Noted short seller and hedge fund manager Bill Fleckenstein was interviewed on Bloomberg TV a couple of days ago.  He touched on the topics of JP Morgan and financials in general, along with his view of the European dilemma.

Fleckenstein had been quoted as saying he wouldn’t buy JP Morgan if a gun was put to his head before the recent trading losses were exposed.

Fleckenstein said the state of accounting at financial firms is such that the financial statements mean nothing; something he pointed out 10 years ago. If you are an outsider looking in you don’t know what you own at a financial institution according to Fleckenstein. Supposedly Jamie Dimon didn’t know what was going on at JP Morgan so how would an investor know, he added. Add in the semi gun-slinging mentality of the management and you’re just making a bet. Fleckenstein said he didn’t understand why anyone would want to own a financial stock.

When pressed by the attractive interviewer why investors are willing to invest in financial stocks, Fleckenstein said he didn’t know, but he sees people going to casinos even though they are almost guaranteed to lose. He added that he didn’t understand how people could be so stupid not to see the housing bubble, but they didn’t.

Regarding the economic recovery, Fleckenstein said seasonal adjustments made the economy appear brighter than it was. The economy now is weaker than people think and Europe’s economy is weak as we know; along with Asia slowing down, he added.

When asked if he would buy anything in Europe, Fleckenstein said he didn’t think so because another crisis is building over there. He said government bonds are starting to back up in Spain and Italy, there is disarray in Greece, and France elected a new leader. A point will come where people are scared to death and the ECB and Fed ride to the rescue.

The interview continued with Fleckenstein speculating on what happens next in Europe and comments about stocks he finds attractive (Microsoft, gold mining stocks, Pan American Silver, and Mongolia).

In the latest issue of Forbes Magazine, Ken Fisher, money manager and author of several books including Markets Never Forget (But People Do): How Your Memory Is Costing You Money-and Why This Time Isn’t Different provides several investment ideas, along with books he recommends. Fisher advises he has been collecting investment books most of his adult life and one of his favorites is Edwin Lefèvre’s Stock Market Manipulation.

Fisher touts four other books including Lefèvre’s Reminiscences of a Stock Operator, Benjamin Graham and David Dodd’s Security Analysis, Roger Babson’s pre-1929 Business Barometers for Anticipating Conditions and, Modern Book Collecting by Robert Wilson.

As far as stocks go, Fisher finds value in Mattel (MAT), selling at a PE of 12 and yielding 3.9%. He also likes Forest Laboratories (FRX) whose, “future is brighter with a great stream of 17 new and upcoming products for varying ­ailments.”

Teva Pharmaceutical Industries (TEVA) also catches Fisher’s eye, “with low costs and strong emerging markets presence, expect low double-digit sales growth. It’s cheap at 14 times 2012 earnings with a 2.3% dividend yield,”

Fisher sees potential in Applied Materials (AMAT) stating, “it’s the leading supplier of chip manufacturing equipment. Folks fear weakness now tied to Europe. But I expect an upgrade in expectations as earnings increase and its trailing P/E of ten expands. You get a 3.3% dividend yield while waiting.”

Fisher is a believer in videogame leader Activision Blizzard (ATVI) considering it, “is doing surprisingly well despite an explosion of iPad, iPhone and Android games. At 11 times trailing earnings I think the stock more than discounts the risk and underestimates the firm’s strengths. It has a 1.4% dividend yield.”

Source: Forbes

Disclosure: I personally own stock in Applied Materials and Activision Blizzard.

Energy stocks (oil, coal, natural gas) have been remarkably weak lately. Chesapeake Energy (CHK), the large natural gas producer, recently hit its lowest price in over 3 years.

Wilbur Ross, “private equity legend and master of the turnaround,” was on CNBC’s Fast Money yesterday.  Ross commented on the turnaround potential of natural gas.

Ross said he believed natural gas was very close to the bottom. He indicated it may take a couple of years for natural gas to rebound, but with the cutbacks in production that are coming and the continued growth in demand as gas replaces coal, that the outlook over the next several years is for a double or triple in the price.

Ross commented on Chesapeake Energy as having some good assets which would be very compatible with his operation if they came up for sale. He mentioned CHK’s problems having to do more with the “right hand” side of the balance sheet and perhaps corporate governance.

When asked what area of natural gas he was involved with, Ross said the shipping area with a relatively private company called Navigator which has smaller vessels which go to the more shallow ports in emerging countries.

The topic of Europe was brought up and Ross’s involvement with European banks. Ross quipped that there is no Europe and no one identifies themselves as a European. He considers the issues there country issues rather than EU issues. He said they bought into Bank of Ireland (IRE) which is essentially a play on high technology.

Ross pointed out that Ireland is the world’s largest net exporter of pharmaceuticals and mentioned some of the other high tech industries there. Ross also mentioned that Ireland has the lowest tax rate in Europe and a young, educated work force. But most importantly, he said Ireland dealt decisively with the problem by nationalizing the banks, knocking down the total cost of civil service by 13%, cut out capital spending and social services in the face of 14% unemployment.

The interview continued with Ross speculating on the future returns from his investment in IRE, and his view of the stability of the Irish recovery.

Market technician Charles Nenner of the Charles Nenner Research Center in Amsterdam was recently interviewed by Jim Puplava. Nenner said his downside target for the S&P 500 was 1325. If it breaks that level he said we would be in for a longer period of correction, but he thought it would hold with the market remaining in a trading range.

Nenner also said if the NASDAQ 100 doesn’t break 2600 he believes the the major market indices will reach new highs.  However, over the longer term Nenner predicts the stock market will break down to much lower ground.

Nenner also commented on the gold and silver markets with some disturbing predictions for the metals bulls.

Nenner’s downside target for gold was $1359 an ounce and for silver he sees $23 an ounce. Nenner mentioned that he got out of gold at $1900, but many of his clients didn’t and are now selling because they indicated they were long term holders, but the losses are now becoming too big.

Nenner said this wasn’t the end of the gold and silver bull market and he’s waiting for a good entry point after this correction runs its course.

Regarding copper, Nenner sees the $4.00 area as a major top and recent weakness in copper and oil are indicative of the economy rolling over and becoming weak again. Nenner provided a downside target for oil.

Nenner commented on the bond market which he sees having one more rally left. After that, bonds will enter a 30 year bear market. Nenner also sees trouble for the dollar in 2014 and indicated people are not as eager to invest in the U. S. anymore.

The interview [available at source below] continued with Nenner commenting on a possible depression, his prospects for the euro and other currencies, his discussion of recent bubbles which lure people into the wrong investments, and the importance of not being emotionally involved while investing.

Source: Financial Sense

Apple has been the producer of some of the most popular products of the past 10 years.  From iPods to iPhones, Apple has become iT.  Throughout history fads have captured the minds of the public; especially impressionable youthful consumers.

I recall nearly every kid in my high school wearing puka shell necklaces at one point in time.  I thought the whole thing with the shells was kind of silly so I never joined the puka frenzy.  Puka shells adorned the necks of 95% of the high school lemmings for about two weeks then they were completely gone – poof.  You couldn’t find a single person wearing them.

Granted, comparing puka shells to Apple is not the greatest analogy.  Apple does produce good products which consumers spend a lot of money on and find more useful than a few shells around their neck.  However, I do detect substantial fad appeal in their offerings and would guess that their average consumer is under the age of 30.

Fred Hickey, a long-time observer of the tech industry who has seen his share of fads over the years,  has  been covered in a recent Forbes article by Eric Savitz.  It appears Hickey believes the Apple story has peaked and the stock could be headed for more trouble than the mere 10% drop it has already experienced.  In Hickey’s latest newsletter he expresses concern about the state of the world economy and speculative activity in parts of the tech world.

Hickey is revealed to have traded Apple shares several times over the past decade, making his most successful bets on the short side.  Now Hickey believes Apple has gotten too big for its britches with its unsustainable $600 billion valuation.  He reminds us that Apple is a ”consumer product company subject to the whims of consumers” and it cannot sustain the profit margins it is achieving on its commodity type products.

Hickey doesn’t believe Apple will reach the $1,000 stock price target bandied about by analysts pointing out other tech companies (Sun Microsystems, Cisco Systems, Microsoft and Nokia) whose stocks failed their investors.

A final warning from Hickey:

“Narrow markets, concentrated positions, frenzied stock action, IPO mania, cult stocks and disregard for valuations were the conditions preceding the 2000-2002 tech stock collapse, the 2008-2009 bear market and the 1973-1974 bear market, which ended the Nifty Fifty era. This is possibly another danger moment for tech investors.”

Source: Forbes

Jamie Dimon, banking’s boy genius, who appeared to navigate the financial devastation of 2008 in a superlative manner has just presided over what could eventually be the biggest trading loss in Wall Street history.

Observers such as Jim Rogers have pointed out the risk-taking and large derivatives positions at JP Morgan as “disasters in waiting,” as he was reportedly short the stock over three years ago [link].

Dimon didn’t try to downplay the implications of the boneheaded trading and embarrasing lack of disclosure that led to the stunning loss, stating there were many errors, sloppiness and bad judgment which were responsible. Supposedly it involved a big bet on sovereign debt and attempts to hedge it with Credit Default Swaps (CDS).

Dimon, a/k/a “The King of Wall Street,” has been lobbying for less banking regulation, but this sort of behavior argues strongly for the reinstatement of the Glass–Steagall Act; especially the provision separating commercial banking from investment banking.

Bankers will always be tempted to take outsized risks as long as the bailout culture exists. The only cure appears to be a forced break-up of the massive banks or effective regulation.

Canadian hedge fund manager Eric Sprott ($9 billion assets under management) was on CNBC’s Halftime Report yesterday. The interview was conducted at the SkyBridge Alternatives (SALT) conference in Las Vegas (two videos included below).

Sprott said we had an overlevered banking system going back to the NASDAQ crash. The Lehman event exposed the overleveraged system. Lehman’s liquidation created nothing but chaos. Subsequently the powers that be (ECB, Fed, Bank of Japan) made every attempt to not let things unravel, according to Sprott.

Sprott said people looking at the surface can’t see what the underlying problems are. Sprott added that with Spanish yields over 6% it might be the next one to fall; following Greece. Sprott posed the question whether investors in Argentina, Ireland, and Greece would have taken their money out of the bank and purchased gold, to which he believes the answer is yes.

Sprott stated that physical purchases of gold suggest strongly the price will go up.

When asked why, with all the turmoil recently, gold wasn’t going up, Sprott said it was counter intuitive because gold doesn’t go up when things are the most extreme. The LTRO announcement February 29th crashed gold which seemed counter intuitive to Sprott.

Sprott referred to the interview of Jim Grant where Grant said all markets are manipulated. Sprott stated we know the credit markets are manipulated. He added that central banks fighting the contagion don’t like gold going up. Sprott said people who sell paper gold and silver can rule the market over the short term, but those who own physical metals will win the day.

CNBC’s Scott Wapner pointed out  Sprott has achieved an annual return of 17% since 2002.

The interview continued with Sprott pointing out the strong fundamentals of gold supporting his year-end target of over $2,000 per ounce (exports from Hong Kong to China up 600% year over year in March, etc.); his view on silver which he sees over $50 an ounce by year-end (U. S. mint sold the same amount in dollars of silver coins and gold coins, etc.); his opinion of recent negative comments from Warren Buffet, Charlie Munger and Bill Gates regarding gold (they missed the trade and he doesn’t know if he can respect their opinions now); and a discussion of areas he’s short (financials due to the “Minsky Moment” where productive engine can’t possibly pay off the debt).

MoneyWeek (the UK’s best-selling financial magazine) editor-in-chief Merryn Somerset Webb has written about the latest views of financial historian Russell Napier of CLSA and economist Andrew Smithers.

Both Napier and Smithers focus on the true value of stocks as indicated by the Cyclically Adjusted Price Earnings Ratio (CAPE) and the Q Ratio.

According to Webb, the U. S. stock market currently trades at a CAPE ratio of 22. This is not the highest level ever, but it is on the expensive side historically.

Napier told Webb investors buying U. S. stocks when they are this expensive can only expect annual returns of 0-4% over the next decade.

Napier’s advice:

What you really want to do is to wait and buy when the market hits – or falls below – a Cape ratio of ten times. Investors who have bought there (in 1929, in 1937 and in 1977) saw real returns of between 11 and 23% in the following ten years.

From her interview of Smithers Webb learned that the only net buyers of U. S. stocks have been companies (including both share buybacks and purchases as a result of mergers and acquisitions). Smithers believes strong corporate cash flows have supported stocks and are destined to fall because of much needed capital expenditures, which have been delayed.

By Smithers calculations, U. S. stocks are 40% overvalued.

The CAPE indicates there is value to be had in Europe where it stands at 13; below its historical average. Italian stocks are very undervalued as the CAPE there is 8.6.

Source: Moneyweek

David Loeper, contributor to Forbes Magazine has written a compelling article highlighting the power of indexing; even compared to the “magic” of investing superstar Warren Buffett.

In “Has Warren Buffett Lost His Magical Touch?,” Loeper examines the 3 year and 10 year performance of Buffett’s Bershire Hathaway versus the Vanguard Total Domestic Equities ETF (VTI).

Loeper notes:

There were a number of stories late last week about how Berkshire Hathaway underperformed the S&P500 for the last three years, so I thought I’d delve a bit deeper into his returns. Not only has the stock dramatically underperformed the S&P500 and Vanguard Total Domestic Equities (VTI) over the last three years by 7.95% or more a year, but over the last decade, it underperformed VTI by 0.21%.

Loeper makes a strong case for indexing given the low costs and tax advantages. Although past performance isn’t an indicator of the future, VTI performed in the top 1% of funds in its peer group of large-cap blend funds for the last decade.

The efficiency of indexing is also evident in the performance of the SPDR S&P500 ETF (SPY). According to Morningstar the SPDR S&P500 ETF (SPY) performed in the top 1% of its large-cap blend peers over the last fifteen years.

Source: Forbes

Berkshire Hathaway held its much followed annual meeting over the weekend.  Becky Quick, Andrew Ross Sorkin and Joe Kernen interviewed Berkshire chairman and most famous investor in the world, Warren Buffett, this morning.

Buffett said he was buying stocks (two U. S. stocks he wouldn’t name, but that they already own).

Becky Quick asked Buffett to comment on the challenges facing Europe. Buffett said it would be very difficult for Europeans to resolve their problems. Buffett indicated the European elections highlight the problem of getting 17 countries to agree. Buffett observed it was difficult to get people to vote for pain. He mentioned if you have a common monetary unit you have to have somewhat common fiscal policies.

Buffett said Europe would go through a messy process with a lot more episodes, but would get through it. Buffett was confident the Europeans would solve their problems, but not without a lot of pain. Buffett observed that Europe had a huge market, lots of skills and wonderful companies.

Buffett said he bought a Dutch company (Meyn Holding) outright just last week. Buffett indicated the problems in Europe wouldn’t prevent him from buying good companies there.

Buffett elaborated on the strength of U. S. banking institutions whose problems were dealt with decisively three years ago. He added that European banks were having difficulty raising capital.

Buffett stated it was a terrible idea to base your buying decision on individual stocks with regards to the current headlines.

Buffett was impressed with the way the economy (except for housing) had recovered from the 2008 collapse. He mentioned that most subsidiaries of Berkshire were recording record results, although things weren’t “galloping.”

The idea of investing in gold was discussed. Charlie Munger, Buffett’s sidekick, made a comment over the weekend that civilized people don’t invest in gold. This riled up the “gold bugs.” Buffett indicated gold was something an investor could hold on to and admire and it might increase in value, but it was not a productive asset. Buffett said gold investors want others to be afraid and “run to a cave” with their gold. He added they were right to be afraid because of central banks printing of money causing currencies to depreciate over time.

The interview was conducted over the course of three hours. The first segment is included below (subsequent videos will be added as they become available):

Video: Buffett Comments on Gold

Video: Cola Cola Easier to Figure Out Than Google or Facebook

Video: No Second Thoughts About Walmart

Video: Buffett Comments on “Fiscal Cliff”

Video: Companies Buying Back Stock is Good

Video: How Will GEICO Deal With Google’s Driverless Cars?

Video: Don’t Hedge Currencies