Bloomberg Surveillance Transcript

This is the transcript from Friday’s Bloomberg Radio appearance.

Source: Analyst Wire
This is not a legal transcript. Bloomberg LP cannot guarantee its accuracy.)



TOM KEENE, BLOOMBERG SURVEILLANCE HOST: It is The Big Picture. It is must read by everyone in the Street on the web. Barry Ritholtz with us. We just had on Tobias, really pushing against stocks are cheap. Are stocks cheap right now?

BARRY RITHOLTZ, CEO, FUSIONIQ: They are – it depends on what sort of metric you want to look at and how long a time line you take. If you look at the very big picture – pardon the pun – the long term, the Q ratio, the Shiller trailing ten year earnings ratio, stocks are by no means cheap. They are actually rather expensive.

When you look out on a very short term basis, either trailing four or a forward four, and you look at how earnings have come snapping back from the recession lows, stocks are reasonably priced.

The problem is most people’s time line is not really adjusted to those two differences. If you are a buy and hold investor, this is not really the ideal time to jump in. If you are a trader, there are more opportunities. But given the long term price, the opportunities are fewer and further between.

KEN PREWITT, BLOOMBERG SURVEILLANCE CO-HOST: Well, we had six down weeks. Did it turn up any bargains?

RITHOLTZ: It just took a little bit of that slight overvaluation off stocks and created an environment for a bounce – we came into this week short and covered on Monday. I thought was great until yesterday and the joke in the office was I picked a bad week to stop sniffing glue. And then, you know, by the end of that day that reversal, if you are long or at least not short, that reversal is pretty encouraging to see the market climb.

So just – I know you guys were talking earlier about tech and IPOs, if you look what the Nasdaq did yesterday on a chart, that is a very significant reversal from pretty red to pretty green.

KEENE: It is the Sass power breakfast, folks. We’re here at the Lowe’s Regency Hotel, Park Avenue, mid-town Manhattan. And we thank Sass for their support. Sass, the power to know.

Barry, was your breakfast okay here?

RITHOLTZ: Delightful.

KEENE: They do a –

RITHOLTZ: Worth every penny of the – whatever it turned out to be.

KEENE: Tom Keene, don’t drop the –

RITHOLTZ: Right, I actually have to take a mortgage out for that, right.

KEENE: Barry, –

RITHOLTZ: But the rates are low.

KEENE: – you wrote an essay the other day on The Big Picture. The Fed: Puleeze! And you could have wrote – written it yesterday, the IEA or Strategic Petroleum Reserve, Puleeze! These are exogenous (inaudible) that really come out of nowhere, aren’t they?

RITHOLTZ: Yes, and no. I mean there has been a lot of chatter about the Strategic Petroleum Reserve. We have certainly heard about that. I know that is a question that has been asked of the Obama administration several times.

And, you know, really, when you look at the bag of tricks that the Fed and the Treasury Department have, they are running out of tricks. So this is like, well, you know, all right, they’ve seen me juggle and they’ve seen me ride the unicycle, what can I do now? Well, the Strategic Petroleum Reserve, with energy prices falling, and a little bit of a softness on the consumer side, this really very much a tactical decision to goose the economy.

You know, the weird thing about it is I think most people look at oil prices backwards. They say, you know, if oil prices come down, the economy will do much better. No, no, if oil prices come down, it is because demand isn’t there and the economy is already sliding.

So you have to be – sometimes you have to be a little careful for what you wish for.

PREWITT: Well, going to probably get a conspiracy theory, but do they see something else happening?

RITHOLTZ: No, you see –

PREWITT: If they are going to give us a break on gasoline prices, but it is going to offset something that we don’t know about yet?

RITHOLTZ: No, you know what? Whenever people talk to me about a conspiracy theory, the last president was unable to fire a handful of attorney generals for political reasons. It all came out. If you couldn’t fire six lawyers and not have the world figure it out, I doubt that there is any grand conspiracy theory going on.

If you just look at the recent data, job creation has been punk. GDP has been soft, which, by the way, is what we should expect in a post-credit crisis era. They are looking to do whatever they can to prime the pump and get the economy moving a little faster than it is.

I think 1.5 to 2.5 percent GDP is what you should get following a massive credit crisis and an ongoing deleverage, with big unemployment and a huge headwind from housing. This is exactly the sort of economy, if you read Reinhart and Rogoff, you should expect.

KEENE: I just went to your site. It looks like you are on your blog like 26 hours a day. There are like eight ways to go here. But you have at June 23rd, 2:30 pm, nation building starts at home.


KEENE: And you don’t mean shovels. What – how do we nation build? What is a policy that we can have to begin to alleviate so much of the fear and the risk that Tobias was just talking about?

RITHOLTZ: You have to look at who our global competitors are and what they are doing. You know, I deal with a lot of people who are – they are big into their isms, and they are idealists and they – it is amazing how many people working on Wall Street who should really be academics. And so they have these abstract theories, which sound great on college, but in the real world, it doesn’t work.

So if you look at what China is doing in their infrastructure, it is not very different than what the United States did in the 1950s. We built an interstate highway system. We put up a whole lot of airports and naval ports. And we set – left behind an infrastructure that the private sector can build on.

To me, the debate about what government should be doing in terms of taxing and spending is so far off from what the actual debate should be, and it is what can only the government do that private sector can, that then leaves behind an infrastructure that the private sector can build on.

And it is not just interstate highways. Look at the internet as a perfect example of comes out of Darpa, comes out the Department of Defense, and it is now an enormous slice of the economy. That is the sort of thing that the government can be doing where they are not interfering with the private sector, creating something for the private sector.

PREWITT: So what might that be?

RITHOLTZ: There are a thousand different – first of all, if we did nothing but repave the roads and fix the bridges and tunnels, that would be enormous. If you travel overseas at all and go through airports in Europe or Asia, our airports are third world in comparison.

KEENE: It’s amazing. And the trend widens –

RITHOLTZ: Right, –

KEENE: – (inaudible).

RITHOLTZ: – now granted, a lot of the stuff we did, we were 30 and 40 years ahead. And so they are aging, but if we can –

KEENE: Oh, no.

RITHOLTZ: – dig up a trillion dollars for the banks, we certainly could dig up some money for our infrastructure.

By the way, our ports are still very vulnerable to attack. Post- 911, it is a decade later, they are no better than they were a decade ago.

And then look at our electrical grid from a national security basis, the war with China isn’t going to involve guns. It is going to involve botnets –

KEENE: Right.

RITHOLTZ: – that can take down our power grid pretty much any time they want.

KEENE: You know the voice, Barry Ritholtz with us. George Evans will join us here later on.

Of course, Ritholtz, the book is “Bailout Nation.” Jennifer Aniston will be in that next summer.

RITHOLTZ: That’s right. She’s going to be in the movie version.

KEENE: She’ll be in the movie version. Bert Ely really writes it up here on the fed, calling it a fixed income hedge fund, “Toto, I Have a Feeling We’re Not in Kansas Anymore.” Why did you put Bert’s always astute work in The Big Picture this week?

RITHOLTZ: I thought it was – because it was so astute and because I don’t think people realize what the balance sheet of the fed actually is and the ramifications of it. And, again, I have to reiterate this, I am not a policy wonk in my day job. My goal is to look at that and figure out what does this mean for stocks, for bonds, for what have you. And, you know, what we have is a fed that have had – a year ago told you that risk assets are attractive and now they are telling you they are little less attractive.

KEENE: There are seven – this is something I think most people don’t know, Ken. I want you to jump in here. There are $700 billion wire on that balance sheet than they were June of not so long ago.


KEENE: I showed that chart on Surveillance Midday. A lot of people don’t realize it has continued to expand –


KEENE: – through this year.

RITHOLTZ: And even more significant is that it is not going to unwind any time soon, so I’ve been calling it QE 2.5. As that ladder comes off, it is just getting reinvested. So the stimulus factor from QE doesn’t go away June 30th. A lot of people have been wondering why hasn’t the equity market fallen 20, 30 percent so close to June 30th? It is because it is almost like a ship in space, and when they hit the after burners, after they go off, they still have that forward momentum. That book is going to continue to come up and be reinvested until the fed says they are moving away from that.

KEENE: Interesting. One final question, where is the Dow a year from now? Are you in or out?

RITHOLTZ: I have not the slightest idea. There are times when I can give you – you know, we think the upward momentum is going to continue, or we think there is an overvaluation and there is some soft spot – up, down, back, forth.

KEENE: Right.

RITHOLTZ: And no confidence as to where it will be.

KEENE: NBA draft, how did the Knicks do?

RITHOLTZ: Eh, not good. Not good.

KEENE: We’ll leave it there. Barry Ritholtz, thank you so much. He’ll be writing on the Knicks. Look for it at The Big Picture out on the web, just a fab – I can’t say enough about the eclectic and smart nature of what Mr. Ritholtz generates. And particularly what he aggregates into the web. He is the Pandora of financial – the Pandora of the financial web.

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