Todd G. Everts: Too many high doses.
Host: And it’s all going to come to tears?
Todd G. Everts: This is going to take time which is why I think the markets
going to have volatility; we’ll have a sideways market and the opportunity right
now if it’s structured properly is debt starts to look like equity.
Host: One of our friends and one of your peers on this program and other
programs my good friend Pete Mcguire ,down Australia runs Commodity Warrants Australia,
just has a point he wants to make here Hey B, he says, we’re up 20 percent on the
Dow already from the bottom. So people were talking about Barton Biggs there we
only have to be 10% to be up 30 to 50% or there about, that’s assuming Mr. Biggs
is talking about the bottom. Are you saying, Todd, do you think that the 20 percent
we’re up on the Dow industrials already itself is unsustainable or does the market
has quite a bit of clarity and rationality with its pricing point?
Todd G. Everts: I think the market is the market and it has its own clarity.
What’s driving the market today is much different than it was 6 months or a year
ago because it’s not highly levered. The banks haven’t come in and provided the
same amounts of leveraging totality that they have in the past which means the investors
that are in the market are traditional traders and without using leverage we’re
seeing more reality in what the market prices should be. Are they going to sustain
that is what I think is going to be very, very difficult because there’s a lot more
bad news to come.
Host: If not equities then what is the preferred asset class right now? Just
buy treasuries and accept the lousy return or what?
Todd G. Everts: No, its strategic diversified asset allocation method is
the best way and cash is still going to provide for a lot of opportunities.
(BREAK)
(Deep 6 for the Dollar)
Host: Todd is a global macro top down kind of guy with a big picture, what
the burning question for a person which his expertise from the Forex desk?
Patricia: Todd I’d like to ask you what’s the sort of risk appetite is the
market talking about? When will this risk appetite actually cease? Are markets looking
for something, a turning point when the risk appetite will actually start to peter
out?
Todd G. Everts: We’ve seen a turning point and markets have rallied so much
in such a short period of time but one thing we’ve got to take a look at is the
gap between the bond yields and the performance of the financial stocks which is
extremely wide which would suggest that the financial stocks would contract. These
financial stocks on the other hand had been beaten down so much that with a little
bit of cash coming to the market we’re seeing an improved performance and we’ll
continue to see a lot of volatility.
Host: Does the fact that basically the numbers keep escalating, does this
tell you that you really can’t trust governments and central banks anymore? What
is the value of a paper currency? Surely this throws the question into the mix once
again.
Todd G. Everts: Yeah absolutely and to add to that fuel is what would the
position of China and Russia over the months and years to come because as China
is now urging to have some sort of world currency managed by the IMF that would
take many, many years to implement. But that could be an early sign that they’re
not going to continue to buy dollars.
Host: They talked about this establishing a new reserved currency and weeding
ourselves off this reliance on the dollar in the same breath they come out and you
saw some of the comments from the foreign exchange administration official saying
we believe in the US treasury market. And she’s saying something that the premiere
of China said he was very worried about a couple of weeks ago. Are there cracks
or fissure starting to form for PRC message management?
Todd G. Everts: It’s very difficult to understand the motive behind any central
bank governor or any bank and what their true policy would be because they’ve got
to report in real terms in their own currency, they don’t have to report in US dollars
so it’s important for them to be able to because they have to report to send the
right message is going to benefit them.
Patricia: Todd, Patricia here again. We were just wondering what’s your opinion
about the Yuan? You know today, we actually found that the 6 months non deliverable
fowards actually turns positive, actually forecasting an appreciation of the Yuan
for the first time since late last year really.
Todd G. Everts: It would appear that because the US has had a mission for
the last 5+ years to see the Yuan value go down against the US dollar to make it
US products more competitive. It would seem like that process could occur over the
weeks and months to come.
Host: Here’s a question here since we’re talking about the currency restructuring
and what’s involved and what isn’t. Cathy writes in saying: Do you think that the
massive gold and silver short positions held by JPM Chase and a couple others have
the potential to destabilize the markets if the dollar is basically on the verge
of some sort of a secular decline, you understand the question?
Todd G. Everts: I understand the question, I’m not up to speed on what the
totality of those short positions are and what effect those can have completely
on the market but the fact is that gold and silver…I can’t see that they’re going
to continue to appreciate in dramatic fashion because we still don’t have true inflation.
If the markets continue to stay at the level they are and rise then we’ll start
to see inflation creep back in and we’re going to see more volatility in gold and
silver.
Host: I hear that 2010, 2011 inflation is going to be a raging problem, do
you subscribe to that?
Todd G. Everts: If the bailout plan doesn’t work and they are going to continue
to have to throw good money at bad investments, they continue to print money and
if the US currency doesn’t continue to be the standard we’re definitely going to
have much, much higher inflation.
Host: It’s going to be a US-led problem then on the current trajectory.
Todd G. Everts: Yes that’s correct.
Host: Nothing anybody else outside can do about it?
Todd G. Everts: Certainly the G7, the D20 can get together and try to stop
this moving train but the US must solve this toxic asset problem.
Host: Well they’re trying, trying. Nobody would say that they’re not sincere
about wanting to solve the problem.
(BREAK)
(Segment with Fred Schlomann)
Todd G. Everts: Could you talk a little bit about …or what is your opinion,
are US banks and employers at a disadvantage from, maybe foreign employers, because
of caps and bonuses and caps and compensation?
Fred Schlomann: I think long term that’s going to have an effect. At the
end of the day the caps and any kind of compensation package are going to drive
in their own direction, their kind of results. listen, folks have to be in Asia,
companies have to be here. How are they going to get the talent they need. Expats
are hired because local talents are not available and how do you incentivize people
to take those jobs?
Host: Who’s your clientele? It’s individuals mostly is it?
Fred Schlomann: Now it’s actually corporations.
Host: It’s actually companies. What are they coming to you with? What is
the mandate they hand you? Did they say we need to cut cost and I’ve got an employee
X, great …5 college degrees, PhD and a really great mind but costs 5 times more
than a local PhD.
Fred Schlomann: That’s right, the gut reaction is we got to cut cost, we’ve
got to do something quick but companies do not want to put themselves in a hole
where they can’t recover and respond when they need to respond and that’s going
to happen. Things are going to turn around. Companies have to look at it strategically
and they have to look at it from a standpoint of if this is the person we want and
the person we need we’ve got to make sure we do it right.
Host: Maybe it’s a cultural thing but there are different ways to deal with…we’ve
got too many people for what we’re actually doing these days…do we furlough? Do
we do not pay leave? Do we say take very Friday off? Do we make them 3 months of
unpaid leave or we keep them on benefits, something like that. I mean there are
all kinds of iterations, all kinds of variations out there.
Fred Schlomann: Certainly in the mobility world the highest cost to company
of moving people around the world is the cost of the expat themselves. They are
3 to 4 times the cost of base salary alone to keep these folks on assignment but
the real issue there is do we need these people and making the right decisions around
the right people. I think in terms of managing the other aspects of compensation
and benefit, I think those are all issues you’ve mentioned around the table.
Host: Todd can I throw you a human resource question within your company
…have a lot of the perks disappeared, I mean the housing and the American club memberships,
I don’t know if you ever went that route but are those pretty much gone? Is everybody
on a cash and pay as you go basis now?
Todd G. Everts: I think everyone’s on a pay for performance based on what
you are specifically are contributing to the enterprise where in the past everyone
was painted with one brush and simply being an expat meant that you’ve got many
of those perks and I think today going forward it’s more based on the individual
need of the position and what your specific contribution would be to the bottom
line.
Host: Fred you were going to add to that?
Fred Schlomann: I think there are some fundamentals here in the sense that
you send somebody from the US to Hong Kong or Singapore, they need housing. Certain
items are going to cost much more than they do back in the US so I mean there are
certain basics here which are going to recur regardless of performance. The issue’s
what standard do you provide? Is it a 3 bedroom house in mid-level or a 3 bedroom
apartment mid-levels or is it a place in Stanley? I mean these are the kind of trade-offs
the companies are now looking at.
Host: Stanley is such a schlep anyway. It’s overrated.
Fred Schlomann: It’s a long way.
Host: Takes an hour during peak hours. That’s a lot of gas you’re burning,
you’re wasting time especially if you’re driving. On an individual basis then how
can one maximize the potential…how do you package yourself, how do you present yourself…do
you go in tin cap and a hand on one knee and of crouching position looking really
pathetic or does humility pay now?
Fred Schlomann: Assuming I have a job, that’s the starting position. You’ve
got the job or are you going for the job.
Host: There are more working people than non-working people.
Fred Schlomann: Differentiation is the narrow game, right? Anytime you’re
negotiating or anytime you’re trying to stand out you have to have those skills
and qualities that are going to differentiate yourself from somebody else and international
experience in my mind is a great differentiator and having that skill set that nobody
else has.
Host: I want to ask you a question. I’ve been seeing increasing stories about
expats who’ve been here for a number of years, got the acts or the company just
dissipated or self-destructed but they found that they decided instead of going
back to their stomping ground it would be expensive, you have higher taxes. They’re
actually like taking themselves out of circulation in going to these…out in the
sticks in the middle of Luzon in the Philippines trying to ride out the wave a little
bit. are you seeing a lot of that?
Fred Schlomann: That sounds like a great story and a great vacation.
Host: But that keeps them mobile. They’re also a flight away, an hour and
a half.
Fred Schlomann: It keeps you in the region. Why go all the way back if you
think you’re going to end up here? Give yourself some flexibility.
Host: Somebody has trouble in Hong Kong or Singapore or Tokyo going to new
York, going to lower Manhattan is not going to involve any problem, correct?
Fred Schlomann: That’s right.
Host: Because you still have a very expensive housing and all that.
Fred Schlomann: Individual by individual. If you’ve got a family, with kids
in school that’s one issue you’ve got to deal with. If you’re single, flexible.
That’s a whole other story.
Host: That’s a story and issue for another day. Like anomalies do you get
married and declare joint income or do you shack up because it’s more advantageous.
We’ll do that another day… but thank you very much for sharing your thoughts.
BREAK
(Viewer Emails)
Host: Time to focus on the emails you’ve been sending us during the show.
Here’s just one to get us started. They’re really quite a potpourri today. Keith
writes in: I propose two quick fixes to stabilize America, one: eliminate all short
sales and treating credit-default swaps or cvs as insurance to buy one you have
to have insurable interest and to sell one you have to be a regulated insurance
company So using these products for the real intentions perhaps that they were created
for. Todd, any answer…this would kind of lead us back to a cash system wouldn’t
it?
Todd G. Everts: The idea of having an insurable interest is a unique one
that I haven’t thought of because it does allow…it eliminates some of the speculating
but then if you take it to the next step then you would say why should somebody
be able to speculate on the price of oil and price of commodities but having an
insurable interest certainly would make those instruments less liquid but priced
more closely to what they should be priced at based on the default opportunity.
Host: But if you target one you know this kind of goes to the same argument
when Congress was all up in cahoots and all up in arms over the AIG bonuses and
decided “okay let’s table a legislation 90% poisonous punitive tax rate on TARP
bailout funded bonuses. I mean if you try to so narrowly target one swath of the
population, what are you going to do? Anytime somebody’s upset about something,
what are you going to do – legislate? You’re going to have 2 million amendments
to the US Constitution.
Todd G. Everts: Exactly, a friend of mine said to me earlier today when was
the last time most American actually read the Constitution?
Host: I did in school. You did too. You remember it?
Todd G. Everts: No it’s a little too long to remember that.
Host: What’s the second amendment?
Todd G. Everts: I don’t remember.
Host: Right to arm bearers. Anyway go on…
Todd G. Everts: Bear arms actually. So the point of the constitution is being
used for this political purposes of legislators in a way that they weren’t design
to be able to do and that’s frustrating. That’s the tail wagging the dog and it’s
not the right approach.
Host: : Okay, are you ready here? Here we go. We’re going to start going
in all different directions here because people ask a lot of different things. Here’s
one from Francis who writes in: who do you think is most responsible for the financial
crisis? Is it Greenspan or was it the repeal of Glass-Steagull which separated banking
and investment arms. Global imbalances, what was the real culprit? This is really
going back to the sort of beginning of all these problems to speak of.
Todd G. Everts: It’s very difficult to absolutely pinpoint one event that
is the problem. I think the systemic problem is the average American many times
related to unions don’t understand the world economy that we live in and don’t understand
economics. They’re more concerned about their season tickets to the sporting event,
they’re more concerned about buying a new car, they’re more concerned about their
vacations than working. An average Asian, a Latin American would think more about
the world economy and the way in which we transact. The average American, they’re
frustrated if they can’t buy something at Wal-mart at a lower price and regardless
of where it’s made to them it’s based on prices not based on economics.
Host: The thing that’s made this whole banking crisis worse is they hear
about the egregiousness, the excesses, about people getting 6.49 million dollars
and bonuses when it’s their tax money that’s paying for a big chunk of that.. What
they’re upset about is they’re still paying 595 a month for basic checking and you
could only write 3 checks and anything over that is an extra 3 bucks or something
like that…it’s like they’re screwing me as a consumer and “…this is what they do?”
It magnifies the negativity out there.
Todd G. Everts: Absolutely. The average American would say if anyone is making
more than $200,000 a year, why should they have anything to complain about? Because
their kids are going to public school, the price of gas is in line with what they
need, so why would anybody need that much money?
Host: (…) here’s one from Tanguy who writes in here…What products are available
to lessen the risk of Madoff scandal to protect investors while in the hands of
a fund manager? Are there products or are there safety checks?
Todd G. Everts: There’s more of safety checks. This new axiom, a new terminology
which is referred to as a managed account is really the direction that most of the
industry and the alternative industry is heading towards to make sure that there
isn’t another Madoff. You can look into the account, you can see the actual securities
that the manager is buying and selling on a daily basis.
Host: Also a separation of the actual investment function, the allocation
and the actual holding, right?
Todd G. Everts: Yeah.
Host: The actual domicile, actual aggregation should be done outside and
separately. Is that correct?
Todd G. Everts: All of the above. One of the ways is to ring-fence them so
that there isn’t any toxicity that flows between them but also being able to see
what transactions are occurring and making sure that you don’t have too much counterparty
risk.
Host: Okay. Here’s one from Jim who writes in from California….With the FDIC
involved in this new program will that cause insurance rates for banks to go up?
Todd G. Everts: I think it will cause insurance rates for banks to go up
because of that same thing we talked before about not knowing what the toxicity
of the assets are and not knowing if Geithner’s plan will work, the cost of FDI
insurance will go up.
Host: One more…it’s a little bit of abbreviated or might be partially in
the form of attachment…one writer asked very simply: will China continue to buy
and store metal…what kind of metal would this be?
Todd G. Everts: All types of metal..but rather than just buying the metal
or buying a contract on the metal they’re doing everything they can to buy the factories
and the mines.
Host: So you think China’s on the verge of a buying spree and it will be
unfettered, there won’t be too much political opposition…that’s been the problem
for them, hasn’t it?
Todd G. Everts: They’re competing against US, Canadian and European companies
but I think there’s going to be less competition and China has cash.
Host: They might end up being the white knight.
Todd G. Everts: Capitalism.
Host: How much? 750 billion in treasury bond?
Todd G. Everts: Yeah.