Posts Tagged 'Romney'

Greece, Diamond Foods, Euro, Santorum, Friess and Me

Another day and Diamond Foods (DMND) is still with us. I took my profits on the trade, selling the stock when it was up 7% on the day versus a decline of 1% for the broader market.  Will possibly return.

I have been advocating for months that Greece be pushed into default.  Perversely, this would be the best outcome for the markets and the Euro after the knee jerk reaction lower.  Greece, in fact, is less important to the European economy than AIG was to the global economy, than Lehman or Bear was to the US economy.  Germany’s interest is clear in keeping Greece and other profligate sovereigns in the Euro which is that it is the 50 pound weight at the other end of the barbell.  Were Germany to be the even more dominant in the Euro, their goods would be less attractive, harming their export economy.  This would be good for other exporters such as the US, although our goods are already cheap in relative currency terms.

I have a small short position remaining in the Euro.  I cut the core position and had stopped trading around it as it moved to breach the 130 level because the market had become incredibly conditioned to a negative outcome, perhaps proof no more evident than the current level of the Euro versus other currencies despite the headlines.  My short on the Euro was never based upon a break-up of the currency; it was based upon the view that there would be massive stimulus, including rate cuts, to support a weakening EU economy.  Essentially, they would have to inflate to forestall a deep recession.  This has been the policy outcome and I expect it to continue.  I would be more comfortable sizing up the Euro short if Greece stays in the currency than if they are unceremoniously shown the door since, admittedly, perversely, I see a Greek exit as a strengthening event as the world will realize that the EU is one “sovereign” that is willing to do what it takes to address its budget deficits although this would be more of an accidental outcome than deliberate, having everything to do with Greek  insouciance and an unhealthy dependence on ouzo than the execution of a strategic plan.  Keep in mind the folly of the lack of any real plan by the EU: the EFSF relies on contributions from countries including Greece, Italy, Spain and Ireland.  The far-reaching agreement on a more uniform budget reform process is also of negligible value since lack of adherence by the signatories will result in sanctions and fines.  Of course they will have to borrow money from the IMF and the EFSF to pay these fines but that is beside the point.

Let’s just get on with it. Let Greece default, put it behind us and move on to Portugal, a country that the Germans apparently feel more kindly toward.

Despite all this, and despite Santorum mucking up Romney’s path to the nomination, I am still positive on US equities although fully anticipating a consolidation. I am not one of those in the camp hoping for consolidation because it is healthy for the markets.  I’d rather see an unhealthy market go up every day although that is, of course, unrealistic.

When I was a salesperson at Salomon Brothers many years ago, I received a call from Friess Associates, an account I covered (the Brandywine Fund), inviting me to a cocktail reception at the home of Foster Friess.  I had never met Foster – he had already ceded active portfolio management to his staff – but had been in his office a few times. Lining Foster’s office wall were pictures of him with Presidents and other important people.  I asked why I was being so honored.  Well, came the response, Foster wants your support for Rick Santorum, a candidate he is endorsing.  You can send a check if you can’t attend.  This was a less than subtle way of asking me to contribute to Santorum’s campaign. I said I would look at Santorum’s platform  and get back to them. This was not a response they appreciated.  After looking into his background, I decided very quickly that I couldn’t support Santorum and declined, offering instead to make a contribution to any children’s charity of their choosing.  As with my initial response, this did not go over well.  And times haven’t changed –  I still can’t support Santorum and Friess still does; in fact, he is Santorum’s main backer.  There is a reason these two hang together and both are scary.  And, by the way, I’m a Republican.

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