Kansas City Shadow Fed / Maine Fishing Trip Recap

I am back home, rested and refreshed after a wonderful few days on the lakes of Maine (and a grueling weather impaired return trip).

I wanted to give y’all a recap of the "Kansas City Shadow Fed Meeting" up in Grand Stream Lake, Maine. This is an invitation only  gathering that David Kotok of Cumberland Advisors has been running for the past few years. We all stayed at Leen’s Lodge on Grand Lake Stream, ME. Economists, strategists, fund managers, Fed employees, traders, journalists all mingle on the water and in the lodge. The participant who traveled the furthest came from Chile. A certain Scotsman regaled us with tales in that charming brogue, frequently punctuated with exclamations of "Crrrappp!" and "Foook!"

The entire event was under "Chatham House Rule" — meaning, I can not quote anyone by name or tell you which economist got drunk and danced until midnight (but one did).

But I can say that this is a very fine group of folk. The weekend was filled with good conversation, lots of wine, fine cigars, too much scotch, and outstanding fishing. we fished all three days — it rained on Friday, cleared on Saturday, was gorgeous on Sunday. I caught more freshwater fish than I ever have (and I spent the summers of my youth fishing in upstate New York). My canoe mate was hedge fund manager Scott Frew. Most days we pulled in 30-40+ fish — everything from Bass to Pickerel to the especially delicious White Perch. We released most of the Bass, and ate most of the Perch. On my last cast of the weekend, I pulled in the biggest freshwater fish I have ever caught — a fat 19" Bass that must have weighed 4 – 5 pound. Simply outstanding.

The weekend’s second biggest highlight — the first being that 19-incher — was the Saturday evening betting. Wagers are made by the group on S&P, 10 year, Fed Funds, Oil, Gold, Dollar/Euro, and CPI exactly one year hence. I made all bets, except CPI, choosing to boycott any BLS data. It was lots of fun.

David and I started an interesting side bet on the price of oil — over/under $66 — which attracted a lot of attention, and quite a few participants.

Here’s a bit of quirkiness: My outlook on the US economy was probably the most bearish of the entire group; at the same time, I probably had the most fully invested investment posture in terms of our managed accounts versus the rest of the fund managers. Kinda weird . . .

A few other interesting items worth relating:

Economics: The general consensus seems to be that the economy is middling, with some expecting it to slow further, and a few of the economists expecting a 2H re-acceleration. No one really thinks housing has bottomed, and I got the sense that I was the most moderate person in terms of how much further real estate prices will fall.

Politics: An interesting split between the two most esteemed political observers in the group: Both expected Mitt Romney to be the GOP nominee, while Obama/Clinton as the Dem nominee.

Markets: There was general caution amongst the group, with the expectation that a 5% correction is very probable. The range of other bets covered whether the markets run much further or get hit much harder  in the future.

The Fed: Likely to be on hold for the foreseeable future. The inside line is that Bernanke is a much bigger inflation hawk than Greenspan ever was. 

BLS: Clear consensus is there is no vast conspiracy manipulating there data. They have models, all models are biased, therefore their model is biased. I was surprised to hear a very experienced, highly placed participant mention in passing that he thought the Fed paid little attention to BLS data. Rather interesting.

If you have never spent an afternoon gently rocking in a small canoe on an northern glacial-formed lake, surrounded by pristine forests, with Loons crying in the distance as Bald Eagles wheel in the skies overhead, I highly recommend it.

Bottom line is that I expect to be back in Maine next summer . . .


A few snaps:

Murderer’s Row:


From left to right: BCA’s Martin Barnes, Millennium Wave ‘s John Mauldin, Yours truly, and Cumberland Advisor head honcho/KC Shadow Fed Governor David Kotok

The sunset off of the Leen’s lodge deck


Above photo credit:  Jim McTague, Barron’s

My Cabin/Canoe mate Scott Frew

Our Guide John Brown




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What's been said:

Discussions found on the web:
  1. Will G commented on Jul 24

    Thanks for the insight. Heading to Upstate NY for some smallmouth fishing in a few weeks. What was the 19″ bass caught on?


    BR: A night crawler !

  2. Jack D. Bridges commented on Jul 24

    Many thanks for the update, BR. I hope your good fortune on the water is an omen for your clients (and the BP readers).

    Did the gathering discuss the turmoil in the credit markets? As spreads continue to come unglued, and more tranches get hit with downgrades, I’d be curious to know what the participants expect/think.


  3. wally commented on Jul 24

    The divergence of the general opinion: worse on housing, better on the economy, is interesting. I guess they believe housing (a broad, generic term here) is not as important as you believe. Time will tell.

  4. Scott Frew commented on Jul 24

    Hedge fund manager Scott Frew. Learn how to spell, would you?


    Scott Frew

  5. Barry Ritholtz commented on Jul 24

    Two “T”s ? How pretentiously waspy . . .

  6. REW commented on Jul 24

    No conspiracy at the BLS?!?

  7. jay commented on Jul 24

    This countrywide news doesn’t look good.

  8. joe commented on Jul 24

    Intrigued by the Bernanke = inflation hawk comment.

    Can you tell us a little more about what the backup for this statement was?

  9. Stuart commented on Jul 24

    But who keeps the models biased and why?

    that’s comparable to a good accountant manipulating assumptions to make the statements say whatever he/she wants them to say. The intent to mislead is the same.

  10. MAS (San Diego) commented on Jul 24

    Will the Fed defend the dollar if/when it breaks 80?

  11. michael schumacher commented on Jul 24

    Earnings have basically been bad……ok they’ve sucked..to be over simplistic.

    But hold on the market is within earshot of the “record”……..and continues to be so

    You can’t make this stuff up

    Oh yea and it’s “contained”…yet again…


  12. Pool Shark commented on Jul 24

    Uh, oh.

    Don’t look now, but there goes the dollar,

    79.94 and falling…

  13. MarkTX commented on Jul 24


    A better question would be will CHINA defend

    the dollar if/when it breaks 80.


    Calling Bernanke an inflation hawk is laughable if not an outright disgrace!

    But then again, he lives in a different world than most people…most people eat food, use energy, etc…

  14. Justin commented on Jul 24

    I can’t express how jealous I am of this outing. Fishing, economics, alcohol … what a combination.

    RE: Bernanke as hawk, check out this ML article on the Bernanke Put (LINK)

    As for whether he’d defend the dollar, he’s gone on record numerous times (and been consistent in his statements) that the dollar’s value is the business of the Treasury. Yeah, I know, that’s crazy, but he’s said it a few times (Check the November 2002 quotes on this page and further note that Bernanke something similar last week at the House Financial Services meeting).

    Incidentally, I have been creating comics to spoof Bernanke and the Fed (and Greenspan, too) that you guys might find funny (it takes a certain type ;) ):

    Issue 1 W.W.G.D.
    Issue 2 – Bernanke before the House Financial Services Committee
    Issue 3 – Greenspan preaches hellfire and damnation at BOMA

  15. michael schumacher commented on Jul 24

    with the dollar doing it’s dance at 80…we are totally due for yet another round of:

    “it’s a bottom”
    (there is a song there somewhere)

    brought to you by the most out of touch Fed AND Treasurey that we’ve ever seen.

    I keep hearing the line from Trading Places…

    “get back in there and SELLLLLLLLL”
    “turn those machines back on”…..

    MS (BTW Ron Dennis is such a prat)

  16. michael schumacher commented on Jul 24

    dancing requires a little bit more time…..it’s above now, will be below…

    and then at some point China “helps” it up and we whack it right back down.

    You know if the Olympics were not next year IN China then I’d say the $ is toast…….


  17. MarkTX commented on Jul 24


    I am playing the song BIG BOTTOM by Spinal Tap

    just for grins…

    He he he…

  18. Shrek commented on Jul 24

    Maine is great is the summer! I spend mine near Traverse City, MI. Cant beat the warm days and cool nights!

  19. Whammer commented on Jul 24

    Hey BR, aren’t you going to disclose your bets?

  20. KirkH commented on Jul 24

    Fooook, that’s a big fish. I think we low end bloggers should dig a hole in my backyard, get a hose, buy some goldfish and make our own exclusive retreat.

  21. J Dwight commented on Jul 24

    Grand Lake Economics and Market Confab

    As many of my clients know, from previous years’ commentary, the third weekend in July is spent in Grand Lake Stream, Maine, where economists and market participants of renown, and fishing with quality Maine Guides, are combined at Leen’s Lodge. Some of the tales told by fisherman and participants are tall, but all make a splash. This year was no different.

    The group of 21 this year was small enough to get to know everyone, but large enough to charge the arguments with wide-ranging opinions. It included two economists from major banks, seven well-known market commentators, three investment managers, three hedge-fund managers, one Federal Reserve member, one international interest rate economic commentator, one think-tank economist, two commodities traders, and one agriculture market economist, one municipal bond manager, two fixed income portfolio manager.

    Topics discussed were the direction of inflation, interest rates, oil and the S&P 500, the international markets, the impact of the ‘sub-prime’ market on banks and financial companies, the takeover of Dow Jones by Rupert Murdoch, the capacity of ethanol manufacturers in the US, and guesses on the presidential face-offs next year.

    Consensus ideas on rates and the economy were:

    Inflation: moderates to slightly to less than 2%
    Interest rates: Flat, 5.25% Fed Funds, 10 year up to 5.80%. The curve reverts to ‘normal’ upward sloping graph. Economy slows, but demand for credit remains strong.

    Oil: ranging from $48 to $84 with an average of $66, no consensus really.

    S&P 500 in 60 days: Flat.

    S&P 500 in one year: Flat. Some took this to mean that the group was bearish; others, thought non-committal. I believe it to be a cautious view. The group was saying that the market was not going up the ‘normal’ ten percent, and it was not facing a ‘normal’ bearish 10% to 15% correction, or worse, either.

    The international markets and economies were the subject of several discussions. First, an overview. The world economies can be broken into several sections: the US, Canada and Mexico (UCanMex, my abbreviation), South America, ‘Fortress’ EU, the Middle East, Africa, and China. Short outlook summary: Stability and growth in UCanMex, South America, the EU, China and India. Uncertainty in Russia, and the Middle East. Darkness in Africa with spots of light–with a possibility of hope in ten years.

    Of these, the UCanMex is the most open economy of any, and to any in the world, even though Mexico and Canada restrict foreign ownership of land. Economists and politicians in the US have taken the lessons of the Depression and opened our economy as much as possible. The rest of the world, as far I can tell, have kept their economies relatively closed, or are closing them. This is why we often hear of warnings from Fed Chairman Bernanke—and Greenspan before

    South America is booming, especially I the areas of agriculture and mining, but has several problems. Venezuela and others are leaning Communist, but Brazil, Argentina and Chile are doing well. Chile is an entrepreneurial economy a great place to visit and live, according to an ex-pat American.

    I use the phrase Fortress EU, because the EU “has erected barriers to entry in order to consolidate the economies of eastern and western Europe,” according to those who study the subject. Additionally, “eastern Europe is where the recovering, open and vibrant economies are disrupting the old economic order in Western Europe.” This leads to Eastern Europe being the area of greatest potential and the source disruption of old union/management, and tax structures, in Western Europe potentially leading to higher growth than historically experienced.

    China disallows its citizens from owning any outside currencies, and foreigners from owning more than 50% of any Chinese company, making it relatively closed, but booming, because export growth and strong infrastructure growth. Of course, it is officially still communist. There also is the problem of the one child policy meaning that the population of China will begin to decline some believe begins in two years. Politically, China is trying to stave off economic dissatisfaction and destabilization, by using the merchant export model to bring dollars into China to finance this and save itself. It would be interesting to find out if dollars are being used in China and what the unofficial exchange rate is.

    The Middle East is booming, but fragile, because of oil money, and cultural issues. I do not think I can add to the already difficult cloudy picture of the future of the Middle East. Though the region is full of extreme groups, it has the money and potential to do well. As the EU has expanded itself and made it a large enough monetary market to take the flow of money into it from the Mideast, added with the recombination and unification of Europe, means the Euro will remain relatively strong.

    India is still relatively closed, but changing quickly. More information is needed to come to any conclusion here, frankly we didn’t talk about it very much.

    Africa is a shambles. Over 50% of the people in western sub-Saharan Africa have AIDS, according to one participant. Despite this, that individual is very optimistic on Africa, believing the potential to be huge.

    Russia is reverting to the dictatorial empire model. Stay away.

    The infrastructure spending worldwide gives Caterpillar (CAT, NYSE: @84.5) a fairly good economic market. Deere (DE, NYSE: @127.5) is prospering in the US, because of increasing corn acreage and expanding tractor usage in South America. Deere is effectively excluded from the EU and China at this time, according to our agricultural expert.

    Sub-prime lending impact is said to be the problem which could lead to weakness lasting two to five years in the financial and real estate sector, according to those who watch this area, or are underweighted or short the groups. The financial sector is viewed to include the major banks, regional banks and financing companies and the large brokerage companies. According to one participant, “BankAmerica and Wells Fargo are up to their ears in it. Wachovia up to their knees.” This situation will mean further consolidation, because of weakness and strength, and a period of earnings weakness from increased loan loss reserves. I believe there is opportunity ahead with the 10 year at 4.96% and dividends for BankAmerica and Wachovia above 4% there is some support on a dividend basis, but the stocks are likely to go sideways until this issue is resolved. A ‘difficult’ problem, but one that is not on the order of magnitude we experienced in the late eighties and early nineties.

    The word on ethanol as a replacement for oil in the US is that it is “not an energy policy, but a farm policy.” Given the constraints on the acreage available and the normal yields of corn, combined with the capacity to refine and deliver ethanol, it will replace less than 10% of the US consumption of gasoline and take several years to do it. The addition of millions of gallons of ethanol will not decrease the usage of oil, nor will it impact the price of a gallon at the pump, because of the cost to produce and deliver it to the consumer are above what it costs to deliver a gallon of gasoline. Will it not make money for the producers of corn, the refiners of ethanol, or the machinery and farm equipment manufacturers? Yes, but it won’t reduce usage of oil or the price per gallon at the pump.

    IF Murdoch gets Dow Jones, “the best writers will leave.”

    Presidential Politics was the subject of a wide range of ideas, with the consensus bring the choices on both sides were said to be “ridiculous and horrible”. Hillary Clinton thought to be the front-runner now, “would be the worst choice for the Democrats” for the general election. Surprisingly, Romney and Thompson were thought to be real “challengers” for the Republican nomination, but “didn’t stand a chance.” So, we will just have to see.

    So, there was lots of fishing and great conversations.

    Even if you aren’t a fan of fishing, it is great. The guides represent the best of what Maine is all about. Family and people oriented. Loyal. Hardworking. A deep and abiding love of the land, waters and wildlife. Les Williams, of Grand Lake, has been my guide for the last two years, if you don’t like handling bait or fish, don’t worry, he’ll handle it all. Watch out for the dry humor, you may just get the joke on the way home. The Penobscot Nation was represented by two brothers who are guides, Ray and David. Well worth having a quiet conversation with. All the others who guide, cook and help are worth spending time with. There is even a locally infamous guide/folk singer, Randy Spencer.

    The food was delicious. Traditional recipes of lobster bisque wowed everyone, and the cranberry stuffed game hens were a surprise. Homemade pies and deserts baked by Lauri. And breakfast specialties that had you trying them every morning. If you are looking for a quiet place to take your loved ones to, relax, or enjoy some exciting fishing, I recommend Charles Dirza at Leen’s Lodge. Always a smile and a warm “Welcome back!” I look forward to returning next year.

  22. milothereporter commented on Jul 26

    Rick, I love you but those photos are screaming for snark.

    “Last week, a group of the most powerful and influential figures in the institutional investment community gathered for a weekend of fishing and econ-chatter. Topics included recent wobbles in the dollar’s value, core inflation, and how to keep the black man down.”

    BR>: Funny, no one noticed there were no women.

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