Where Is the Leadership?

I intended to watch the first Republican presidential debate with Ranger Rick Perry in tow Wednesday evening. But my children and I noticed we had taped a Scooby Doo marathon that ran on the Boomerang channel over the weekend. Given the choice, we decided to watch those meddling kids. It was easy to conclude that my children would learn more about problem solving, honor and virtue from this 1970s cartoon than the current cartoonish American political system. I can hardly wait for what Team Obama has in store for tonight. Based on all the leaks, I'll assume we already know. Contrast that with the outstanding leadership displayed by so many on Sept. 11, 2001. As we approach the 10th anniversary of this American tragedy, many cable networks have run documentaries analyzing the events from different angles. Unfortunately for us all, many of those that displayed the greatest leadership did not survive to tell their own stories, nor did those that they attempted to save. From the public sector, most striking was the demeanor, sensitivity, courage and intelligence displayed by Mayor Rudy Giuliani throughout the day, both live and in retrospect. As a Miamian on that day, watching from nearly 1,100 miles away, I only knew of the mayor second hand through the press and as a US prosecutor for NY's Southern District. As I recall, he was a polarizing figure in Gotham, immensely disliked by Wall Street and at the time of the terrorist attacks his public support was waning fast. But that all changed on Sept. 11. President Bush also received high marks for his response. Although savagely maligned by the press for his immediate response during a reading with children in a Sarasota grade school, W. took quick action, and according to many on the scene, insisted on returning to Washington that day as soon as possible. Unfortunately for Bush, his cabinet included a couple of warmongers who felt they had unfinished business to address in the Middle East. According to then chief counter-terrorism adviser to the National Security Council, Dick Clarke, by the evening of 9/11 Secretary of Defense Donald Rumsfeld was already building a case for a direct assault on Iraq. By far the greatest leadership and heroism was displayed by the people directly involved in the attacks: the victims and the emergency responders. Whether on the ground in the Pentagon, in the air on United Flight 93, or in the bombed-out Twin Towers, the stories retold in recent days have been surreal and immensely uplifting, in spite of the horrendous events that transpired. It is enough to reinforce our faith and hope in humanity. Barack Obama was swept into the Oval Office in 2009 on a platform promising change. The best way to gauge his success is to view the current assessment of his presidency by his most stalwart supporters of that time. From my perspective, they are unanimously disappointed. Some have turned sharply on the Chosen One, especially in the editorial pages of the New York Times (think Maureen Dowd and Paul Krugman). By far their greatest disappointment is rooted in his lack of leadership. By all measures this is a commonly-shared feeling. So as we look to his address this evening, one cannot shake the sense that it will fail to satisfy almost everyone. In a spectacular display of hubris that is beneath the behavior of my darling daughter experiencing her terrible twos -- in spades -- the Republicans have decided not to take the free media time offered by the networks to rebut the President's speech. I truly believe that the GOP leadership fears that when the Nielsen ratings come out, they would be trumped by a ratio of at least 10:1 in favor of the first NFL game tonight (HURRAY). And this opt-out follows on the heels of highly publicized tit-for-tat between President Obama's and House Speaker Boehner's offices on the original transmission date for the speechh. Our future is in the hands of these yahoos? In any event, these actions have a deleterious effect on consumer and investor confidence and sentiment. Although very difficult to measure, the fact that retail investors continue to withdraw billions of dollars from equity mutual funds is hardly a vote of confidence on the system, especially when the proceeds are then invested in assets that are KNOWN to offer negative real returns, and zero nominal returns. And at a time when many equity market metrics show stocks as modestly valued. Today we learned from AAII that the number of investors polled looking for lower prices six months from today rose to 40.3%, vs. 30.2% looking for higher prices. Unfortunately, these are similar to the numbers polled since mid-March. AAIIBULL -- Weekly Source: Bloomberg View Chart » Today we also learned from BAC/Merrill Lynch's Mary Ann Bartels that hedge fund second-quarter net-equity exposure is the highest since 2007. Based on the quarterly 13F filings and estimated net short positions of the equity holdings of 895 funds, we calculate that hedge funds increased gross exposure by roughly $50 billion to $1090 billion in 2Q ... HFs had the highest net exposure and lowest cash level since the 2007 market peak- net exposure was 54% in 2Q vs. 59% at the peak, and cash levels were at 4.7% in 2Q vs. 4.3% in 2007. She goes on to say that the data is likely dated, but hedge funds can still drive prices lower. More ominous was that cyclical exposure was at 78%, a record high. Other sector beneficiaries included materials (+65%), industrials and consumer discretionary (each +18%). Utilities remained the least-favored sector, while consumer discretionary passed technology as the most favored sector. Other points of note: Hedge funds owned a total of $35.3 billion worth of ETFs. The largest holdings were in GLD, VWO, EEM, GDX, and VIG. The most unpopular sectors in Q2 were (8) consumer staples (9) telecom and (10) utilities. Hedge funds tend to hold concentrated books, with an average of 82% of assets held in the top-20 long positions. The most held stocks, or core groups, include AAPL, JPM, GOOG, C, PFE, MSFT, VIA.B and QCOM. Stocks with the greatest hedge-fund ownership as a percentage of public float include LGF, HRG, FDML, and LORL. By dollar value, the most-bought stocks in 2Q were C, MSI, MOS, MRO, RKT, CEPH, and AAPL. By dollar value, the most-sold stocks in 2Q were ESRX, BAC, WLP, VIA.B, NOC, JNJ, BAX and JPM. The top shorted ETF by HF ranked by dollar value are SPY, IWM, GLD, XLE, XOP, XRT, IYR, EEM, TLT, and XLF. The world is dire need of sound and strong leadership. Each economic block is struggling with a varying set of problems: slack demand in the US, structural currency and debt issues in Europe, excess demand and price pressures in China and developing markets, and too many to mention in Japan. Alas, leadership of any stripe is in short supply these days. Retail investors have taken note, while hedge funds have teed up for a big punt on stocks. So far this quarter, an unwind in the hedge fund space has clearly begun, and markets have finally attempted to stabilize. Should hedge funds decide to reload on equity longs, 1,350 remains a viable, though unlikely, upside target. But should they continue to liquidate, I remain hard-pressed to identify the marginal source of new demand for stocks. In such an outcome, new lows beneath 1,100 are in store.

Where Is the Leadership?

Actions of our politicians have a deleterious effect on consumer and investor confidence.

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