Janet Tavakoli "Talks Her Book" And Cashes Out

Tyler Durden's picture

Some portfolio allocation and market perspectives from Janet Tavakoli:

I just went to (almost) 100% cash in my favorite hedge fund, my personal portfolio. I do not give investment advice, and I rarely discuss my personal portfolio (except with a select few friends), but I am happy to share my thinking on this decision.

On Monday, Austin Goolsbee, one of President Obama’s economic advisors, told The Daily Show’s John Stewart that the large deficit is necessary, TARP backed us away from the brink of disaster, and the stimulus is working. If only words were magic. Many more banks are in trouble, a chunk of housing activity is due to foreclosures/short sales/resales (the $8,000 housing incentive often went for down payments from people who couldn’t scare up one of their own), credit card problems are on the rise, one-quarter to one-third of all mortgages in the U.S. are underwater, the mortgage “modification” program is a failure with only around 200,000 done so far—half of which are already failing (the same fraudsters who got us in this mess are modifying mortgages), 3,000,000 mortgages are in serious default (90 days or more past due), the unemployment picture is grim, the cash-for-clunkers fake auto stimulus is a non-green short-term artificial pump-up, profits seem due to inventory management and cost cutting rather than demand, and industrial production has plummeted (other than military production which is up). More TARP money will be needed for many smaller banks that are in trouble due to current and coming loan losses. The international picture is mixed, but I’ve even liquidated those positions.

The recent stock run-up since March in the U.S. has been lovely. We may see a continuing rally for the coming weeks. As many others have noted, the stock market often rallies ahead of a real improvement in the economy. But after Labor Day, people will come back to work and begin evaluating. I expect a huge downdraft in prices in the next couple of months, which may (or may not) create another buying opportunity.

Tangentially, when is Janet going back to CNBC? We all miss those Janet v Charlie witty and sophisticated debates.

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Harbourcity's picture

By cash does she mean US dollars?!? 


Arm's picture

US dollars and Yen are great if you believe in the deflationary scenario.

If you believe in inflation go for gold, silver or palladium.  Copper or oil will also work....  In fact, stocks and real estate are historically some of the best ways to hedge inflation....

Now are you still on the inflation camp???


mberry8870's picture

historically stocks are not a good hedge to inflation.

Anonymous's picture

false. depends on the company/industry but "stocks" as an asset class in & of themselves, yes, are typically an inflation hedge.

Anonymous's picture

I agree. Stocks tend to perform poorly during highly inflationary periods (such as the 1970s). This is because future cash flows accruing to the stock holder are discounted at a higher rate.

TIPS or gold would be much better investments if you are expecting inflation (which I am not, at least in the short to medium term).

Anonymous's picture

I am long bullets, bullion and canned food.

I will use my accumlated dollars as toilet paper, since they will be at par.

Anonymous's picture

I will buy more physical silver under $12, and gold under $900 if I get the chance. Now if I could just find more ammo...damn shortages.

Nathan Smith's picture

I am long bullets, bullion, canned food and water.

I will use FRN's as toilet paper since they will be at parity soon.

Deflationists are idiots. 

USD =/ World Reserve Currency = Currency Collapse = Hyperinflation

nope-1004's picture

"Deflationists are idiots"



WTF?  You been in a closet for the last year?


Please explain how the world reserve currency becomes so devalued that hyperinflation ensues.


Sounds like you own more than one home, or are highly levered.  Deflation is ripping you.  The "idiots" will bury you.

Nathan Smith's picture

A world reserve currency that can't hold its value isn't going to hold that status forever.  I bet the UK believed they would hold the revered status forever as well, but we know how that played out.

So when the US loses its status, it will develop into a currency crisis, which will lead to hyperinflation.

Def's are idiots because they refuse to acknowledge that the global chessboard is changing, wherein the US is no longer the Queen, but rather a knight or a rook.

As for my personal accounts, I'm 50/50 bullion and cash.  I live in an apartment, my families savings rate is 40%. 

Nice assumption though.

wordud's picture
wordud (not verified) Nathan Smith Aug 17, 2009 4:35 PM

Look at oil as an example. There has been a His message was being spread and gaining even more support...therefore he needed to be censored. Until we have guys like Black back as regulators nothing will change. We just

good articles; good articles 4 slow news day ..http://www..
hat tip: finance news & finance opinions

Anonymous's picture

Good luck with that Nathan.

And who exactly will be doing the borrowing?

BorisTheBlade's picture

how the world reserve currency becomes so devalued that hyperinflation ensues.

Well, theoretically hyperinflation could follow the decision of all major central banks to stop using dollar as a reserve currency, in that case all the dollars would go back home and cause hyperinflation, especially coupled with a new money supply created by the Fed.

However, for that to happen those CBs should have an alternative. Do they? Doubt that. Gold? Simply not enough supply to replace all the dollars in circulation. It doesn't mean there will be no inflation, but it's likely gonna be global, not just in the US.

steve from virginia's picture

All the dollars 'coming back home' would be another form of stimulus. The stimulus so far is having no effect on current deflation.

The more dollars leaving the 'greater world' for the US would make dollars more scarce there and their (relative) value would increase.

Banks create the greatest amount of dollars not the Fed, which is just another bank, really. Banks other than the Fed aren't lending/creating money.That's why banks are failing, they aren't making enough good loans to offset the loans that are going bad. (Same thing happened in the early/mid 1930's.)

If central banks 'dump' dollars (why?) what would they replace them with? All fiat currencies are essentially the same. Other countries are just as likely to skip out on their loans as are Americans.

There are many reserve currencies; nobody rings a bell and declares the end of the dollar as reserve currency. It would be less sought out as a transfer means by some economies but would still be used by others.

Dollar arb opportunities are too profitable for the dollar to simply disappear. Currency markets are manipulated too. GS can win both long and short the dollar ... and does so.

The commodity value of dollars is irrelevant to the transactional utility of them. Notched pieces of wood can be just as effective as any paper currency for transactions.

There are THREE (not two) uses for currency. a) As a means to facilitate transactions, b) as a store of wealth, and c) as proxies for what the currency can buy. What can euros buy? Yen? Yuan? Dollars buy Hollywood and Disney, the fantasy. (Wall Street, hmmm ...) The other currencies buy grim and unhappy realities.

Yuan is a proxy for China; poisoned dog food and lead painted toys. The dollar buys all this and what the yuan cannot ever buy, F16J's.

The dollar/oil trade sets the limits on relative value of the dollar. Dollar inflation relative to crude would destroy the US economy which imports 60% of its fuel. Get rid of automobiles? Not likely ...

Hyperinflation is unlikely without savings 'fuel' to burn. HI is more likely in China; here it would only happen after everyone is out of assets and into (safe) cash.


BTW, Way to go, Janet Tavakoli!

Anonymous's picture

Well I am gonna swap all my cash to IMF SDR's because they are going to be the new world reserve fiat currency backed by the full faith and credit of the UN!

Anonymous's picture

if you consider that credit contraction + the slowing velocity of money far outweighs what the fed is printing right now I think you have a solid argument for deflation taking hold over the short term. Should either of those stats reverse, then inflation would be more likely....but until then, dont count on it.

Anonymous's picture

"deflationists are idiots"

Good luck with that. The greatest conflagration of credit in the history of mankind is upon us.

If you think we're going to see an increase in credit (money supply) any time soon, then you sir are math-challenged.

Inflationists are typically somewhat educated about the fiat nature of currency, but are almost universally uneducated in regards to the bond market and the composition of the money supply (being largely debt, and not physical/paper-money).

Nathan, I highly recommend you stop reading the well-composed, but hopelessly-ignorant writings of the Daily Reckoning, and start learning the far less-exciting nuts and bolts of credit markets (which your hero, Bill Bonner never had time to learn).

The deflation that is upon us will be devastating to us all -- but mostly to the poor souls who bet the wrong way.

SWRichmond's picture

I will leave the hyperinflation camp forever if someone can build for me a convincing case that the U.S. deficits are sustainable in an environment of persistent deflation and the U.S. will not default. Business and consumer defaults = decrease in business activity with subsequent loss of tax revenues, accompanied by increasing demands for saftety net services.  While we try to support:

  1. Empire
  2. Dependency classes
  3. Zombie banks
  4. Interest on the debt, which has shorter and shorter duration

Last I checked, for FY2009 tax receipts were running behind the combined costs of just mandatory federal expenditures, DOD, and interest costs.  Persistent deflation springs the debt trap.



Sovereign default  = hyperinflation.

Printing our way out = hyperinflation.


What's YOUR plan?

Anonymous's picture

Even in the days of The Federalist, the concept of money velocity was well known. They called it "celerity of money." The ancient chinese referred to "flying money."

I do not think the term "idiot" is well taken since as the celerity of money decreased--nearly moving to zero last year as credit markets froze--commerce was falling to a stand still.

A lot of very experienced wily people believe the loss of velocity greatly outweights the addition of money.

To explain it to you in simple terms, multiplication will usually result in higher answers than will addition.

So let's say the money supply was X. The actual money supply in use was the velocity of money times X, lets say 2X. As the velocity reduces, the actual amount goes down--ergo, deflation.

So let's take some #'s: Money supply 20 trillion, velocity of 2. Actual amount of $-- 20 trillion.

Economy seizes, velocity drops for 1.3, actual money drops to 13 trillion.

Bush\Paulson\Geitner\Obama throw in a 1 trillion stimulus, velocity rises to 1.5 (still sucky): total actual money 11 x 1.5-- 16.50.

Still less than the 20 trillion we had when velocity was at 2. Ergo, deflation.

My numbers are not exact, but maybe you are the idiot.

As for the RW gold standard arguments, it is true the money is an agreed construct, and if that does, almost all goes. But pls see read Malkiel, A Random Walk Down Wallstreet which explains why gold is usually a bad play. Maybe not right now, but usually. The gold standard does not solve these problem of lack of agreement, as sometimes even gold is not worth anything. There are some outer limit\twighlight zone expisodes about that.

Nathan Smith's picture

You act as if life will go on, while I'm investing like the entire Anglo world is coming unglued, with no return to anything that will ever be confused with "normal".

Deflationists believe that normal will return, the inflationists believe that everything will collapse.

Or simply put the deflationists believe the US will retain the WRC, when in fact it can't and won't.

Harbourcity's picture

I agree with Nathan.  Deflation implies that WRC stays in place unchanged from the current behaviour.  China is already working on an alternative (ie basket of currencies).  The world does not have to return to a gold standard but instead merely create a viable alternative.  The US has abused its position and it is no longer the world that existed after WWII.

Apocalypse Now's picture

I don't want to deflate your bubble, but I only like your first line.

Read this from another Nathan, it might help:


Cheeky, you'll probably like this as well.  Look at the import/export price chart.

Supply & Demand still apply.

Anonymous's picture

hey, this is good.

But what happens when overseas govts start spending their reserves?

Apocalypse Now's picture

Currently occuring - China's buying raw materials like copper, $2b of our home mortgages, they may also be hedging by purchasing our equities?

Anonymous's picture

The roots of this come from the physics in creating a pile of sand 1 grain at a time. At some point, the pile has pockets of instability that a single grain can set off a landslide.
Sometimes the landslide is minor, and the pile subsequently continues to grow with the application of each grain of sand. Sometimes, the landslid is major.

Apparently, this math can be appied to financial systems as well.

D.O.D.'s picture

Hey Tyler, remember that joke about selling California to China?  Turns out.... it may not be a joke.

China to buy 2bn$ in US mortgages


lizzy36's picture

$2b? that is a rounding error in the grand scheme of things

D.O.D.'s picture

You don't really expect them to announce that China is buying Califonia do you?  NO, not all at once, 2bn at a time, that way no one will pay attention... I'm just saying, maybe it's time to keep an eye on how much American property China starts to accumulate. The nex great american land grab is going on right in front of us...

Is it better to learn Chinese or Mandarin?

Cheeky Bastard's picture

?????????????? goddamn, we cant post symbols




Anonymous's picture

Mandarin is the most common language (although more than 500
dialects exist) and for all intents and purposes = 'Chinese'. Cantonese is the other.

Anonymous's picture

The writing part of chinese was standardized circa 3000 years ago, thanks to the first emperor of China.
The spoken part of chinese has not yet been standardized. It was attempted after the removal of the last emperor of china, by Dr. Sun in 1911. The Dialect chosen to be the standard spoken part of chinese was the Peiking dialect, now commonly referred to as Mandarin, which is taught in the school system.
Depending on who your parents are, the child will have to learn at least two spoken languages of Chinese (unless your parents are Peikingese, then you will speak only one mandarin). Say, for example, a cantonese child will learn to speak cantonese at the young age of toddler and later learn to speak Mandarin at the school system.

Anonymous's picture

Mandarin is the spoken ( oral) chinese, and Chinese is the the written mandarin. There are the one side of the same coin?

Harbourcity's picture

Hmmmm... Mandarin oranges... hmmmm...

Missing_Link's picture

$2b may be a rounding error, but it's $2b more than California is worth.

Anonymous's picture

about 2 weeks interest on their reserves of $2T.

Anonymous's picture

Haha. I remember this same thing (or eerily similar) with Japan...right up to The Lost Decade.

Raymond Shaw's picture


Did you see Bloomberg TV today?  Will Landers of BlackRock was talking his book with regards to Lat Am.  Telling it was still a good market to get into... I am guessing they're the ones selling... wanting stupid fund managers to lap it up.

Anonymous's picture

Makes sense to me. Vanguard merged their Treasury MM Fund with the Admiral Treasurey MM Fund to stave off collapse of what should be their safest type of investment. Americans Funds merged their Treasury MM Fund with their regular MM Fund, both of which now feature 0% yield.

Tell me things aren't really, really fucked up?

Ghettomedic's picture

That's funny. My coffee can full of cash also has a 0% yield.

wordud's picture
wordud (not verified) Ghettomedic Aug 17, 2009 11:51 AM

good point

Anonymous's picture

At least you know how that CC $ is invested. ;-)

Missing_Link's picture

> Tell me things aren't really, really fucked up?


OK, here you go:

Things aren't really, really fucked up.

Do I get the job at CNBC now?

Anonymous's picture

Just got a call from SmithBarney,...they just banned trading in all Short and UltraShort ETFs! They think they are risky and retail investors should stay out. This market is joke,...a f joke.

They didn't ask me to liquidate just yet,...I think that's tomorrow's phone call.

Howard_Beale's picture

Are you serious? Has anyone else heard from any broker doing such a thing?

Anonymous's picture

this is old news, chuck and ubs did this a few weeks ago on their retail side and forced buy ins

Howard_Beale's picture

So I guess retail investors with a clue will be forced to get electronic accounts. Brokers are generally idiots anyway. Since I have been playing Profunds Long and Ultra Short Funds (ETF's much newer) since 1999 in my IRA, I have to wonder how much longer until a ban on short ETF's altogether.