Featured Trades: (MORGAN STANLEY), (MS)

 

1) Reflections on Morgan Stanley's 75^th Anniversary. The three elder statesmen I saw on TV ringing the opening bell at the NYSE couldn't have been more representative of the evolution of Morgan Stanley (MS) over the past three quarters of a century. When I joined just after the 35^th anniversary, it was a small, white shoe private partnership with a lock on the cream of investment banking clients like IBM, AT & T, and General Motors.

A great nephew of the original JP Morgan still worked there, was his spitting image, and was trotted out to impress admiring clients. Neatly framed on the wall in the chairman's office was US Steel (X) share certificate No.1, signed by Andrew Carnegie himself, which the firm's antecedents midwifed into existence. One of the first deals I worked on was the breaking up of Ma Bell into the baby bells.

Parker Gilbert was chairman, the son of one of a handful of men who rebuilt the firm from the wreckage of the Great Crash and the passage of the Glass Steagle Act. I knew him well as one of the blue bloods who ran the firm, a genteel, polished, Ivy Leaguer, who exuded fine breeding and confidence. I once spent an afternoon with him in the back of a Daimler limousine driving around London, shopping for thousands of dollars' worth of high end fishing gear, so he could accept an invitation to a Scottish private estate perfectly appointed. If Parker hadn't landed the top job at MS, he probably would have been running another exclusive gentleman's club, like the Jockey Club or the New York Yacht Club.

John Mack was one of a new generation of brash, street fighting, in your face, bare knuckled traders who forced the firm, kicking and screaming all the way, to make a fortune in proprietary trading. Mack, known internally as 'Mack the Knife', was of Lebanese origin, and could not have been more at odds with Morgan Stanley's elitist origins. He once lured a star trader away from Solomon Brothers, and then fired him on the first day. The few female employees we had then cried in his mercurial presence. But there is no doubt that the profits Mack reeled in saved the firm from a takeover down the road, rescuing it from the fate of Solomon Brothers, Kidder Peabody, Dillon Read, and Drexel Burnham, assuring its place in the big league today.

I was one of the few who bridged the two generations, comfortable from my journalism days with moving in Olympian circles, but coming from humble, rural origins. We took the 1987 crash in stride, but during the dark days of the financial crisis, when the share price plunged below $6, it seemed the firm was out for the count. Mack saved the firm a second time, successfully demanding a huge equity infusion from the Mitsubishi Group in Japan (great move, John!), while simultaneously holding at bay the wolves from Wall Street and Washington. What better year to have a junkyard dog as CEO than 2008?

James Gorman joined well after I left, and appears to be a modern day 'suit'. A professional and talented manager to be sure, but lacking the flash, the panache, and the balls of earlier generations. He is symbolic of the class of professional administrators who have been brought on board to run what has essentially become a gigantic utility.

I have seen MS grow from 1,000 to 60,000 employees. The dividend today is more than the total market capitalization of the company back then. Parker summed it up all nicely when he said his 'mind was blown' by the present size of the firm and how far it has gone. I have no doubt Morgan Stanley will be around for another 75 years. And if you believe in the continued existence of Wall Street, as I do, as I do, this would be a great stock to own for your grandkids' 529 educational investment plans.

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Featured Trades: (MY NEAR MISS WITH CISCO)

2) My Near Miss With Cisco. My predatory instinct as a scavenger and bottom feeder is coming to the fore once again. After building up expectations for a blowout quarter, Cisco Systems disappointed once again, prompting traders to trash the stock by 15% in one day. Call me greedy, but my risk averse nature prompted me to take the double that I had on by March $20-$22 bull call spread three weeks earlier. If you wonder why I am still cautious in one of the most Teflon resistant bull markets of all time, this is a good reason.

All of which sets up the exact same trade again. It was actually a decent report, as earnings came in near expectations. But in this unforgiving world analysts saw only the glass half empty and couldn't head for the door fast enough.

This is still one of the world's preeminent technology companies, and is one of the few American ones that makes stuff that people still want to buy. Some 70% of its global sales are to foreigners. Ownership of the router market is nothing to sneeze about, especially when the planet is making the leap to streaming video, causing demand for the company's products to soar tenfold in coming years.

I know CEO John Chambers personally and frequently bump into him at high end charity functions in San Francisco, and a better manager there never was. With a forward price earnings multiple of only 7, it is not often that you get to buy a growth company at a value price, and a Dow stock at that! An announcement of a new 1%-2% dividend is thought to be imminent. They will automatically suck in an entire new class of pension fund investors.

The way to play this is to wait for another haymaker to pop the stock on the nose. That could come in the form of a long awaiting market correction, which could take the broader index down 5%, and (CSCO) down more. Below that, the company's well publicized stock buyback program kicks in. Not only does Cisco benefit from a Bernanke put, it offers investors own free put as well.

I am not the only genius that has figured this out. None other than hedge fund managers George Soros, Eddie Lampert, and Whitney Tilson are similarly accumulating their own long positions in this stock. Watch this space, and I'll pop out a quick trade alert when I see a window open to get in.

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A Near Miss is Better Than No Miss At All

Featured Trades: (THE TREASURY BOND SELL OFF), (TBT), (TLT)

2) A Rest for the Treasury Bond Sell Off. The Great Treasury Bond Sell Off, which has been running now for nearly six months, may be about to take a rest. Take a look at the chart below put out by my friends at StockCharts.com. It shows that the iShares Barclays 20+ Year Treasury Bond ETF (TLT), the single leveraged long ETF, is bouncing off the old resistance line that we saw on the upside last April.

One of the oldest and dustiest rules in any technical analyst's handbook is that old resistance usually becomes new support. You can't see the inverse on a chart of the double short bond ETF, the (TBT), because of the distorting effects of the heavy cost of carry has on the price, nearly 1% a month.

The other interesting thing about this chart is that it shows the perfect inverse correlation between stocks and bonds that has persisted for the past year. This is important because any near term support for bonds could also signal a top for stocks and an ensuing sell off.

There are a few other canaries in the coal mine that I am carefully monitoring. The imminent break in the yen could be signaling a broader change in the global markets. A weakening yen and a strong dollar might well trigger a flight to safety that could deliver broader selling across all asset classes. In this complex and interrelated world, the blow off tops we are seeing in the cotton and sugar markets may be substituting for similar moves we say in stocks in years past.

This is why my short term trading book is the lightest that it has been in a year. I am nursing small, but so far modestly losing shorts in the S&P 500, the yen, the euro against a long position in the volatility index (VIX). The slightest weakness in stocks, and this entire book lurches into the green, big time.

It is all part of the three dimensional chess game we call 'global macro', the great 10,000 piece jigsaw puzzle. Since I have been at this for 40 years, and spent considerable time working in every major securities and commodities market on the planet, I tend to see these sea changes earlier than most. I just thought you'd like to know.

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It's Your Move, Mr. Market

'The jobs that we gained over the last two decades were the jobs that led to over consumption, jobs like finance, insurance, real estate, and consumer cyclicals,' said my old buddy, David Gerstenhaber, President of Argonaut Capital Management.

SPECIAL FLORIDA ISSUE

Featured Trades: (WORLD MONEY SHOW)

2) The San Francisco Money Show. I attended the Woodstock of investment conferences last week, the World Money Show at the Gaylord Palms Resort near Orlando, Florida. Run with military efficiency that only General George S. Patton could have appreciated, it offered a multi ring circus of traders, foreign exchange models, options platforms, newsletters, cruises, video broadcasts, and more.

The cavernous hotel, the size of a small glassed in sports arena was absolutely bubbling with new ideas. You couldn't walk five feet without tripping over a great investment theme, and information overload was the order of the day. There was a plethora of celebrity speakers and old friends, including BMO Capital Markets,' Andrew Busch, uber bear economist, David Rosenberg, Think or Swim founder, Tom Sosnoff, the Financial Times' Gillian Tett, China Stock Digests' Jim Trippon, and fund manager Adrian Day. Forbes publisher, Steve Forbes, was there making his perennial run for the presidency.

There really is no corner of the financial markets that was not well represented by market makers, analysts, technology providers, and investors-- thousands of them. With the soaring level of US government debt scaring the daylights out of everyone, the precious metals dealers were there in force.

Of course, the hard asset crowd was everywhere, and you could not swing a dead cat without hitting a miner looking for new funding. Never mind that the barbaric relic went up for all the wrong reasons. The dollars they're making are still just as good at the bar. The only thing missing from the show was the long predicted hyperinflation. Want to prospect in the Ivory Coast? No problem.

I was pleasantly surprised by the diversity of major corporate sponsors there to promote their own shares, like Sasol, Proctor and Gamble, Petrobras, Roche, General Electric, Vale, and Lucas Energy, several of which are great investments. A variety of oil service companies were also well represented. A 'green' section offered a look at wind, solar, and geothermal energy providers. Even the US Treasury Department had its own diminutive booth, no doubt reflecting the year's coming budget cuts.

I took the opportunity to talk with companies about everything from the latest drilling costs, long term food prices, and the true cost of geothermal, to the clever play in gold coins (go for those struck at the San Francisco Mint). I was constantly amused every few minutes by attendees who, seeing my nametag, asked to have a photo taken with the one and only Mad Hedge Fund Trader, and to sign their program.

The hotel was a bit of a disappointment, which was clearly ill equipped to handle the 8,000 Money Show registrants that descended upon it. I walked out the front door and thought that I had stumbled upon a car show. Instead, it was the gridlocked valet parking, which was diverting guests to another hotel two miles away to catch a shuttle. There were lines longer than those found in nearby Disney World, and when the noontime sessions let out, the restaurants were hit with a plague of locusts, cleaning them out of all food and clean silverware.

After I make my fortune, there was even a booth extolling the virtues of retiring on the beach in Belize. It was a great opportunity to chat with the end investors who ultimately drive all these markets. All in all, it was a weekend well invested. For a calendar of future events, go to www.MoneyShow.com. You will find me at the Las Vegas Money Show during May 9-12 at Caesar's Palace Hotel, where I will be a keynote speaker with my own booth.

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