual investors and buyers of private businesses wouldn't need to worry about that.

 

That's also partly the reason we do keep more cash than virtually all other fund managers to begin with.  We have no lockup and we have a fiduciary responsibility to protect our investor's capital.  We like cash...there is nothing wrong with cash.  We don't hold it for years, but we hold it for periods where we think the market is ignoring fundamentals or obvious macroeconomic risks. 

 

Stocks were fair value a month ago, and they are only modestly cheaper.  There is one stock that we are averaging into right now, but most are not cheap enough yet to risk capital and ignore risks.  We like what we own and we have significant gains in some.  Things just aren't cheap enough right now if we plan on providing outsized returns relative to the index long-term.  Cheers! 

[alertmeipp]

I am wondering if the move to cash is just so that if a crash does come he doesn't have investors freaking out and redeeming.  Individual investors and buyers of private businesses wouldn't need to worry about that.

 

That's also partly the reason we do keep more cash than virtually all other fund managers to begin with.  We have no lockup and we have a fiduciary responsibility to protect our investor's capital.  We like cash...there is nothing wrong with cash.  We don't hold it for years, but we hold it for periods where we think the market is ignoring fundamentals or obvious macroeconomic risks. 

 

Stocks were fair value a month ago, and they are only modestly cheaper.  There is one stock that we are averaging into right now, but most are not cheap enough yet to risk capital and ignore risks.  We like what we own and we have significant gains in some.  Things just aren't cheap enough right now if we plan on providing outsized returns relative to the index long-term.  Cheers!

 

Fair enough. I own my companies can do better than cash over the LT.

[moore_capital54]

I am wondering if the move to cash is just so that if a crash does come he doesn't have investors freaking out and redeeming.  Individual investors and buyers of private businesses wouldn't need to worry about that.

 

That's also partly the reason we do keep more cash than virtually all other fund managers to begin with.  We have no lockup and we have a fiduciary responsibility to protect our investor's capital.  We like cash...there is nothing wrong with cash.  We don't hold it for years, but we hold it for periods where we think the market is ignoring fundamentals or obvious macroeconomic risks. 

 

Stocks were fair value a month ago, and they are only modestly cheaper.  There is one stock that we are averaging into right now, but most are not cheap enough yet to risk capital and ignore risks.  We like what we own and we have significant gains in some.  Things just aren't cheap enough right now if we plan on providing outsized returns relative to the index long-term.  Cheers!

 

Sorry Sanjeev but it sounds like you are spooked and trying to time the market. How has your performance faired in this period? Could it be that you are being influenced by under performance? I am not trying to insinuate that I just find it funny that you view this period as any different from the Aug-November 2011 period. Fundamentally, things were much worst on a Macro level between Aug-November, now we know there is a thing called the LTRO and Greece has already devalued their debt load by 50%. The market moves cannot be explained unless done with hindsight.

 

IMHO BAC is cheaper today  at 7.10 than it was at 5.00 in December (it seems Pabrai agrees).. More uncertainty has been removed, the first quarter numbers were great and a bank run didn't take place (not that it would matter either as we also know the fed would step in and provide liquidity against illiquid assets on the bs). Other stocks mentioned here are way cheaper as well.

 

I just think you are attempting to time the market...

 

This is what happens with the low interest rate fed policy, as in Einhorn's Jelly Donut essay, when interests rates are 0 everyone chases higher risk assets for yield, problem is that capital doesn't belong in the higher risk category, as a result it escapes as quickly as it enters. Thats all that's happening here imho, it has nothing to do with the situation in Greece or Europe. German figures were better than expected, Auto sales are increasing very nicely... housing starts etc.

 

Funny, when you were buying BAC in Aug-Nov you were mentioning all those positive pieces relating to the underlying economy even posting them as soon as they came out (rail car loadings)... I think you need to seriously re-evaluate your allocation and see if you are not being influenced by the fear of experiencing a temporary paper loss.

[hardincap]

obviously market timing, but it may be justified considering what we're seeing in europe.

[alertmeipp]

obviously market timing, but it may be justified considering what we're seeing in europe.

 

What are u seeing there?

Greek pulls money from their banks? And then what?

Spain CDS going up? And then what?

 

How come this time we don't see the almost daily ECB /German+France meeting

[finetrader]

I think we live in a more volatile financial world because of:

 

1- 0 interest rate

2- high level of debt worldwide causing high leverage

3- astonishing high level of derivative resulting in even higher leverage

 

So in this environment , you can expect more volatility, and shorter time frame between big drops in markets. So i think it make sense to cash in after big ups and deploy money after big drops.

 

My 2 cents! Not that i'm real good at this game

[moore_capital54]

I loved the piece about $896mm being pulled out of a deposit base of $200B.

 

Or let's take it a step further, an Economy the size of $215B Notional will "leave the Euro", the only thing that would happen would be a new fiat currency who's main objective would be to nominally balance the budget. If we are talking numbers let's explore this thesis.

 

If Greece Debt to GDP is X and their Debt Service is Y vs Tax Revenues of Z, all the new Drachma or whatever they will call it has to be is a ratio which reflects the difference.

 

I have seem many people make projections of between a 30% devaluation to as high as 50% I have never seen anything higher than that. Keep in mind Greece is still a modern industrial society...

 

So again, we have a $200B Economy which is threatening to devalue its debt load by the equivalent of a Facebook...

 

How does this affect the purchaser of a home in Boise Idaho or a teenager buying his first electric car? How does it affect me spending $39 for new blades today or paying my gardener $1,000 for the job he did today or the poolman $250 for opening the pool!

 

The economy keeps moving... We know that systemic risks are not tolerated in the new normal, they are simply papered over, as such you can bet your arse that if Greece is allowed to exit the euro, its ramifications have already been discounted as they relate to the interconnectedness of the financial system.