Chris Pavese's blog

The way we see it is quite simple. With every investor and every company in the world seeking exposure to China and betting on continued and unabated Chinese growth, what happens if they are wrong? Is it at least worth having some insurance in the portfolio to hedge against the risk of being wrong? If nothing else, we recognize that we are sometimes (often) wrong! GMO’s James Montier recently shared the following thoughts with investors...

We hosted Tiger Management’s John Townsend at the Grandover Resort in Greensboro yesterday evening, for CFA North Carolina’s Annual Meeting. Member feedback suggests it was our best yet.

Our “first quarter” Broyhill Letter is embedded below. We promise to be more prompt with our second quarter letter, which is right around the corner.

We’ll share a couple of new pieces of information we’ve come across since our Aussie Pride post just a few days ago. To begin, we think it’s worth noting that the peak in existing house sales in the U.S., led the peak in price by about six months. It is intuitive that, Activity Leads Price in the real estate market. With that little nugget in mind, homeowners in Australia may wish to note the following press releases from HIA’s Economics Group.

Those looking for alternatives to middle eastern oil, might look to Russia, the world’s largest oil producer, and the Market Vectors Russia Fund (RSX) with 37% of net assets invested in the oil and gas sector.

Believe it or not, all of the officials at the Fed are not quite as blind as Bubble Blowing Ben. The Dallas Fed, run by our hands-down favorite Fed President Richard Fisher, publishes a regular Economic Letter that is always insightful and lacks the bias of certain other elected officials whose Helicopters will remain nameless. We’d recommend those expecting a strong rebound in housing anytime soon take a look at the December 2010 issue titled The Fallacy of a Pain-Free Path to a Healthy Housing Market. Mean reversion is a powerful force in finance and a picture is worth a thousand words.

A few words on “adequate diversification” from a legendary hedge fund manager. Emphasis is our own . . .

Six months after the general election, Belgium still has no new government. Flemish nationalist Bart De Wever, head of the country’s largest party, wants to split Belgium into two states. In an interview that has caused a scandal in his country, he told SPIEGEL why the nation has “no future.” SPIEGEL explains:

We hosted an investor call last week, followed by our presentation at a Private Wealth Summit on The Great ‘flation Debate. Our slides can be accessed

Even giving the company the benefit of the doubt, and maintaining the stock’s current forward multiple, shares could easily trade down toward the $11 to $16 range based on the midpoint of our estimates highlighted in this report.

Couldn’t resist taking a time out from our work on The Great ‘flation Debate (and a new short thesis which we’ll be laying out for investors next week) to share this one. It’s not often you get an opportunity to insert New Edition into a blog post. But Hussman’s recent Case Against the Fed opened the window just wide enough for Ronnie, Bobby, Ricky and Mike to slide through:

“Maybe Ben Bernanke will make the VIX go to zero and we'll all win every day. Maybe not. We do not think this will end well. If anything, the next market crash could be perpetuated by the Fed itself.”

Keith R. McCullough, HedgEye Chief Executive Officer

Consensus earnings estimates for 2011 and 2012 are still greater than $95 and $108, respectively, at the same time that GDP estimates are plummeting (although still don’t face the harsh economic reality). To put these figures into perspective, analysts were forecasting a near 20% decline in earnings at the market’s trough. Today, expectations are for 22% growth in the year ahead.

We show an example of this optimism below.

The “Sunshine Pumper Strategists” are out in full force today, with earnings yields on stocks spiking higher than those available on bonds. So we were pleased to see that Ron Griess at The Chart Store provided us with a couple of charts this morning that illustrate this relationship (or lack thereof) over time. Ron’s long term perspective is critically important here, as any monkey can easily pick out a few bananas that accurately predict the market at any given moment in time.