• "so what I am supposed to say when you say Big Guy, am I supposed to say Short Guy, Is that what I am supposed to say?"

• I have seen God. He bats at no. 4 in India in Tests.

• This little prick's going to get more runs than you, AB.

• you are 'educated' people, you shouldn't behave this way!

• It means you have learned English, you have obtained a 'modern' English education and you are no longer a core Indian, one who mainly speaks an Indian language, one who works in Indian type businesses or occupations. 

• Watch the short clip below (with English subtitles), a parody of a job interview of a core Indian pretending to be 'educated'. This is the origin of the cult phrase "I can talk English, I can walk English, I can laugh English".

• Like all other cultures, Core Indians know that Little or Chote is not a compliment. This was amply demonstrated in a risque (just conversation, folks) videoclip of Katrina Kaif & Gulshan Grover from the film Boom. This was way before Ms. Kaif became a super star. The clip is a bit too risque for this Blog. Those who want to see it can search for it on YouTube. 

• Mark Mobius (clip 2 below) - China is looking at 7.5%. That's their target. They may not reach that target. It may be more than that. They are having difficulty slowing down the economy.
• Jim Chanos (clip 4 below) - If they say growth is going to be 8%, I can assure you it's going to be 8% or 8.1 or 8.2...But the reality is in all things we are looking at, the property sales, cement prices, steel crisis, power consumption - it appears it's slowing faster
• Donald Straszheim (clip 3 below) - I think it's [China's growth] going to be more flat. in fact, lower second quarter than first quarter. And the reason is that China's problems are not primarily cyclical, they are much more secular, structural and you don't fix those problems in a month or a week or a quarter....I think the export problem is a bigger problem for China than is the housing. It's going to get fixed. but China is not as competitive as it used to be in terms of exports. Japan, America, Europe, three big developed markets for China's exports -- they're not terrible, but they're not great and China's trade surplus is already coming down and it's going to go down more.

• They can't control the downward motion in their economy...
  

• Egan - ... we think Italy, Spain and Portugal are going to be under a lot of pressure and we don't think it is going to look very pretty in the upcoming auction.....
• Busch - do you something like Greece development in Spain? They have like 22-23% unemployment. It looks like it is ready to go this summer.
• Egan - Absolutely. Bear in mind, most revolts happen in July. Think of Bastille day, think of July 4th. Think of the Arab spring. It is much warmer in the Arab countries in the spring. So this summer is going to be very interesting...when people can't pay for food, they are going to go to the streets, when unemployment in the area of 23% in Spain, you are going to see a lot of people protesting.
• Egan - ... the banks and governments in southern EU are linked, are joined at the hip and both of them are weak, so we expect a number of downgrades in the next couple of months..

• People who told you to short Treasuries and buy Equities in mid-late March need a ......

• The violation of the 1390 support level this week turned the $SPX chart negative. something quite serious, but it if holds, that would be bullish..... The heavy selling early this week pushed breadth indicators to an extreme oversold condition. They are now on buy signals....The recent two-day rally is just a pullback to the resistance area at 1390. Any further rally will need to be based on more than an oversold condition. An $SPX close above 1400 would be bullish.

• Biggest outflows of 2012 for equities and commodities; first outflows of 2012 for High Yield and EM debt funds....In contrast, inflows to Treasuries (largest since August 2011) and Investment Grade bonds...
• EM equities see biggest outflows ($0.9bn) since Dec'11 (dragged down by big $0.3bn outflows from China)...$6.5bn outflows from US equities (mostly via SPY and DJIA ETF), Chunky outflows from Europe ($1.2bn) for third straight week.

1. Gary Shilling on BTV Street Smart on Wednesday, April 11
2. Mark Mobius on CNBC Squawk Box on Wednesday, April 11
3. Donald Straszheim on CNBC Street Signs on Friday, April 13
4. Jim Chanos on CNBC Squawk Box on Thursday, April 12
5. Robert Prechter with FBN's Neil Cavuto on Monday, April 10

• "The analysts have been cranking their numbers down. They started off north of 110 then 105.  They are now 102. They are moving in my direction. I think that is true because you have foreign earnings that don't look good because of recession unfolding in Europe, stronger dollar, so they are translation losses. A hard landing in China. In the U.S., we could see a moderate recession led by consumer retrenchment. I think that that kind of earnings estimate is not unreasonable…it's a quartet, [I am] long treasuries, short stocks, short commodities and long the dollar."

• "The story is that there is nothing else except consumers that can really hype the U.S. economy. Consumers have been on a mini spending spree in terms of not keeping up. Incomes have simply not kept up.  Of course, the real key behind that is employment. It looked earlier like jobs were picking up and that was going to provide the income and people would spend it, so on, so forth. But the employment report that we got last week throws cold water on that. Consumers have a lot of reasons to save as opposed to spend. They need to rebuild their assets, save for retirement. A lot of reasons suggest that they should be saving to work down debt as opposed to going the other way, which they have done in recent months. So if consumers retrench, there is not really anything else in the U.S. economy that can hold things up."

• "Sure, we are the best of the bad lot. We're the best horse in the glue factory. The U.S., it certainly looks better than China or Europe or certainly Japan. But, I'm not sure that that means that people go into stocks. Cash, although it does not pay anything, is an alternative. My 30-year favorite long Treasury bonds, I we're headed for 2.5% there. They have come down from 3.2 to 3.0 recently. Of course the 10-year now has broke 2% again.  I think there is still life there in terms of appreciation…I think that one and a half is possible on the 10-year."

• "I think 1.5 is possible on the 10-year.  I have to tell you, all the way down, when I got interested in 30-year bonds it was in 1981, the yield was 15.21. All the way down in yields, all the way up in price, everyone has said, rates cannot go lower, they will go up, they will go up. They have been saying that for 30 years."

• In conjunction with a major recession in Europe, a hard landing in China and foreign-earnings translation losses caused by a rising dollar, the operating earnings of S&P 500 companies could drop to $80 per share this year, compared with Wall Street analysts’ expectations of $104. That would almost guarantee a major bear market with a likely price-earnings ratio low of about 10. This implies that the S&P 500 index (SPX) would be around 800, a 43 percent drop from its recent level.

• Quick - there have been all kinds of questions as to whether this spring will follow last spring's pattern, whether this is a tipping point. 
• Mobius - I think we're in good shape. Emerging markets have outperformed other markets since the beginning of this year, so I think we're in pretty good shape. China is looking at 7.5%. That's their target. They may not reach that target. It may be more than that. They are having difficulty slowing down the economy. Emerging markets are generally growing to go on the average of 5%. We are getting pretty fast growth and the earnings being of course, are going to come through as result of that.
• Quick - do you think the emerging markets are going to perform well despite what happens in the developing (?)  markets or will they get a boost from what happens there as well?
• Mobius - I think they are going to perform well in spite of, mainly because of the key factors. one, of course, is growth, secondly is foreign reserves, much greater than developed countries and, third, debt to gdp levels, much lower. So all of these factors add up to a very positive picture generally.
• Quick - ... the central banks that we've watched around the globe, they have obviously changed the scenario for the last four years. At this point we're starting to see that it's the end of quantitative easing. If that's the case, what's the impact on the emerging markets?
• Mobius - well, the end of quantitative easing would not be a problem. It's if they decide to contract. in other words, decide to take money off the table, in other words, reduce the amount of money in circulation. then that would be a problem for everybody because, of course, there won't be enough money to move into the equities and bonds and other investments around the world. I doubt if that will happen, though.
• Quick - you don't think that will happen? you think this will be a wait and see year?
• Mobius - I think more than that. I think Bernanke ...still has got his foot on the pedal and wants to make sure that the unemployment comes down and that's true of other countries around the world. The Europeans, Japanese, Chinese, they still want to see good growth although they are cautious about inflation.
• Quick - if you had to pick one market of the emerging markets, where do you think the best performer is going to be?
• Mobius - probably in Russia, because Russia has been beaten down, has not really performed that well. The valuations are very good. The political picture is getting better. So I might pick Russia and then China after that. Because the Chinese are now talking about boosting the A-share market to get money into the hands of the small investors in China. That will feed back into the Hong Kong H-share and the Red Chips.
• Quick - What about South East Asia? I thought you were looking at those markets as potentially strong ones. Is it hard to argue about some of the growth there?
• Mobius - I just came back from Indonesia and Thailand. They are both doing very very well. Thailand of course has outperformed already and so I can't expect a lot more. But still they are going to do very well. Indonesia has also done very very well. You can expect more but not the kind of spectacular growth you can expect in countries where the market has been beaten down.
• Quick - You are concerned may be potentially going to happen in Singapore. May be they are tied a little more to Europe?
• Mobius - The interesting thing about Singapore is that they are getting a big flow of money coming in. Because a lot of wealthy people in the world don't want to put their money in Switzerland because of US tax problems, and they are moving to Singapore. So they are getting the benefit of these problems in Europe and elsewhere. Also don't forget now that Singapore has got those two huge casinos and they have been attracting a lot of tourism. So things are really humming in Singapore.

• Sully - Should we be spooked Don with an 8% GDP number for China?
• Straszheim - Brian, I don't think so.  8% is a sustainable number.  People just need to understand that the 10% that China has recorded in real GDP for the last 20 years is history. We're not going back to 10%. but 7% or 8% is still strong. It will continue to give very nice real per capita income gains to all the Chinese workers and people ought to relax.
• Evans - Don, do you think china's bottoming in the first quarter with regards to its growth rate? I think you guys still you have a below census outlook for the rest of the year. 
• Straszheim - right. we've had that below census outlook for the last six months or so and we still do. The difference between our forecast & the consensus is - the consensus thinks it's first quarter down and second, third, fourth quarter up. I think it's going to be more flat. in fact, lower second quarter than first quarter. And the reason is that China's problems are not primarily cyclical, they are much more secular, structural and you don't fix those problems in a month or a week or a quarter. They take years instead.
• Evans - That doesn't sound so reassuring.
• Straszheim - Well, I think we'll continue to have growth something like the 7% range for the next five years. I'll tell you that there's 500 million people in China who have made 8% a year per capita real income gains for 25 years in a row - 1.08 to the 25th power is a pretty good career for 25 years. And 1.08 plus another 1.07 is a good 26-year career.
• Straszheim - the biggest problem in China is the basic structural imbalance, the overhang of houses for the upper half of the income distribution. that so-called commodity housing. that's going to be very weak. those starts will go from 15 million in 2011 to about 5 million, count them, 5 million, down 67% in 2012. 
• Evans - wow. that's a big decline. it is. and it explains why you're cautious about exports and that being a problem with a lot happening in the Eurozone.
• Straszheim - I think the export problem is a bigger problem for china than is the housing. it's going to get fixed. but china is not as competitive as it used to be in terms of exports. Japan, America, Europe, three big developed markets for China's exports -- they're not terrible, but they're not great. and China's trade surplus is already coming down and it's going to go down more.
• Sully - bottom line, very quickly for us, Don, are either the A- shares in shanghai or H-shares in Hong Kong undervalued or overvalued?
• Straszheim - I think they are undervalued. You've got decent growth, no hard landing. inflation down, more to come. interest rate cuts, reserve ratio cuts. monetary policy easing. some fiscal stimulus coming. PEs that are maybe at 12 versus an average of 27. that says by and large more positives than negatives for China equities.

• Chanos - They sent a young trader to death the other day for misappropriating money saying she was going to buy property and she traded Gold with it and they sentenced her to death....and they are looking for her husband. She has to serve 2 years in prison before they shoot her.
• Kernen - it's going to be the slowest growth in a while but they wanted it to slow down...  but what's it mean? are they orchestrating a soft landing?
• Chanos - they are trying desperately to still cool the property sector. But that has its own problems as we know. If they say growth is going to be 8%, I can assure you it's going to be 8% or 8.1 or 8.2...But the reality is in all things we are looking at,  the property sales, cement prices, steel crisis, power consumption - it appears it's slowing faster.
• Chanos - In China, the banks are arms of state policy...they loan because the regional party official tells them we need a new stadium, we have an empty stadium over here, it doesn't matter. you make the loan. they're instruments of state policy. I really doubt that the party is going to give up a lever power by breaking up the banks....
• Sorkin - ..they're ultimately going to be protected by the government.
• Chanos - that doesn't mean the western shareholders are going to do well. in fact, you are the actual arm with which they're raising capital to recapitalize. See Petrobras, see Pemex. we are going to welcome in outside minority investors and by the way, we're going to keep tapping you over and over and over again.
• Chanos - they are really on a knife's edge because...they can't quite keep the technology genie in the bottle...the great firewall is increasingly porous. we saw that last year with some of the regional disturbances, people were reporting real time on the ground before they could shut them down. This is new for China. So they don't have complete control over the media as they used to. In this day and age tipping points can be reached very quickly in society in the wrong set of circumstances.
• Chanos - no. I would be long the Chinese communist party. no, this is all financial and economic, not political.....they welcome open criticism on financial matters, but not political. 

• Prechter - You have the sentiment, momentum measures, the Elliot Wave structure all in gear and I don't like to bet against it...One thing people tend to forget, the market has only been down 5 trading days but the Dow wiped out 2&1/2 months of gains. It goes down faster than it goes up.
• Cavuto - There was a weird spot of a bright spot in all of this, depending on your point of view...the 10-year note went under 2%, that could be a reflection of the environment here where things look like they are slowing down..what do you make of that and what does it portend when interest rates slide, the stocks slide, what does that usually bring?
• Prechter - well, I have been saying for quite awhile that we are rolling over into a deflationary environment and the two big areas that are reflecting that are real-estate, still down 45%, and interest rates on pristine debt are very very low as you just pointed out.....we had a big rally in commodities which topped last year, they are down almost 19% from there..we have markets in gear for that trend...
• Cavuto - when you have a deflationary environment, what is a good investment in that environment? You just have cash under your mattress, what?
• Prechter - that's the word, Cash.
• Cavuto - How long do you play that cash game?
• Prechter - well, as long as all the indicators switch to the other side...we are looking for a major low a couple of years out, and in the meantime, you just have to keep your powder dry...

• First, we abhor the concept of "major religions". Use of terms like "major religions" is tantamount to using terms like "major" or "master" races that was common in certain parts of Europe in the 1930s or among European colonialists in Africa, Asia and Latin America.
  
• Secondly, we fail to understand why Mr. Kristof did not include Buddhism (4th largest) and Sikhism (5th largest) among "major" religions. These are both larger than Judaism in terms of followers. So either Mr. Kristof demonstrated his own lack of savvy about religion or exhibited his inner religious prejudices.
  

• "3. The terrorists who pioneered the suicide vest in modern times, and the use of women in terror attacks, were affiliated with which major religion?
• a. Islam
• b. Christianity
• c. Hinduism"

• "3. c. Most early suicide bombings were by Tamil Hindus (some secular) in Sri Lanka and India."

• "Its ultimate goal: to seize control of the country from the Sinhalese ethnic majority and create an independent Tamil state."

• "8. Which religious figure preaches tolerance by suggesting that God looks after all peoples and leads them all to their promised lands?
• a. Muhammad
• b. Amos
• c. Jesus"

• "1. Which holy book stipulates that a girl who does not bleed on her wedding night should be stoned to death?
• a. Koran
• b. Old Testament
• c. (Hindu) Upanishads"

We can perhaps charitably attribute Mr. Kristof's choices in questions 1 and 8 to ignorance about Hinduism. But there is no question in our mind that Mr. Kristof deliberately and wantonly manufactured an "affiliation" to Hinduism in question 3.

In our opinion, Mr. Kristof's action is utterly reprehensible and we throw a flag at him for flagrantly foul journalistic misconduct.

Sideswiping Hinduism - A New York Times Practice?

Frankly, there was no need for Mr. Kristof to include Hinduism in his quiz at all. His article is addressed mainly to an American audience that, according to him, has been subjected to the "current uproar about Islam". So questions about Christianity and Judaism should have sufficed. Both Mr. Kristof and his readers are far more conversant about tenets of Christianity and Judaism than they are about Hinduism. 

It is a journalistic practice to highlight what you want to praise by contrasting it with something negative. Sometimes when you can't find anything negative, you manufacture it. That is how Hinduism tends to be be used in the New York Times.

Several months ago, in a nice positive article about the Holy Golden Temple in Amritsar, Lydia Polgreen of the New York Times gratuitously sideswiped Hinduism. It was an article about Sikhs and there was no need, no need whatsoever to even mention Hinduism. Yet, Ms. Polgreen couldn't resist the temptation to insert a defamatory line in her article about Hinduism. (for more detailed analysis, read our article Why Does a Nice Positive Article in the New York Times Carry a Deep Bias Against Indian Dharma?)

We use the verb "sideswiped" to illustrate our meaning. Imagine driving a car in the dead of night on a solitary road without any traffic. You see someone walking down the road ahead of you. There is no one else around. You simply drive closer to the pedestrian and sideswipe him for no reason except that you can do so without any fear of getting caught. You would only do this if you have no respect whatsoever for the life or well-being of that pedestrian and if you have a dark corner in your heart.

This is exactly what Nicolas Kristof did to Hinduism in his Religion quiz above and what Lydia Polgreen did in her article in September 2010. Hinduism is an easy victim. There is no organized religious structure and Hindus are complacent people used to religious persecution for the past 1,200 years. And the New York Times editors seem to have no respect for Hinduism judging from the frequency of anti-Hindu bias in NYT articles.

Directed comments against Hindu Ethos in the NYT

NYT articles don't stop at sideswiping Hinduism. Sometimes, they get very blatant. Let us give you a couple of examples from India Ink, the India-portal of the New York Times.

• Remember the worldwide Muslim riots because of Danish cartoons about Prophet Mohammed? Compare that coverage to the case of the famous Indian Muslim painter. He never painted anything that would hurt Muslim beliefs or feelings. His particular fetish was to paint nude paintings of revered Hindu Goddesses, the images that are deeply revered in virtually every Hindu household. The NYT writers saw nothing wrong or weird about this setup. Instead, the NYT writers blamed the Hindus who protested the painter's actions.
  
• This February, a couple of NYT-India-Ink writers condemned the painter's Hindu critics as hardline Hindu zealots. The writers took this opportunity in the midst of their anguished coverage about the inability of Salman Rushdie (because of Muslim protests) to speak at an Indian conference.
  
• So in an article about protests by religious Muslims against a Muslim Salman Rushdie, NYT's India Ink writers found a way to insert one line heaping scorn on "hardline" Hindus simply because they were against nude paintings of Hindu revered figures. Yes, we kid you not. This actually happened at the New York Times India Ink group. Some rational NYT editor presumably saw this and removed this offensive statement from the web-edition the next day.
  
• Earlier this year, Muslim clerics in New Delhi issued a fatwa forbidding young Muslim girls from wearing lipstick and other beauty-enhancing cosmetics. NYT's India Ink remained conspicuously silent. In contrast, on this past Valentine's day, a NYT India Ink writer used the label "Hindu Extremists" when describing the lack of protests against Valentine Day celebrations. In other words, some Hindus were labeled as "extremists" in the New York Times when they didn't even protest while Muslim Clerics avoided such labels or any coverage even when they issued fatwas against lipstick!
  

These are just examples from February of this year.  We sometimes get tired of noticing such behavior and writing about it. But the NYT writers don't stop. They must be avatars of an anti-Hindu energizer bunny.

Reaching out to the New York Times

Earlier this year, we contacted Heather Timmons of NYT's India Ink and India Bureau, to ask if she would meet with us on an informal, off-the-record basis. We also made the same request of one of her colleagues. Ms. Timmons did not even bother to respond to our email. Her colleague pleaded difficulty due to a heavy travel schedule. 

So we reach out today to Ms. Jill Abramson, the executive editor of the New York Times. We are virtually neighbors, Ms. Abramson and fellow residents of the greatest city in the world that is a bastion of humane liberal thinking. Would you be willing to meet with us to exchange views? We simply don't understand how a great paper like yours can exhibit the bias that we see in it. Or should we simply be resigned to our "Hindu" treatment from your writers? 

Mr. Kristof, we appeal to you as well. What we have written about your article is what we perceive in your article. If you think we are wrong, please tell us candidly. We take criticism well. You can tell us privately or publicly. We commit to publish any on the record response from you.

Editor's Note: Below are our previous articles about the anti-Hindu bias at the New York Times:

• Cultural & Religious Defamation Tacitly Accepted By New York Times Editors?- Our Perspectives - January 23, 2010
• Why Does a Nice Positive Article in the New York Times Carry a Deep Bias Against Indian Dharma? - September 4, 2010
• Gandhi & Lelyveld - Are Editors of Washington Post and New York Times Biased Against Hindu Ethos? - April 16, 2011
• New York Times Editors - Another Example of Their Bias Against Hindu Ethos? - August 20, 2011

Send your feedback to editor@macroviewpoints.com or @MacroViewpoints on Twitter

• Iran is likely to eventually put a bomb in Tel Aviv while Pakistan is likely to eventually put a bomb in New York City.

• While the strategy of squeezing Iran financially is logical, it comes with serious economic risks that are not often recognised. We’ve entered a new era in which the distinction between the financial and security spheres no longer holds: geopolitics drive markets even as markets drive geopolitics.
• Enforcing oil sanctions against Iran could threaten the global economy. In the context of improving global growth, removing too much Iranian oil from the world’s energy supply could cause an oil price spike that that would halt the recovery even as it does some financial damage to Iran. For perhaps the first time sanctions have the potential to be “too successful”, hurting the sanctioners as much as the sanctioned.

• The problem is that these sanctions are potentially so damaging that they could backfire, creating at least three sets of consequences that would leave the United States in a worse position, whatever the impact on Iran.
• To the extent that Iranian oil is truly off the market for the U.S. and Europe, it will increase the price for what remains. In case you missed the past 40 years of American economic history, there is no commodity on earth that affects the American economy faster or more profoundly than oil.
•  Another potentially fatal flaw in these sanctions is that they turn up the heat on Iran so much that they may well be unsustainable diplomatically, and that is very problematic because sanctions rarely work quickly. And over time, there is a high likelihood that other countries will come to see the misery of the Iranian people as being the fault of the United States, not of the Iranian leadership, exactly as happened with Saddam.

• The US can pressure Iran without sabotaging the economic recovery. What he must do is maintain his tough public rhetoric on sanctions, no matter how harsh it appears, while privately signaling China and India – and only China and India – that it is fine for them to purchase Iranian crude, but at a significant discount from market price. Forcing Tehran to sell discounted barrels would provide the desired result: a substantial reduction in Iranian revenue with less impact on global energy prices and less harm to the US and world economies.

• "We are only three years off maximum, maybe two years before the 4 BRIC (Brazil, Russia, India, China) countries become bigger than the United States....a few of the countries that are also becoming more important such as Indonesia, Turkey, Korea, Mexico. If you put those 4 together with the BRICs, this decade, those eight will create double the amount of global GDP that Europe and the US will do put together."

• "since [the labor market report], for every economic indicator that surprised to the upside, two economic indicators surprised to the downside...I actually think we are going into the 2nd Quarter with the economy on the down escalator in terms of momentum.."

• only 28% of the public say they are better off now than they were four years ago, the lowest percentage recorded in a presidential election year going back to 1992.

• No group in the survey is more optimistic than the cross-section of Americans who believe their home prices will go up; no group is more pessimistic on the economy than those predicting their home prices will fall.
• Gold is is seen by the American public as the best investment right now, chosen by 37 percent of respondents. Real estate is a distant second with 24 percent followed by stocks at 19 percent.
  

• "I remember partially in the '90s and partially late '70s and early '80s when Wall Street wasn't doing well, it seemed like they wanted to talk recession. When Wall Street is doing well, they never think that way".

• ".....buying longer-term bonds and selling shorter dated Treasuries. I think that's basically been played out and the pension market itself in terms of liability structure has been damaged to some extent by lower 30-year yields"

• Dennis Gartman said on CNBC-FM that he is short Treasuries and he expects it to be a big trade.
  
• Steve Cortes of CNBC-FM tweeted on Friday before the sell-off that he was taking profits (kudos to him) even though he likes them longer term. 
  
• Jeff Kilburg of Treasurycurve.com remains bullish.
  
• Timothy Collins (@Tangletrade), a colleague of Jim Cramer at RealMoney tweeted on Friday afternoon, "just below 112 is red-line [for TLT], break that means 107-108."

• "now we are in a pause mode until June, then a huge rally into the election. Between now and June we are in a corrective market and the market does not even seem to know it yet because everybody is excited about Apple, they are excited about new home sales acting better, they are excited about whatever..but come June get ready for a big hunking rally but don't get impatient waiting for that.."

• "In summary, the bulls are still in charge and will continue as long as support holds. However, if the 1385-1390 support gives way, it could lead to an intermediate-term sell signal -- something we haven't seen since last November."

• Weekly flows do not indicate Great Rotation....biggest outflows from long-only equity funds since Dec'11 ($5.1bn) versus bond fund inflows (albeit at slower pace)
  
• Flows do show small sign of Great Rebalancing....first weekly redemptions from EM & Asia equity funds in 2012, huge Brazil outflows & best streak of Japan inflows in 9 months

• Gold has been in a secular bull market that started about 12 years ago. It is the only asset class that has been up, on a December 31 to December 31 basis, for the past 11 years. This is a case where a ball in motion will stay in motion until such time as the motion is caused to go into reverse. And that's not going to happen until the Fed starts to raise interest rates. When you start to see interest rates go up and real interest rates move up from negative to positive, the bull market in gold is probably gonna come to an end. But Bernanke has already told us that the Fed is not going to tighten policy until after the end of 2014 at the earliest.... negative real interest rates are always going to be positive for Gold,...,that means dip will occur and those are the dips you want to buy as a long term investor...  

• ...over the next 3-5-7 years, we will see the Dollar meaningfully appreciate. I think it will be a secular trend pretty much reversing what we have seen in the past decade.... I think people have grossly underestimated a lot of the problems around the world. We are seeing that in Europe this year. It is our guess that as we go into next year, we are going to learn that the emerging markets have a lot more problems than people are expecting. That's good for the Dollar....

7. Oil

Oil has had a cruel month despite all the rhetoric about Iran. But is anyone short Oil? Not according to CNBC's Sharon Epperson. This week, the Obama Administration and European countries talked about a concerted plan to release oil from the strategic reserves. Secretary Clinton flew to Saudi Arabia to make sure the Saudis do not cut their "excess" production when oil is released from American and European strategic reserves.

On Friday, President Obama cleared the way to tighten sanctions on Iran. In reality, he cleared the way to tighten sanctions on the rest of the world. Half a world away, the BRICS nations, all five of them, broadly agreed that they are not bound by "unilateral sanctions" on Iran, measures that threaten higher global oil prices and could result in supply shortages.


8. The BRICS Summit & EM

This was during the BRICS summit in New Delhi. After the summit, an agreement was signed under which credits would be extended in local currencies under the BRICS Interbank Cooperation Mechanism, according to Indian Newsmedia. Another pact signed was the Multilateral Letter of Credit Confirmation Facility Agreement between BRICS countries' Exim/Development banks.


                                                   (src - IndiaInk - New York Times)


This summit was either ignored or laughed at by the Wall Street Journal and the New York Times. We are not ready to dismiss it. This may be a motley group but they are all, we believe, outraged by the Iran Sanctions plan, a plan that forces them to damage their economies or face US sanctions. This makes them more determined to bypass the US Dollar to the extent they can in their trade between themselves. They are also trying to create a BRICS or EM development bank, they are trying to unite behind a candidate for the Presidency of the World Bank.


9. 2012 as India-China Friendship Year

We have been writing about the potential for military tensions between China and India since 2008. These tensions are very real and almost intractable. Against this background, China and India declared 2012 as year of India-China friendship. This is partly due to the deep anger against the Obama Sanctions plan and deep disappointment about the transactional nature of the Obama Administration and its focus on Pakistan.

China is also displaying its softer side to South East Asia to persuade them against siding with the USA. They are finding sympathetic ears because of the utter stupidity of the Iran sanctions. No one in Asia understands how South Korea, a true ally for 60 years, can be sanctioned simply because it imports oil from Iran.

In the short term, this may increase the outflow from EM markets, but in the long term this may create a headwind for the US Dollar. 

On this topic, read the New York Times article titled U.S. and China Press for Influence in Myanmar. Why doesn't the U.S. simply allow Americans to invest in Myanmar as Jim Rogers suggested on CNBC-FM last week?



Featured Videoclips:

1. Bill Gross on BTV's InBusiness on Wednesday, March 28
2. David Rosenberg on BTV's InsideTrack on Tuesday, March 27
3. Jeremy Siegel on CNBC Squawk Box on Thursday, March 29
4. Jim Bianco & Rick Santelli on CNBC SOTS on Wednesday, March 28
5. Ahmed Rashid on Jon Stewart's Show on Wednesday, March 28

• "I think [Chairman Bernanke] is very satisfied…I think the Fed is outcomes-oriented. They want an outcome in terms of a higher stock market, in terms of housing starts and lower unemployment. What [Bernanke] said on Monday, in terms of the employment, he suggested that up until now, we've done very well in terms of reducing unemployment but it’ll be tougher going forward if only because of structural impediments that he outlined. Going forward, he's looking at jobs, at unemployment and the housing markets. You know, future QEs will the outcome-oriented type of strategy which seeks to provide jobs and provide higher housing prices and housing starts to continue on."

• "I have a sense that they'll continue with the Operation Twist, but not necessarily in terms of buying longer-term bonds and selling shorter dated Treasuries. I think that's basically been played out and the pension market itself in terms of liability structure has been damaged to some extent by lower 30-year yields. I think [Bernanke] will try to do is Twist in the mortgage market. Basically, buy current coupon mortgages in agency spaces and then basically Twist by repo-ing out the Treasuries that they currently own in short-term space. So, you know, a twist on another Twist I suppose, going forward."

• "It is easy to recognize. I told my wife about it last night and in the middle of the night she started saying something about James. I hope she was referring to the ETF but you get the point… It's more easily recognizable. In this business you want to go with a ticker and a sticker that people can recognize and pass on to their neighbors."

• "We've noted that for a long time. This is simply a cautionary element that suggests that when interest rates come down close to zero and when the discounting of those interest rates and equity prices and other financial assets produce a perspective of 4-5% total return for the combined asset class is in our view, then it's incumbent upon a manager to keep expenses low and to alert investors as to the importance of expenses relative to lower returns in this new financial world that we speak to."

• "We wanted to be able to give investors a choice. We recognized the tremendous importance of the retail distribution network for PIMCO and for the Total Return Fund, which is now $253 billion. Thank you very much, we don't to discourage that. But there are investors in the $10,000-$20,000 category, who find it difficult to buy PIMCO Total Return. We thought this would be a good way to do this in the actively managed ETF space. By the way, we're outperforming the market in the first month or so by a good 200 basis points."

• "We have an average appetite in terms of duration space. And to the extent that five-year Treasuries, which are being issued today and seven-year Treasuries tomorrow - they reflect a relatively firm commitment on the part of PIMCO, which reflects a relatively firm commitment on the part of the Fed that they'll keep interest rates firm until late 2014. Bernanke mentioned yesterday that that wasn't a commitment in total but it's subject to a relatively slow economy and contained inflation, which is what we see now. A five-year security at slightly above 1%, to our way of thinking, as it rolls down the yield curve and becomes a four-year, produces close to a 2% return and is that a super, deeper attractive type of return? No, it's not….but it's certainly better than nothing."

• "We have reduced our Treasury commitment slightly. From the standpoint of duration, we have average duration of an average maturity across the board but we have been reducing Treasuries and investing in shorter duration corporates and rather heavily in the agency mortgage market. You can get, with a Fanny or a Freddie coupon that is a 4% coupon, you can realize 3% as opposed to the 2% or 1% - I mentioned in terms of five-year space. We're really focusing on spread and the lack of volatility going forward for the next two to three years which is really the domain of 30-year and 15-year mortgages."

• "Where is that attractive growth? Countries like Brazil, countries in Asia, China-related of course. These countries don't come without risk. They don't come without a rather volatile situation in terms of inflation or potential currency disorder. If an equity investor is looking for growth, you want to go developing as opposed to developed. Even a bond investor, if you are looking for higher real rates such as in Brazil, you want to go to developing as opposed to developed."

• "We're looking at the five-year, not the 10-year or the 30- year. At 230 basis points over the U.S. five-year, that's an attractive situation. That doesn't come without risks. It is a triple B+ type of security in terms of sovereign space and has a history of default going 10, 11, 12 years back. At these spreads and with situation currently, this is an attractive situation compared to U.S. Treasuries."

• "What we're suggesting now is not an extremely negative possibility. That would be the fat left tail. But also the fat right tail, we've had a fat right tail in equity markets for the past 3-6 months…On the left-hand side, you know, the bi-model possibility in terms of a downturn are simply a reflection of the high degree of leverage, the high degree of debt and the policy coordination which may or may not be helpful in terms of producing this smooth, rather bell-shaped mode or median we're all used to."

• "one has to be careful beating up Dave because Dave has an uncanny ability to be right when people think he is really stupid."

• since [the labor market report], for every economic indicator that surprised to the upside, two economic indicators surprised to the downside...I actually think we are going into the 2nd Quarter with the economy on the down escalator in terms of momentum...
• its when you get to this cross street called the corner of perception and reality....a year ago we had the QE2 rally, now we have the post LTRO rally...these are rallies you can rent, not rallies you can own...the corner of perception and reality began last year in late April - early May...people are going to be surprised how soft the economy is going to be for the next several months...
• There is a chance you will get QE3 but do you really think it is gonna happen with the S&P at 1400..when he came with QE2, the S&P was at 1100.....I think the hurdle for QE3 is higher than people think...this is a market juiced up by central bank actions and they are going to be disappointed...QE3 is gonna come but at a different level of everything, from economic activity to stock market...it is not going to be at today's levels...
• if the market were driven by fundamentals, we would not have had for the last couple of years, three significant sell offs in the stock markets and on top of that two double dip scares....

•  "not only based on past evidence but about returns in past 5-year, 10-year periods...but most persuasively because of valuation of the market. Compared to bonds, it is one of the cheapest markets I have seen."

• "bond funds which have done very well until about 2-3 weeks ago..because I see absolutely no way that rates can stay any where near this low and then if you don't have bonds to go to, where are you going to go?"

• Santelli - Jim Bianco, great guest. Quickly durables improved versus last month. Last month revisions were highly negative. One or two sentences on durables?
• Bianco - it shows that the economy is growing about at trend. trend is about 2.5%. not too hot. not too cold.
• Santelli - I tell you what, Jim, I love this CNBC Great America economic survey, surprising too many. Are you surprised that tangible assets, real estate and gold, were number one and number two, 37% and 24% respectively trouncing treasuries, savings accounts and stocks.
• Bianco - not surprised by gold. People look back and gold has been a good investment. Little surprised by real estate because it has not been a good investment. My take away there is they're not paper. The public does not like paper.
• Santelli - Tangible things you can hold. That's what Americans seem to like. If you were Ben Bernanke and you read this survey on a scale of one to ten, one being sad. ten being happy. what do you think he thought?
• Bianco - I think he's probably a two or three. I think he knows this. That's why he's doing his lectures at George Washington. He's on TV giving interviews, ABC last night. He knows that the Fed has a selling job to do that what they've done has improved the economy because most people don't think that that's been the case and that's what the survey shows.
• Santelli - I remember in the partially in the '90s and partially late '70s and early '80s when Wall Street wasn't doing well, it seemed like they wanted to talk recession. When Wall Street is doing well, they never think that way. I think this is another one of those examples where Wall Street sees activity and Main Street doesn't and I think that's why these surveys are turning out the way they are. thoughts?
• Bianco - I would agree. There is a definite disconnect between what is happening in the financial markets and what is happening in the real markets right now. The public is still not believing that things are getting better. Steve's right track/wrong track numbers were not good at 26% with people thinking we're on the right track and rest thinking we're on the wrong track. There is a big disconnect between the two. It's now getting problematic for the federal reserve.
  
• Santelli - Another issue that we can go quickly. Everyone says asset allocation. Stock numbers are low and part of mutual funds where people aren't pro-actively making a decision. Is the giant quid pro quo exposed? Meaning if you are one of the groups that all of these programs bail out, institutional side, bankers, insurance companies, they now buy Treasuries because the public isn't and I think this gives us great insight into programs and who likes them  the same ones that central bankers cater to - other bankers.
• Bianco - I would agree. The survey confirms what we see in mutual fund flows. The public is not buying Govt. bonds funds. They are buying corporate bond funds. The public is not buying stocks. There is no asset allocation. There is no money. 
• Santelli - programs are designed to get the public to go into those categories so I guess dancing with the stars should be the next stop in the campaign for the Fed to say that they have been successful.
• Bianco - Why not?
  

• "Don't they think at some point the Afghan Taleban, once they get stronger, will turn to the Pakistani Taleban and say "do you know we both have the same last name, perhaps we should get together and create Taleban-sylvania?" Is their fear of India, which is why I assume they are trying to quietly support the Afghan Taleban, ovewhelming them or blinding them to some extent to the danger that strengthening this new Taleban regime has created. "

Friday, March 23 was the beginning of the New Year based on Indian lunisolar calendar. It is the celebration of Gudhi Padwa, the festival of celebration of the New Year. Mumbai was closed for business and open for celebration. 


      (pictorial representation of a Gudhi)             (picture of a Gudhi)                  (Rangoli painted inside a home)                   
                                                                  (source of pictures - Wikipedia)


Padwa is a word derived from the old Prakrut "Paddava" which itself comes from Sanskrut word "Pratipada" or first day. It is celebrated by erecting a Gudhi outside a home and with a colorful "rangoli" inside the home.

Guddhi Padwa has a philosophical and historical significance. It is the first day of the Chaitra month and  marks the beginning of the season to reap crops. It also marks the first day of Earth after the great flood that wiped out all humanity except the family of one man. In deed, the word "man" is said to have been derived from that sole survivor, Manu.

The great Indian epic, the Maha-Bharat, portrays the event of that great flood - Brahma the Creator selected Manu to be the sole survivor of the flood and the progenitor of humanity after the deluge. The story goes like this:

• One day, Manu saved a small fish. The fish eventually grew to be a great fish with a huge horn on his head. This great fish came to Manu one day and told him about the great flood to come. The fish asked Manu to build a boat, get his family into the boat with seeds of every plant and a pair of every species of animal. The boat was built and ready. The torrential rains began. The great fish swam to Manu who tied the boat to the great fish's horn. The great fish pulled the boat safely through the flood waters to the top of the Himalayan mountain, the only dry place left on earth.

1. The result of American intervention in Iraq was deliverance of power to Iraq's long suffering Shia majority and freedom from tyranny for Iraq's minority ethnic group, the Kurds. The insurgency in Iraq was by elements among the Sunni minority who had ruled Iraq for decades. The insurgency was brutal in the extreme but ultimately winnable because the Iraqi majority was on America' side. The new Iraqi National Army was drawn from the majority community and had the most basic of incentives to work with the American military - stabilize the rule of the majority and maintain peace.
2. The geographical factor was also conclusively in America's favor. The minority Sunni insurgents had no where else to run. Iraq was a single cohesive entity and all the Iraqi people lived within that cohesive entity. So it was possible for American counter-insurgency strategy to isolate, surround and destroy the virulent elements among the insurgents and bring the non-virulent into the fold.
3. Iraq's neighborhood was supportive of the core American goal of bringing stability Iraq. Both Iran & Saudi Arabia, mortal enemies of each other, wanted a stable Iraq.

Despite these powerful fundamental and structural advantages, stabilizing Iraq proved to be a very turbulent, expensive effort. But because the American strategy was morally and tactically correct, Iraq eventually became a relative success for America.


 
(US Army Ethnolinguistic map of Afghanistan - src wikipedia)
(Pashtun - light green, Hazara - dark green)
(Uzbeck - offwhite, Tajik - dar

1. In Afghanistan, America is essentially waging war against the majority community, the Pashtuns. When a foreign military wages war against the majority of a country, it becomes an occupier. There are no two ways about it. The American efforts are supported by the minority Tajik, Hazara and Uzbek communities.
   
1. These different communities live in geographically different areas of Afghanistan, the Tajik, Hazara & Uzbeks in the North and North-West while the Pashtuns in the South & South-East along the Pakistani border (see map above). Not only are the Pashtuns ethnically different, they also speak a different language.
   
2. The new "Afghan National Army" trained by America is virtually all minority. It has utterly failed in recruiting Pashtuns. So the "Afghan National" army is a minority army that neither belongs in the majority Pashtun areas nor speaks the Pashtun language. No wonder, this army has been of dubious value to the American military. And no amount of training or money can change this reality.
2. America is also at a major geographical disadvantage. Afghanistan is not a single cohesive entity. The line of control with Pakistan partitions the Pashtun population into two halves, one living in Afghanistan and one living under Pakistani occupation. So the Pashtun Taleban can easily run across to Pashtun havens across the line of control when attacked and return when the American soldiers withdraw.
   
1. This is eerily similar to Vietnam where the Vietcong could run to North Vietnam and return back into South Vietnam at will. The American trained South Vietnamese army had the same ethnicity, the same language and the same culture. But that did not work.
   
2. In contrast, the American trained Afghan Army has a different ethnicity, a different language and a different culture. How on earth can it ever be successful in stabilizing the Pashtun areas of Afghanistan?
3. Then you have the neighborhood. Every single neighbor of Afghanistan realizes that the American plan is doomed to utter failure. So they are engaged in planning for the aftermath rather than supporting America's losing effort.
   
1. The primary villain is Pakistan, the regime that America has called its "critical ally" for the past 10 years. A stable Afghanistan is Pakistan's nightmare. Such an Afghanistan will favor cordial relations with India. So not only with Pakistan lose its strategic depth against India but it will face a two-front problem. In addition, the Pashtuns in a stable Afghanistan will have every incentive to get the Pakistani-occupied Pashtun territories back under Pashtun control. Not only will Pakistan lose a large strategic chunk of territory but other minorities like the Baloch will be tempted to break away from Panjabi-dominated Pakistan. This is why America's "critical ally" has been working diligently to ensure that America fails conspicuously in Afghanistan.
   
2. The other neighbors don't want Afghanistan to again become a vassal of Pakistan. So Iran, Tajikistan and Uzbekistan are engaged in helping their own communities prepare for the post-American struggle. These neighbors are supported by Russia and India.

• "When NATO arrived in Afghanistan in 2001, it recognized that its governments had, during the dark nineteen-nineties, ignored the connections between Afghan suffering and international security. An exit of NATO combat forces is now a certainty. Perhaps it is already likely that NATO will leave behind another terrible civil war or a second era of widespread, coercive Taliban rule. The security of Afghans and Americans will remain linked, come what may." (emphasis ours)
  

• "when my charts look like this, I know they are going higher...we like those banks, we like those brokers".

• "My main concern with banks over the next couple of months is economics, there's increasing economic ambiguity both domestically and abroad."

• "....this was the sucker move last year, Treasury yields spiked, every one said I gotta buy stocks and then growth slowed. That functionally is what we believe happens when oil is tracking anywhere above 96 on the WTI, never mind above 106,  growth slows as inflation accelerates, you can see that in ISM...we are seeing it in Asian numbers..we are starting to see it worldwide..."

•  "Between March and April of 2008, 2010, 2011 - do you want to do this again? How many times do we have to take the VIX to 1415 and create a story telling exercise that the Banks are cheap, Europe is fine...the reality is the storytelling has been equally impressive every time the VIX has hit this level. Every time you should have been selling stocks."
• "..   if you go through the 2008, 2010, 2011 tops in the S&P 500 which are March to April, every time you've been burned chasing this concept of an economic recovery. Don't forget growth completely came unglued last year. Now it's unglued in the eastern side of the world.....I think U.S. GDP growth could get cut in half sequentially vs. the 3% Q4 2011 GDP number...first quarter GDP could be 1.5%....I like me for myself having not blown up in '08, '10, '11, what I like to do is raise cash. "

4. U.S. Treasury Market

Ben Bernanke broke the Treasury market this week. The 30-Year Treasury Bond lost over 4% between Tuesday afternoon and Wednesday's close. The yield on the 10-Year T-note climbed from 2.03% on Monday to 2.30% on Friday. The 10-year German and British yields also rose in a sort of confirmation of the US Treasury move.

Our friendly CNBC Anchors went semi-euphoric over this bond debacle and predicted that a Wall of Money that is "hiding" in Treasuries would move into stocks. We are not sure about a "Wall" but it would be entirely reasonable to expect investors to get out of their bond funds if yields keep rising. Before we quote from some "experts" about the direction of Treasury yields, allow us to point to a simple but critical point. 

On Friday, TLT, the 20-30 year Treasury ETF, closed just above its 200-day moving average. Look at the 5-year chart of TLT below and note the importance of holding the 200-day mv:



Whenever TLT has decisively broken down through its 200-day mv, it has fallen steeply and sharply. Whenever TLT has bounced off its 200-day or quickly recrossed above it after a small decline, it has rallied sharply or exploded as it did in 2008 and 2011. This pattern goes back to March 2007.

So next week could prove pivotal for the Treasury market.

Last week, we quoted John Ryding (ex Bear Stearns) tell BTV that 10-Year yields are headed to 3.75% later this year. George Goncalves of Nomura told CNBC-FM on Friday:

• "I think there is a lot of down side...I think we will get to 2.50%. That will force more selling and push the rates above 2.50%."

• "This is an important development for a big asset. It has been going up for 12 years in a row. And the 150 day moving average is now downward sloping for the first time in a long time. This has all the hallmarks of a major topping out formation. It is a very crowded trade worldwide and there is a phenomenon when you have a multi, multi year move how they come to end dramatically."

•  "Our target coming into the year was S&P 1350 plus because our prediction was a double-digit gain in stocks.  If Europe stays in the background and behaves itself, we could see a whole lot of the plus and this could be a great year for equities....We're not changing our target. We could see 1550, and our target will still be accurate. "

• I think this year we can see the S&P around 1400 to 1440....we have to be cognizant of the fact that we're going into the end of the quarter. Many fund managers didn't really have the exposure to the market that they wanted. So I think in the back end of march, we're going to see the markets rally back up again.
• I love tech. I believe that technology is entering a new secular bull market. From a technical perspective, it has been in a bear market for the past 11 years, it has been range bound since 2001. We have cleared that level. So we are on a path in the coming years to test the 2000 highs. We can see the Nasdaq composite back up near 4,000 again....tehc is theem based, cloud ia theme, internet is a theme, the tech mega caps that have been in a range for 10 years, we think they are trying to wake up and they can power the index.

• And that's mainly because of a big secular trend we are seeing in Government spending, there is a big fiscal cliff next year, probably going to have $425 billion of a drag from government spending alone...

• when you look at the percent bullish on this stock market, it just hit 68% two days ago. now, actual all-time high in October 2007, it was only 69%. This is much higher than it was at the peak of the internet double. This has all the froth and ebullience of a bubble market, when you look at both sentiment and momentum. momentum divergence, indicating yeah, it's still going higher, but it's running on empty......
• we see three main risks ahead.
  
• Iran,
  
• Portugal is in depression, and the core countries like Germany, very export dependent. They're going to start to suffer from this severe weakness in the periphery, the real problem in Europe is what we call a deflationary debt trap, as the economy shrinks, they can't carry existing debt. 
• we think they're overlooking the problems in the U.S. economy.
  

• On Tuesday, January 24, Mr. Zimmermann made comments about a bullishness extreme in the stock market, similar to his comments quoted above. That day, the SPY closed at 131.46. This week, it closed at 140.72, an increase of 7%.
• On Friday, October 28, 2011, Mr. Zimmermann made some precise comments about how long that rally would last and advised put buying strategies. He argued "if this rally fails to break the may peak, then that in our book targets to 800. the double dip targets to 580. so there's significant downside risk.". That day, the SPY closed at 125.26. So the S&P has rallied by 12.3% since Mr. Zimmermann's appearance with Ms. Bartiromo in October 2011.

• DeMark to me: $SPX top at 1419-1426 is imminent, likely next week. Awaiting a final Day 13 count and then 'price flip' confirmation. 

• In summary, the price chart of $SPX is bullish and that's all that seems to matter right now. There are overbought conditions, though, and the market is starting to get farther from support (1370 and below) and thus any correction to the support levels could be rather painful, even though it wouldn't necessarily be a change of trend.

• "Apple is now 40% above its 150 day moving average, just reached that level. That has happened 6 or 8 times since the IPO. Every time, 1, 3, 6, 12 months out, it's higher. ... Here's a two-year chart, it is well defined channel and it shows how excessive and extreme this move is. Put this same picture on the long-term and you'll see again how far above trend -- that's the same channel but a five-year basis. it is a frequency that's only happened about seven or eight times since the IPO - extreme strength."

• “The main reason: When I look at charts, I look at Google from late 2007, in late November 2007, and overlay Apple, present tense, over that chart it looks incredibly similar.....I do have tremendous qualms with the technical picture of Apple right now"

• "What I don’t think anybody seems to understand is, this is not a comparable to Google"

• potential for a "Great Rotation" from bonds to equities is significant (since 2008 bonds inflows = $480bn versus equity outflows of $48bn); but while equities saw biggest inflows ($9.6bn) since Apr'11, inflows into bonds ($7.6bn) continued this week, with majority into IG bonds & EM debt.
• flows show shift from EM to US domestic demand theme. US equity inflows were $9.1bn... while EM equities saw a meager $0.5bn.
• The three B's (Bricks, Banks, Bonds) are causing investors to short treasuries to the benefit of global equities... Trough in real estate = trough in bank stocks = trough in Bond yields.
• Question now is magnitude & duration of move....Our recent call to take profits is wrong if The Great Rotation has started, forcing a dramatic change in asset allocation and a major equity breakout, which would be driven by either the banks or a bubble in "Best of Breed" large-cap multinationals.

1. Meredith Whitney on CNBC Closing Bell on Wednesday, March 12
2. Richard Ross on CNBC Closing Bell on Wednesday, March 12
3. Bob Doll on BTV Street Smart on Friday, March 16
   

• Bartiromo - I want to get your take on where people are where people are allocating money. What's your reaction to the bank stress tests?
• Whitney - The assumptions were draconian. The severe scenarios that were imposed upon the banks. I don't know that it's surprising, other than it came two days earlier than expected. We had a buy on JPMorgan for a long time. We've had a sell on SunTrust, which failed and we had an underperform on Citi which failed. I think Citi failed because it asked for too much and maybe didn't have an appropriate sense of what the Fed was expecting. It seems like a communication blunder. They can resubmit and pass.
• Bartiromo - So you think Citi has enough capital?
  
• Whitney - I don't know that - Citi is not creating a lot of capital. They still have that sizeable deferred tax asset. So the quality of their capital is not terrific. And they have risky assets, which is clearly demonstrated in the stress test. I found the stress test illuminating to read. But the group is oversold. In March of '08 when I first started coming on your show, I said the Banks should trade at best tangible book because they were taking huge hits to capital. I don't expect any huge hits to capital, so the Banks should trade at tangible or a little bit better. But that doesn't mean they're off to the races....So they still have to hold more capital, the leverage is lower, which is a huge challenge to higher returns on capital. You'll get long in the tooth these large cap banks, if you get, you know, 20%, 30% returns...then people are really going to pay attention to what are these guys earnings. The earnings outlooks are not that strong.
• Bartiromo - you say the banks are oversold.
• Whitney - They were oversold. They've come a long way in the last two days. Bank America still oversold, you know, I think $10, $11, people are going to start paying attention to what Bank of America earns, but with a 8-handle on it, it still has upside. JPMorgan has still upside. 
• Whitney -- I'm a fundamental investor, so I want to know that there are legs to these stories. And I don't see huge legs -- you're getting a value trade and that's just about it. Now, the smaller banks are overvalued in my opinion and they're not going to be able to demonstrate real earnings. And people don't want to buy them in terms of they're not a consolidation story. you've got the large cap banks that are oversold. and the mid-cap banks, small-cap banks that are overbought.
• Bartiromo - Let's talk about sort of the fundamentals here. Because of the earnings power. we're not sure if and when the Volcker rule is going to be implemented. that, of course, changes the revenue stream. You have a buy on JPMorgan, tell me about the earnings potential there.
• Whitney - JPMorgan we upgraded, it was a value call. And I usually hate value calls because you get stuck too long in value calls. But the stock was just too cheap. They'll have a great quarter in capital markets. Fixed income has benefited enormously from the Europe LTRO program. So it's like the equivalent of the Fed's purchase program. So they'll have a good capital markets quarter. And their are other businesses, maybe okay with asset writeups. For the last two years, anyway, you've had a strong first half and terrible second half. I expect you'll have a strong first -- you know, decently okay first half, and a far weaker send half.
• Bartiromo - Would you still sell Citi and Suntrust right here at these levels after the sell-off?
• Whitney - I think Sun Trust is at -- you know, it's richly valued. So what's the trade here? You're just not going to make any money in my estimation on that name. And Citi, they don't have any earnings power. It's difficult to move that ship. They're investing in a lot of regulatory processes, but it's like the old broken-down Victorian house, you have to put so much money in to get to a modern equivalent of a new house. it's just -- their investment span is prohibitive. It's not that exciting in terms from an investment scenario. People were way too optimistic about Citi being able to earn a lot. 
• Bartiromo - Are they going to be able to come back and get out of this this year?
• Whitney - Oh, yeah. but that doesn't mean it's a fantastic home run investment, because they're still not going to grow. this was just a -- Citi failing is not a huge deal. It's reflective of the fact that someone gave them really bad advice in terms of what to go to the Fed with under the stress test. but I don't think it doesn't change the game. Citi hasn't been investable in four years.
• Bartiromo - what would it take for you to invest in Citi?
• Whitney - A new brain. They're stuck with what they have. It's just not going to happen.
• Bartiromo - Let me move on to the Muni Bond market. It was a huge call you made on this program, and then you reiterated on 60 minutes, you talked about the possibility of defaults. Are you writing a book about it?
• Whitney - I am writing a book about it. Look, you have Stockton that is on the brink of bankruptcy. You have five cities, including Detroit, which is on the brink of insolvency. It's fascinating, because there's been so much back room political maneuvering to keep these cities from going bust. California is trying to pass legislation to prevent municipalities from declaring bankruptcy. So there's been every effort on the part of the states to prevent this tidal wave of default, which will happen sooner or later. But look, it's happening at an accelerated pace. What's clear what's happened, social services are being cut dramatically. taxes are going up. You're going to get into multi-billion-dollar fiscal gaps. and so you'll have to keep cutting programs. You see the migration of the country shift. That's what I'm most interested in.
  
• Bartiromo - Where is it happening on an accelerated basis. This is $3.7 trillion market and we've only seen $2.6 billion in default and it's not happening as you predicted it.
• Whitney - I would argue that the number is a lot higher than that and they're not called technical defaults. It took how long for Greece to become a technical default. So they're insolvent. They're not paying their bills. And they're not called defaults, a lot of understated defaults. And I think that this is prolific. You're either willing to see it or you'll shut your eyes. If people want to tell me, oh, I was wrong, because this hasn't weighed out, stay tuned.
• Bartiromo - What is your take on Europe right now? I mean, Greece obviously officially in default. Do you worry that Europe is going to spill onto the U.S. markets and the economy here, or do you think that things have been stabilized enough in the Eurozone to be contained?
• Whitney - I think Europe has already spilled on into the United States to the extent that economically the slow growth in Europe has impacted companies. It has also benefited many US companies in terms of very low rates because no where else to go. So you have capital inflows into the US because of the duress of Europe. So ultimately things will normalize out and you start looking behind the kimono of US, the US doesn't look terrific. The US Corporations look fantastic.The US Banks look so much better than European Banks.
• Bartiromo - Would you put money to work in US stocks here?
• Whitney - There are some US stocks that I think are terrific... look there is a whole group of names that have outperformed and will continue to outperform. Look at Discover, the stock has been up 30% every year for the past 3 years. There is real fundamental growth. American Express - a terrific company.  Agriculture, freight companies there is a huge opportunity for investing in US equities and I am very bullish on some. I just haven't been interested in the financials for awhile.