On October 16, 2008, Warren Buffett wrote a piece for the Op-Ed section of the New York Times entitled “Buy American. I am.” The basis for his buy recommendation was his main rule of investing: “Be fearful when others are greedy, and be greedy when others are fearful.”
On March 4, 2009, just two days before the S&P touched the 666 mark, President Barrack Obama said, “What you’re now seeing is profit-and-earning ratios are starting to get to the point where buying stocks is a potentially good deal if you’ve got a long-term perspective on it.”
On September 19th of last year, James Grant, long-time publisher of Grant’s Interest Rate Observer wrote a full two page article in the weekend edition of the WSJ reasoning that the recovery would surprise on the upside because every major economic crash in history was followed by a recovery that was equal in magnitude. Hence, big crashes begat big recoveries.
A few weeks ago Roger C. Altman, Chairman of Evercore Partners, a boutique advisory firm founded in 1996, was quoted in Barron’s as saying: “We’re in the early stages of a long-term recovery in global M&A volume. Historically, you see that the up cycles last five to eight years, and the down cycles, typically two to three years. We have just come through more than a two-year down cycle, and it is clear to me that we have turned the corner.”
This past weekend James Paulsen, Chief Strategist at Wells Capital Management, was interviewed in Barron’s in a piece titled simply “Up!”. JP has been wearing horns for quite some time now and was first on the various business channels sometime between when the President and Mr. Grant let their opinions be known. If Nouriel Roubini was the poster child for the crash, than Mr. Paulsen has been one of the recovery's most vocal champions.
JP cited 10% annualized monetary growth, a federal budget deficit that went from $350BN to $1.5TN, short term rates at zero, long term rates at postwar lows, a halving of the value of the USD and an equal cut in the cost of a barrel of oil. Additionally, he says “Right now, the level of cash flow relative to capital spending on corporate balance sheets is at a 50-year high.”
When asked if any of this potential is turning kinetic, he cited a stronger than expected holiday shopping season and real personal consumption that has risen at a 2% YoY rate in the last 12 months.
Other signs that things might be improving come from the most recent Super Bowl as NetJets said they booked 150 flights to and from Miami this year, up 25% from last year's total. Todd Rome, President of Blue Star, another private jet company said “we don’t see people hesitating as much as last year," and Steve Hankin, Sentient Jet’s CEO, said of their Super Bowl business, “This is consistent with the overall growth of our business this year, which continues to be strong.”
With 26MM folks not working as much as they’d like to, it would be hard to say things are back to normal. What might not be so hard would be to say we need a few more Jim Paulsen’s and a few less Nouriel Roubini’s.
Investment grade CDS spreads, as measured by the CMA CDS index, moved from 250bps on 3/9/2009 to 76bps on 1/11/2010 before turning up to an interim high of 106bps on 2/8/2010. They closed Friday at 99bps. China’s efforts to slow its economy as well as all the problems with the PIIGS and Dubai have been cited as reasons for the back up in CDS levels.
While none of those risks have gone away, to date at least, neither has any become irresolvable. The longer that is the case, the longer we have for Mr. Paulsen’s predictions to play out.