Bear Market Funk
by Doug French by Doug French
Eric Coffin captured the overall bear market funk that permeated this year’s Hard Asset Investment Conference in Las Vegas when he opened his presentation with, "This market stinks. No really, it stinks." Coffin, co-proprietor of the Hard Rock Analyst, didn’t have many stock picks, so he suggested that attendees "drink heavily" and "don’t get out of your comfort zone."
The Hard Asset conference, held in between the Fannie-Freddie and AIG bailouts, is having a hard time attracting attendees to the Mandalay Bay Hotel and Casino, with this year continuing a trend of shrinking attendance. And with few speakers dispensing specific investment ideas, the attendance downtrend may continue. CNBC regular Dennis Gartman made a couple of presentations hammering home the idea that investors should "buy things that are going up, and sell things that are going down." Gartman said on day one of the conference that the secret to his trading success is, "when I am wrong, I admit it and get out." But during a workshop presentation on day two, when challenged by an audience member as to how he could possibly believe government-issued economic statistics, Gartman simply asked the gentleman to "get out" of the room.
Gartman repeated over and over that 96 percent of homeowners are paying their mortgages on time. At worst there will be 117 bank failures, he said, and that it’s no big deal. Everything will be fine. Subsequently, Lehman Brothers has filed for bankruptcy, AIG has been bailed out, the Federal Reserve has furiously pumped money into financial markets, the SEC has banned selling short financial stocks and Treasury Secretary Hank Paulson is proposing an RTC part dux to take bad loans and investments off bank balance sheets. Yep, everything is A-OK.
The comely Danielle Park, money manager and author of Juggling Dynamite, made the case that investors don’t live long enough to play secular trend ideas, like Chinese and Indian increases in wealth, for instance. Ms. Park used to make her living as a lawyer, and she aggressively argued for investors to be in cash. "Bear markets don’t care how smart you are," she stressed, "don’t fall in love with your own thesis."
Last Friday, after the multiple government interventions into the marketplace, Park wrote on her blog: "The first step to rehabilitation is to admit addiction and let the addicts experience bottom. Government must stop trying to prop up and enable crazy valuations that still persist." She goes on to make a sobering math point that she stressed during the Hard Asset conference: "Remember losses of 30%, require gains of 43% to recover, loses of 70% require gains of over 230% just to recover. When markets do finally make their bottom, and they will eventually, it will take years not days for people who hold on to recover their capital value. Let this market grind its way to a bottom without your capital." Ian McAvity is a technical analyst, and has frequently spoken in bearish terms at Las Vegas conferences. This year he made it clear that he was "very bearish" on stocks and thinks the S & P 500 will drop 20 percent, possibly by October. He said he was even more bearish on the financial stocks, believing they would retest their July lows and go lower. However now, Hank Paulson is trying to rearrange McAvity’s tea leaves.
Day one keynote speaker William Tucker told the sparse conference crowd that Silicon Valley could not solve the energy problem, because energy isn’t information. He explained that the alternative energy sources that people talk about to solve the energy crisis are forms of the same energy that is already in the ground, except the energy in the ground is concentrated. In other words, coal and oil are concentrated forms of solar energy. However, solar energy is 10 to 50 times more dilute than chemical energy, according to Tucker. And for those that want to consider wind, it would take 1,000 windmills spread over 75 square miles to match the output of one coal or nuclear plant. Thus, Tucker said the Pickens’ plan (as in T. Boone) won’t work. Tucker says nuclear power is the most concentrated energy and is the cure for the nation’s energy ills. And in his view there is no such thing as nuclear waste — it all is recyclable.
Energy was also the subject for day two’s keynote speaker, the University of Houston’s Dr. Michael Economides. According to Dr. Economides the price of oil should be $50 a barrel. However when oil is $135, $30 a barrel is added for geopolitical risk, $30 is added because of environmentalist groups and $25 is added by Wall Street for speculation.
The oil doctor thinks crude will sell for $200 a barrel if Israel attacks Iran, and that three "1,000 pound gorillas" control oil: Chavez, Putin and Ahmadinejad. And while people talk about energy efficiency, Economides said that as economies become more energy efficient, there is more energy use. There is no way wind and solar can replace hydrocarbons, because that’s where 87 percent of our energy comes from. Plus, energy demand worldwide will increase 50 percent by the year 2030.
And if you think ethanol is the answer, "corn-based ethanol is the biggest scam in energy history," according to Economides, who doesn’t believe oil production will peak until the year 2050, if at all. But, there is no question that oil and gas deposits are getting harder and more expensive to find.
The small and rather dowdy crowd at the Hard Assets conference was in direct contrast to the Human Rights Campaign’s Las Vegas Gala held at Mandalay Bay just a couple nights before. The HRC attracted twice the people the Hard Assets folks did, and the HRC attendees were certainly better dressed and livelier, enjoying the likes of the Las Vegas Mass Choir and disco queen Thelma Houston.
But don’t think things are all rosy in the GLBT community, as one speaker noted while making a plea for contributions for the Obama campaign, "I haven’t had a Botox treatment in four months." Maybe that’s something else Hank Paulson can work on.