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  • Martin Sosnoff

April in Paris Does Run Rainy ‘n Cold

Don’t let Frank Sinatra fool you, singing “April in Paris.” April can be a cold and rainy month there. Even Nice, where we spent a couple of decades, draws plenty of rain, but normally runs dry. Keeping your garden fresh takes your water bill through the roof.


Likewise, rain comes to Wall Street when you least expect it. Let’s start with 9/11 and the World Trade Center which never should’ve been built. The New York Port Authority had excess capital and needed to use it up.  So they built this monstrosity, the Twin Towers, which proved an economic flop and a flaming disaster.


Sam Zell once said to me “You never want to inhabit a notable building.” I lived in The Dakota and saw what happened to John Lennon, my neighbor. He had just gone back to work at a midtown studio and was gunned down getting out of his limo in front of the Dakota’s entrance. You pay a price for celebrity, like it, or not. For a while, New Yorkers were looking over their shoulder for new trouble. 


You do what you have to do if you want to get rich and stay rich. The Cuban Missile Crisis was a bedrock panic. The market sold down with no support based on earnings, because there was no solution in sight. The dissolution of a highly functional business world.


I loved to press my chips all in, but someday I may be wrong and float out to sea. What if Khrushrev’s ship laden with missiles for Cuba wouldn’t heave-to?


U.S. Steel’s confrontation with President Kennedy over their hike in the price of steel was child’s play. Joe Kennedy, a sharp operator, advised his son to pick his fights with care. Turning anti-business overnight was not a good move, and the President pulled back from this extreme confrontation. 


I’ve watched  bunches of analysts panic over a bad unexpected quarterly report for Motorola. My old friend Jerry Goodman memorialized such foolishness in his column “The Day They Red Dogged Motorola.”


When 1987’s Black Monday hit the Street, I went all in. The tape ran so late that I wasn’t sure how rich I’d become. f you want to be rich do what you have to do and never look back. Aside from being unappreciated as a security analyst I turned lone wolf, going on 60 years or so.There were models for how I operated. George Soros defied the Bank of England and shorted the pound days before its devaluation.


Gerry Tsai was a gutsy individualist who ran the Manhattan Fund, fearlessly. Later, Gerry lived on his yacht with a fully equipped trading room. Larry Tisch, a most sober operator, always mumbled about the risk premium in stocks. Larry would look at the market's stupidity, and then go short even on Treasury notes. 


Before, Leon Levy succumbed from his heart condition. I noted Leon’s enormous spread in  Treasury notes with the emphasis on long maturity paper. I wasn’t tuned up for such brash plays, but I’ve learned. 


Today I’m short 10-year Treasuries, and long 2-year maturities. Nobody has been able to explain to me why there’s a negative yield spread of 50 basis points on 10-year notes. I expect this spread to close over the next 12 months.  So far, I’m still out in left field on this spread.


 After the 2000 tech bubble it was open season on growth stocks. Investors with a sense of history know that stock returns can stay negative, even over a decade. The historic rate of return comes in at 6.1%. The equity risk premium runs at 2.4% over bonds. Meantime, bonds show an inflation adjusted return of 3.9% on Treasuries. Not good enough for tech houses when it rains, it downpours. 




I am greedy and seek double digit returns, 10% or better. I do keep my late fifties pocket slide rule on my desk as a reminder that numbers, not words, govern stock performance.


The Wizard of Oz got it right. You need a heart, a brain and courage. Otherwise, don’t play. 


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vsalembier
Apr 08

What a great column, Martin. I learned a lot! xx

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