Fisher vs. Gross: who are you betting on?

Ken Fisher, the billionaire head of Fisher Investments has recently gone on record calling out "The New Normal" as being "idiotic". Bill Gross, the billionaire head of PIMCO has not responded.

Since most of us here already have the canons of the New Normal memorized , let's give Fisher a shot at the title.

According to our challenger to the throne, the S&P 500 will rally 16% post-election fervor . Somehow, this one-sided debate reminds of the WWE, pre-Wrestlemania. One hungry challenger ranting and raving about the weaknesses and ineptitude of the champ. I can almost visualize Hulk Hogan ranting about "training, prayers and vitamins" while Gross is cast as The Million Dollar Man with Mohamed El-Erian as some sort of new age Iron Sheik. Heck, with Linda McMahon losing her Senate rumble I think the analogy is quite appropriate.

What I am curious about is whether any of you guys agree with Fisher? Do you see any validity in his words or is he just self-promoting or playing an angle related to his own fund's success?

I'm throwing a banana bonus out there for the first monkey who can sell me on the notion that Fisher is right. Nothing will easily pull me away from Gross's corner, but I would really be curious to hear a good argument from the bulls out there, who in my view are going the way of the American Buffalo.

Don't get me wrong, I would love it if Fisher was right, but I just don't see a combination of Fed worship and history book rehashing doing much good. I also fail to see a single encouraging signal after QE2 went into effect with yesterday's Fed shopping spree .

I guess what I am asking is...are there any bulls left out there?

If so, let me know.

All bears in my neck of the woods.

 
Best Response

If you're looking for growth stories exclusively in the US, I can see being bearish and expecting to underperform for the next 5-10 years. The fact is we're going to have structural unemployment and likely no return of the consumer economy.

Aside from that, though, here's why I think you can find return: US-focused 1) US chip companies have a ton of cash. They can either a) dividend it, b) invest it in the US, or c) invest it abroad. A is obviously good, b is potentially good (if they can invest it for a good return on capital), c is probably good (if you think, like I do, that there are opportunities in emerging markets).

If you get a), then you could see some attractive dividend yields which, while less sexy than a small cap company which doubles each year but is still a return.

If you get b) then the New Normal is probably already fading as companies see attractive options domestically.

C) is possible because major US companies are no longer beholden to the US-they can design, manufacture, sell, and ultimately grow abroad. There's huge untapped productivity in Asia, and India and China especially. These markets could be both sides of the equation for big US companies-the new source of productivity AND the new market for sales.

Global-Focused If you're not tied down to investing in US assets, basically forget A and B and move straight to C. There's great potential in emerging markets and while it's no slam dunk someone's going to be making returns investing in China, India, and the Pacific Rim.

There have been many great comebacks throughout history. Jesus was dead but then came back as an all-powerful God-Zombie.
 
Kenny_Powers_CFA:
If you're looking for growth stories exclusively in the US, I can see being bearish and expecting to underperform for the next 5-10 years. The fact is we're going to have structural unemployment and likely no return of the consumer economy.

Aside from that, though, here's why I think you can find return: US-focused 1) US chip companies have a ton of cash. They can either a) dividend it, b) invest it in the US, or c) invest it abroad. A is obviously good, b is potentially good (if they can invest it for a good return on capital), c is probably good (if you think, like I do, that there are opportunities in emerging markets).

If you get a), then you could see some attractive dividend yields which, while less sexy than a small cap company which doubles each year but is still a return.

If you get b) then the New Normal is probably already fading as companies see attractive options domestically.

C) is possible because major US companies are no longer beholden to the US-they can design, manufacture, sell, and ultimately grow abroad. There's huge untapped productivity in Asia, and India and China especially. These markets could be both sides of the equation for big US companies-the new source of productivity AND the new market for sales.

Global-Focused If you're not tied down to investing in US assets, basically forget A and B and move straight to C. There's great potential in emerging markets and while it's no slam dunk someone's going to be making returns investing in China, India, and the Pacific Rim.

Lol. I was just trying to get a popularity contest going, Kenny. Here's an SB for ruining it!

 

That the market will rally 16% isn't entirely implausible but it wouldn't have anything to do with the elections and all to do with QE2. In any cases, I would expect a serious pullback if that were to occur as companies margins drop due to skyrocketing commodity prices and the Fed decides the pull the plug on QE2.

My question is whether we can see a volatile and even perhaps receding market while the economy expands. We're seeing green shoots and reasons to hope out there but assets are already wildly overpriced. My best guess is growth slows as commodities get too dear but employment and production numbers will already be improving enough for the Fed to stop purchases. The decision to push rates up is then postponed for a while until commodities sell off a little and growth picks back up. Just a theory.

 
GoodBread:
That the market will rally 16% isn't entirely implausible but it wouldn't have anything to do with the elections and all to do with QE2. In any cases, I would expect a serious pullback if that were to occur as companies margins drop due to skyrocketing commodity prices and the Fed decides the pull the plug on QE2.

My question is whether we can see a volatile and even perhaps receding market while the economy expands. We're seeing green shoots and reasons to hope out there but assets are already wildly overpriced. My best guess is growth slows as commodities get too dear but employment and production numbers will already be improving enough for the Fed to stop purchases. The decision to push rates up is then postponed for a while until commodities sell off a little and growth picks back up. Just a theory.

Theories are always good, we need different ones. Curious on the basis of what are coming up with employment and production growth part of yours?

 

I can't remember where I've been getting most of my info but it looks like the bloodletting at US companies is slowing way down and expectations of a positive surprise tomorrow are building (See http://tinyurl.com/383hk9p or http://tinyurl.com/2wrff6k). Earnings have been pretty good this quarter and I'm starting to think the main headwinds we're facing are coming from rising commodity prices and perhaps damaged relationships with our trade partners. As long as the Fed is pushing real rates down, we may be able to afford those things but when QE2 stops, we may find that the world just got way too expensive.

 
GoodBread:
I can't remember where I've been getting most of my info but it looks like the bloodletting at US companies is slowing way down and expectations of a positive surprise tomorrow are building (See http://tinyurl.com/383hk9p or http://tinyurl.com/2wrff6k). Earnings have been pretty good this quarter and I'm starting to think the main headwinds we're facing are coming from rising commodity prices and perhaps damaged relationships with our trade partners. As long as the Fed is pushing real rates down, we may be able to afford those things but when QE2 stops, we may find that the world just got way too expensive.

See, this is what I was addressing on your QE2 topic yesterday. The logic is sound. It makes sense. Unfortunately, I still haven't been convinced that all those cash piles US companies are sitting on is going to see the light of day. QE2 also makes me lean in the direction of Kenny Powers' analysis. In other words that cash is going straight into foreign investments. Either way, you are the first person I've seen use tiny.url on this site and since I am in my drunken old man at the strip club with a bottle of viagra mood, here's an SB for it!

 

Has Ken Fischer ever been anything but pro-rally? It's like he's giving false hope and expectations so people run to him to manage their money. This guy always talks about double digit increases. Lunatic.

The law of supply and demand will eventually rise above this chaotic smoke and mirrors ploy. Even the US Govt can't screw with that law - as much as they think they can. The printing presses have unlimited ink....

 

As far as when companies start to deploy cash, your guess is as good as mine and I think the foreign investment thing makes sense. But expectations have been mighty grim for a while and I don't think it would take much for some numbers to start surprising us on the upside. In any case, EM equities probably have a long way to go (until their currencies crush their ability to export goods that is?).

 

Those are valid sentiments and you're wise to recognize that markets move on feelings, sometimes even more than they do on facts. That having been said, I have a real tough time swallowing the QE argument. I think we've done so much forward pricing in of the potential detriments that we've artificially created and even worse looking future than actually awaits. The balance between sentiment and actual recovery pace, however, is now (IMHO) more so in the hands of the media than the actual markets and I really don't like that.

 

I think sentiment between asset prices and the actual economy are disconnected. People think assets will keep moving higher while the economy will struggle on. Taking a contrarian view on both, the economy will improve more than people expect while assets underperform. I don't think it matters too much long-term as far as the trade I'm advocating (short treasuries) working out but it affects the timing too be sure. I'm looking at scenarios where it can happen sooner than I expect like the one I outline above. I'm probably going to settle for some sort of ladder of OTM options for the next few months.

There is a distinct possibility that if things go down the way you're predicting, we could be in for QE3,4, sky's the limit... In that case, the reversal in bonds will be spectacular when rates finally go up.

 
Midas Mulligan Magoo:
QE3?? I think I just puked a little bit in my mouth...

Yup, there's been talk already but it's just talk so far. People seem to enjoy rising everything right now.

And yeah, I'm with Gross as well. Hard to argue with a front runner.

People like Coldplay and voted for the Nazis, you can't trust people Jeremy
 
Midas Mulligan Magoo:
QE3?? I think I just puked a little bit in my mouth...

You just puked in your mouth,...I just got a hard on. I can't think of anything better to short.

"Greed, in all of its forms; greed for life, for money, for love, for knowledge has marked the upward surge of mankind. And greed, you mark my words, will not only save Teldar Paper, but that other malfunctioning corporation called the USA."
 

Bernanke is not going to stop till he destroys the USD with 4%+ inflation. Commodity prices are at record levels and it will only be a few months before this hits consumer goods and the man in the street sees his dollars buying less. Velocity of money will rise giving the impression of rising demand but really it's just people spending more and getting less stuff in return. HIgh inflation will see yields rocket, ending the bond bubble. Equities will rally only because people are dumping dollars and it will create the illusion of rising revenue and profits.

All up I think the US is in for an inflationary couple of years similar to what happened in the 70s, call it stagflation if you want. I didn't really read Fisher's prediction but this is my own view of things to come.

 

Et architecto sapiente quo ut enim quam molestiae. Earum commodi minima consectetur blanditiis expedita ipsam pariatur quis. Sunt facilis explicabo est ea ipsum sed. Explicabo laudantium est debitis qui vel quia enim qui.

Metal. Music. Life. www.headofmetal.com

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