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The Seer of Sautville


Happy Halloween!


Good morning and welcome back to the flickering flack. When we last scribed our vibe, Hoofy was reeling against the ropes after a feverish Red Dye flurry. The bodacious bovine, beaten but not quite broken, was about to go down as the Thursday bell rung and his technical cuts and Beltway bruises festered. As the jeers and cheers commingled in the crowd, I whispered encouragement in his pointed ear and offered support despite signs that support itself would soon be gone.

While the genesis of my relative optimism was more psychological than scientific--based in part on the potential that Boom Boom Bernanke would tip the sentiment scale in favor of a year-end rally-my approach was rooted in discipline. I defined my risk (below S&P 1175), took one last look at the not-so-hot news and headed to Tampa to spend the weekend with the savvy soothsaying guitar-playing sommelier Jeff Saut.

I've met alotta folks in this business over the last sixteen years but I'll again offer that Jeff is as good as it gets. As the Chief Investment Strategist of Raymond James, he has the unenviable task of navigating his research team and clientele through these very trying financial times. Yet, he does so with efficient aplomb, having built one of the better track records of anyone throughout the land. Yesterday, while sitting on his front porch and enjoying the journey, the critters and I sat down for a heart-to-heart with the savvy seer. The conversation went a bit like this:

Boo: I see that you recently opined that "the lows are in." That's mighty aggressive given the uncertainty surrounding us. It seems to me that Scootergate is the last thing this administration needed given the president's abysmal approval rating, a difficult and expensive war, the botching of the hurricane relief effort and the Harriet Meier mess. I mean, dude, Harriet Meiers? I swear that this man sometimes forgets that other people are watching him!

Saut: A wise man once said that when the President is in trouble, the market is in trouble. That said, we had every reason to wash out in early October but the bulls held it together. We're now entering a seasonally strong period where it simply hasn't paid to bet against the bulls. The rewards won't be all-encompassing but I'm pretty constructive.

Hoofy: Nice. What sectors do you dig and which groups should one be a bit more careful in?

Saut: I opined four years ago that the mid- and small-caps would outperform their big-cap brethren but I shifted gears a few weeks back. I'm now overweight the large-caps (vs. their smaller cousins) and wanna lean towards energy, materials and select healthcare while underweighting tech (semis and telecom), big cap pharma and retail (between interest rates, debt levels and energy prices, I believe that the consumer is at a tipping point). I don't like painting entire sectors with a single brush--there will always be special situations--but for purposes of this conversation, that's where I'm at.

Toddo: What about silver?

Saut: I prefer gold but silver could go along for the ride. I'm of the opinion that gold is exhibiting all the characteristics of a major bull market and we've got a ways to go. I wouldn't be shocked to see a wash out to the downside-perhaps as much as 20%--but I wanna buy it aggressively if and when.

Boo: You mentioned that earlier that you thought the consumer was at a tipping point. Isn't it hard to make a bullish case without participation from John Q. Public?

Saut: I'm talking about a tradable rally, not the beginning of a new bull market.

Toddo: I agree. The definition of a time horizon is an integral aspect of any market conversation. Lemme ask you a question, Jeff, do you think that stagflation is a possibility?

Saut: I believe that unemployment figures-and inflation numbers, for that matter-are understated but it's a function of miscalculation more than any grand conspiracy. Stagflation is possible, particularly if the political unrest manifests, but I don't see money supply growing fast enough to presently assert that.

Hoofy: What about the housing market?

Saut: I've been dead wrong in this arena. If you divide the median home price by median income levels, you could make the case that we've been in a housing bubble since 2001. I've seen anecdotal signs of softness but I also know that politicians will do everything they can to avoid a collapse. There's an old saying on the hill, "houses vote." Still, I don't see alotta cash floating around and there are still more "flippers" than those simply trying to pay their homes off. Stephanie Pomboy opined in Barron's that $1 trillion in adjustable rate mortgages are slated to reset in the next eighteen months. That's a bunch.

Toddo: I've spoken about the emergence of a two-class society as the middle class is wedged between the lifestyles of the rich and a struggle to exist. What are your thoughts regarding this evolution?

Saut: The middle class is definitely eroding and there are hard facts to support that argument. It's due in part to the shrinking of the manufacturing sector as the USA simply can't compete with the cheaper labor abroad. Just wait until Chinese automobiles hit our market in a coupla years. You'll be able to buy a car for under $10,000 and that's not gonna help our friends in Detroit.

Hoofy: What other trends do you see Jeff?

Saut: I think the '70's were the decade of the "product." We purchased a home, a car, a television, a VCR...things. The '80's were the decade of "image." We bought the bigger house, the Rolex, the Mercedes and other status symbols. The '90's were the experiential decade-we traveled and brought home memories rather than hard goods. I believe that our current decade will be the era of relationships. We'll surround ourselves with people we trust who have complementary skill-sets-the mechanic, the doctor, the landscaper, the financial advisor-and leverage those relationships into a cohesive experience.

Toddo: That sounds a lot like the human capital mantra that we often talk about in the 'Ville.

Saut: You betcha!

Boo: One final question, Mr. Saut. You seem conscious of many risks-housing, the consumer, political-yet constructive in tone and tenor. Do you see a bad moon on the rise or do you think we skate by?

Saut: I think we ultimately skate by but there will certainly be casualties. Those who aren't fiscally disciplined-those who are levered up or dependent on debt-will learn a hard lesson. My cardinal rule, and something that I've espoused my entire career, is never to let anything move 15-20% against you. If you can abide by that and remain conscious of the opportunities-and, absent an outright depression, there will always be opportunities-we should be fine.

Toddo: Thanks Jeff. We appreciate your time, hospitality and, above all, the kind vibes.


position in silver equities

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at

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