Finance Trends Letter

Here's a BusinessWeek online article that discusses the lowering age/experience threshold for those looking to start up a hedge fund. Entitled, "Hedge Fund Toddlers" , the piece points out that barriers to entry are low, but long-term success is far from certain.

From the Reuters UK article : As widely expected, the central bank's policy-setting Federal Open Market Committee voted unanimously to lift the benchmark federal funds rate target a quarter-percentage point to 5.25 percent, its highest since March 2001. In a statement announcing its action, the Fed said moderating growth should help ease price pressures, even though it held out the possibility it could extend a two-year credit tightening campaign. Notice the emphasis on economic growth as a source of inflation. What they don't talk about is the role that money creation has in bringing about inflation. You will not hear a US central banker allude to money supply growth as the cause of inflation, although this is the classical definition. Tally up some broad money supply measure using the available statistics (now that M3 is no longer reported by the Fed) and then tell me where inflation is heading. We can focus on "price inflation" as measured by core CPI or we can l...

The Financial Times is running an article series on Russia and its emerging political structure, described as a corporate state in an earlier article by Neil Buckley. Here is the latest article in the series, "The pull of power: how nothing is left to chance in Putin's 'managed democracy'" . The focus on Russia comes at an interesting time. The upcoming G8 summit in St. Petersburg has been prefaced by verbal sparring between American and Russian leaders over the state of democracy in Russia. This week, former Russian prime minister Mikhail Kasyanov appealed to G8 nations to confront Russia on its drift from representative democracy. Meanwhile, preparation for Rosneft's IPO has refocused attention on how the Russian oil company snatched its main asset, Yuganskneftgaz, from the wreckage of Yukos' tax battle with Russian authorities. From the Toronto Star : In a filing to the U.K. Financial Services Authority released yesterday, Yukos said its Yugansknefteg...

In "A Conversation with Warren Buffett" , long time Buffett chronicler and friend Carol Loomis talks with the billionaire investor about his recent philanthropic funding of the Gates Foundation and his philosophy on giving. Buffett's businesslike approach to all endeavors is well noted, and his ideas on philanthropy have shown no departure from this personality streak. He is probably one of the early proponents of the now fashionable view that charitable giving should be judged by indicators of effectiveness. There should concrete terms laid out for measuring the efficiency of charitable organizations and return on money donated. In Roger Lowenstein's 1995 biography, Buffett: The Making of an American Capitalist , the author concluded that Buffett's charitable interests were "aimed at alleviating or preventing future sources of grief, such as a future war or a future oversupply of people" (Buffett was long concerned with problems arising out of overpopu...

Yesterday's Wall St. Journal carried a front page article on the privatization of water utilities and municipal water systems. The piece focused on the problems that some companies are experiencing with their entry into the water business. RWE AG, the large German utility, thought that the water delivery business would be a natural complement to its electricity, gas, and waste disposal services. Now RWE plans to exit the US market as protests against its ownership of a California town's water system serves as a template for widespread outcry over corporate water buyouts. Companies like RWE have found that regulation is never predictable. The Journal reports that RWE found itself fighting in town referendums and state legislatures across the country. The company is planning to divest its American Water subsidiary in an IPO. Similar plans are in place for the Thames Water unit, which it bought in 2000. Suez and RWE have had to pull out of markets across the globe as problems aro...

A worldwide cost of living survey has found Moscow to be the most expensive city in the world. Mercer Human Resource Consulting has released the findings of its 2006 survey which ranks living expense in 144 cities worldwide. This year, Moscow replaces Tokyo as the world's most expensive city while Asuncion, Paraguay claims the lowest cost ranking. The first article I read about the survey mentioned that cost of living in two Brazilian cities, Sao Paulo and Rio de Janiero, had risen sharply (according to their jump in the survey rankings). I wondered if this was due to the Brazilian currency's recent strength against the dollar or some type of goods shortage. Mercer's press release put it down to the following factors: Sao Paulo and Rio de Janeiro are the most expensive cities in Latin America moving up from 119th and 124th positions to 34th and 40th place respectively. These movements are due to the strong appreciation of the Brazilian Real against the US dollar (more than...

Bridge partners Warren Buffett and Bill Gates will be playing according to a similar strategy, at least as far as their charitable giving is concerned. Billionaire investor Buffett will begin shifting his wealth to charitable foundations ahead of schedule; a large percentage of money will now be earmarked for the Bill and Melinda Gates Foundation. Full story at MSNBC.com .

I have to give it to Peter Schiff of Euro Pacific Capital for going on CNBC recently and sticking his neck out by trying to explain what inflation really is to the Bubblehead community. Last week on the Financial Sense Newshour (June 17th 3rd hour segment), Jim Puplava and John Loeffler played back an on air debate between Peter and Diane Swonk of Mesirow Financial that centered on the basic definition of inflation and how it comes about. Jim and John then paused the playback at points to discuss and respond to the counterarguments and sophistry put forth by "economist" Swonk. To say that Peter's debate opponent lacked knowledge of the true nature of inflation would be putting it mildly. Video file of the June 13 CNBC Squawk Box debate . Squawk being the operative word here. Swonk's willful ignorance and the arrogance that inevitably accompanies it are on full display here. Sadly, this type of attitude is prevalent throughout the 24-hour media spectrum, and this is w...

The Bush administration is defending a program under which the Treasury Department and CIA are examining records from an international database of money transfers. You can certainly file this story under the "follow the money" theme. From Reuters : U.S. Treasury Secretary John Snow on Friday defended a secret program for monitoring financial transactions, calling it "government at its best" and a valuable aid for fighting terrorism. For nearly five years since the Sept. 11 2001 terror attacks, Treasury has been tapping into records of the Society for Worldwide Interbank Financial Telecommunications (SWIFT) for evidence of potential activity by terror groups. Despite Treasury's efforts to keep it quiet, the New York Times laid the program out in detail on Friday, forcing Treasury to confirm it while complaining about the revelation. " As part of our efforts to track the funds of terrorists, we are confirming that we have subpoenaed records on terrorist-relat...

James Grant, Forbes columnist and editor of Grant's Interest Rate Observer has a few things to say about gold and central banking in his latest Forbes.com piece. In "Glitter" , Mr. Grant gives us his view into how gold, inflation, and central banking are interrelated. An excerpt: Gold competes with the Bernanke dollar, just as it did with the Greenspan dollar and just as it has with government-issued money since the invention of the printing press. The historical record is undebatable: 1) Currencies ultimately lose their value. 2) Gold is a lousy long-term investment. 3) Yet when markets lose confidence in paper, there is nothing quite like a Krugerrand.

I've only skimmed the article so far, but plan to read it more carefully in a bit. For anyone who wants to get a leg up, see Steve Saville's essay, "Why Do We Have Taxation?" . Here's a taste of what you'll find: Taxation not only supports the currency directly due to the need to obtain the currency in order to pay the tax, it supports it indirectly by fostering the general belief that the currency is actually worth something.

"Come Mr. Tallyman, tally me bananas." And my Federal Reserve Notes, as well. A report by Capgemini and Merrill Lynch shows the number of dollar millionaires increasing across the globe. There's a number of articles out on the subject today, many of them taking national slant (stories about Indian millionaires, stories of British and Swiss based millionaires). Let me include this India focused article , since it includes a nice little world wealth graphic. By the way, the number of millionaires in the world is now 8.7 million. The correct number for US millionaires is shown in the graphic, 2.9 million. On the increase in millionaires and "ultra rich" (characterized as those with $30 mil), the Chicago Tribune writes : The number of millionaires has nearly doubled since 1996, though the 6.5 percent growth rate in millionaires last year slowed slightly from 6.6 percent in 2004. But the ranks of the ultra-rich, those worth more than $30 million, climbed by more than...

Chinese Prime Minister Wen Jiabao is currently engaged in a seven-nation tour of Africa. His latest stop in Angola prompts the BBC to report on China's willingness to embrace the African nations as business partners. From the BBC News : Recently China, scouring the globe for raw materials to feed its booming economy, has been drawn to Africa as an abundant source of minerals, and has started investing heavily in countries like Angola . China has increased their involvement with Africa as part of its race to secure the needed resources to fuel its expansion. As energy and mineral supplies become increasingly scarce and developing nations compete with developed countries for supply, countries like China are going to places that the West has largely avoided. Some say that China's move to secure needed resources from African nations will increase corruption, as money flowing in from China decreases the odds that a country like Angola will adopt the IMF's policies on transparenc...

Deutsche Borse has made a new advance in its bid to untie a merger agreement between NYSE and Euronext. The German exchange's latest proposal centered on key concessions that would keep a certain portion of Euronext's autonomy and clearing operations intact. From FT.com via MSNBC : The latest offer includes three significant concessions, one of which is integration of Deutsche Börse's information technology business into Euronext's. Deutsche Börse also agreed that after a merger only German equities would be cleared through its Eurex subsidiary, leaving current Euronext clearing services in the hands of its LCH.Clearnet platform. Thirdly, Deutsche Börse tried to address fears that the merger would get bogged down in scrutiny from European Union competition authorities by seeking advance clearance of the deal. Deutsche Bourse has not offered any added financial incentive with their latest offer, though Deutsche Borse chairman Kurt Viermetz said their bid could be increa...

For your reading pleasure: "Is The Constitution Dead?" . An essay by Edwin Vieira, author of Pieces of Eight . Probably the most interesting and important thing I've read concerning the U.S. Constitution this year.

Check out Howestreet.com for some recently added interviews. I'm seeing new interviews with Paul Van Eeden and Rick Rule (both good for some thoughtful commentary on commodity related investment & speculation) and I've just finished watching a June 15 interview with Mary Anne Aden of the Aden Forecast. Mary spoke on the topics of commodities and emerging markets, but I was also pleased to see her answer to the wrap up question about financial advice for young people starting out. Have a look at "Protecting assets, starting out...what to do" in Howestreet's video interviews.

While some people will not mourn the departure of Microsoft's Chief Software Architect and founder, Gates' departure is not completely shrouded in controversy. The software visionary has managed to deflect some long standing vitriol through his increased charitable giving. In fact, most of the news stories regarding Gates' decision to step back from his day to day leadership role seem to direct most of the attention to his philanthropy. In that respect, Gates seems to getting a bit of the Carnegie treatment; by proclaiming that he will give away most of his wealth during his lifetime Gates has won some favor with the public and past detractors. Forbes interview with Bill Gates and Steve Ballmer.

This week the Financial Times ran a question and answer feature with global investor Mark Mobius . Good for a few insights into emerging market investing from one of the field's pioneers.

Could the burdens of Sarbanes-Oxley's regulatory requirements take hold across the Atlantic? Financial Times reports that UK's Financial Services Authority has noted that US securities regulation could possibly extend its reach into the UK market, given certain circumstances that might arise out of US ownership of the London Stock Exchange. These worries over "regulatory creep" were originally voiced when the exchange merger deals were gearing up; see "Exchange Fever" post. NYSE chief John Thain is still pushing for the Euronext-NYSE merger, saying that it would boost Paris' standing as a regional financial center. He went on to add that the deal would create a "world champion", invoking (and enlarging) the currently favored notion of strategically aligned business entities. From NEWS.com.au : "An NYSE-Euronext marriage would give birth to a world champion, and that would not be the case in the scenario of a Euronext-Deutsche Boerse mer...

House Representative Ron Paul asks why we can't seem to rid ourselves of the "death tax". Lamenting the fact that the U.S. Senate recently fell short of the votes it needed to repeal with the federal estate tax, Representative Paul declares that the tax survives "purely because of politics". Here's a bit of his reasoning: The estate tax raises very little money. In fact, even at its height the estate tax accounted for only a little more than 1% of federal revenues. A congressional Joint Economic committee report estimates that Americans spend as much avoiding estate taxes—paying attorneys and accountants—as they do paying estate taxes. A study by a Stanford professor concluded that “True revenues associated with estate taxation may well have been near zero, or even negative.” It’s no longer a matter of tax policy or economics—the arguments in favor of the estate tax have all been demolished. Instead, the estate tax survives purely because ...

Came across an interesting post that analyzes the recent Hedge stock gathering through the lens of a Socioeconomics/Elliott Wave viewpoint. What does it mean when the hedge fund crowd decides to convene for a hippie-themed retreat/networking event in the English countryside? See this link for a Socionomic interpretation of what's happening when we fuse painted buses and The Who with champagne and Blackberry machines.

It was a tough day for the markets overall today. The Dow Jones Industrial Average, S&P 500, and Nasdaq Composite Index were all down for the day . Reuters and Richard Russell of the Dow Theory Letters note that the year to date gains in each of those indexes were erased following today's declines. It was a rough day for commodities as well. Gold continued its correction as the August gold contract fell $44.50, or 7.3%, to close at $566.80. Silver, platinum, and copper also had notable declines. While the recent correction has been rough, one investor quoted in a Bloomberg article took a longer term view: Some investors say the price decline offers a buying opportunity for some metals. HSBC Holdings Plc estimated last month about $100 billion will be invested in commodity indexes by the end of 2006, compared with $10 billion at the end of 2003. ``This is not the end of the commodities rally,'' said Michael Widmer, an analyst at Macquarie Bank Ltd. in London. ``...

So French president Jacques Chirac has called for a rival bid to NYSE's offer for Euronext. He had proposed a "Franco-German solution" saying that a deal with Deutsche Borse would be better than the recently agreed to merger with NYSE. Chirac and the European bankers seem to be pushing for the creation of a regional powerhouse to compete with Wall Street. The Financial Times reported on June 7th that "France has no veto over a merger by Euronext, a Netherlands based company" , but "political opposition could create headaches for the heavily regulated stock exchange operator" . Recent news from Reuters shows that German bankers are still optimistic that a deal between Euronext and Deutsche Borse can be reached.

I've seen a lot of interesting stuff on the real estate market over the past week. I'm going to include some articles and brief comments on what I've read so that we might get a decent sense of what's going on at the bigger picture level. The first thing that comes to mind by the way, is Marc Faber mentioning a year or two ago in a Barron's roundtable that there were good opportunities for real estate investment in Berlin. There was another article on the pick up in property transactions and investments in Berlin in the weekend edition of the Financial Times and it just goes to show you, as I mentioned in the last post, that Marc really uses a broad scope when viewing the investment arena. The first full article I'm going to include comes from John Rubino of Dollarcollapse.com and is entitled, "Look Out Below" . John has picked up on the news that noted entrepreneur and real estate investor Marcel Arsenault has sounded the alarm for a drop in overheat...

Just wanted to post a link to the latest market commentary at Marc Faber's site. Latest writings and comments from him have been very cautious and cool - he is taking a wait and see attitude towards all markets. And I do mean all - Marc really covers the waterfront, so to speak. "Oh Tobias, you blowhard!"

I had a conversation with a friend the other day and we got to talking about the ridiculousness of the resume-building/job-seeking process, especially with regard to how it has shaped the actions and expectations of the young generation. Here in America, kids (with increasing involvement of their parents) are doing more and more to outdistance themselves from their peers in the hopes of getting the college admission or job internship of their choice. Numbers of college bound students continue to increase and education costs are skyrocketing, but the university diplomas being awarded (or rather, sold) are increasingly viewed as rubber stamp products. But it is not just the diploma that ends up as an assembly line good. The university system also wants to put their stamp on you. The pursuit of knowledge and "higher learning" has taken a backseat to socializing the "student" and certifying him or her as a uniform product, ready to be molded in the team-driven corporate...

If you'd like to hear these interview subjects voice their opinions on markets, precious metals and the monetary system, visit the link to Goldseek radio . There's a lot of content in this June 3rd broadcast, but you can get to the interviews by flipping to the 50 minute mark. Richard Russell , of the Dow Theory Letters newsletter, gives a background of the Dow Theory and the importance of values in the stock market. He also shares his view of gold and money, which will be familiar to his readers. Ron Brown picks up the discussion in a seperate interview segment. Ron shares his views regarding precious metals and the workings of the world monetary system. A very plain spoken man, Ron spans a broad scope and gets to the core of issues like inflation and examining the definition of money. I had not heard Mr. Brown speak before this interview, but I must say that he has wrapped up a number of issues in an interesting and clear manner. I actually found his interview to be the most...

Investor Jim Rogers was the subject of this week's Barron's cover story . Rogers' enthusiasm for commodities is still in place, and the feature article dutifully outlined his reasonings for a continued commodities bull market. Specific attention was given to the legitamization of commodities as an asset class in light of recent academic studies which bolstered his view that tangible assets could serve as an attractive area of investment. For more on those studies, see Barry Bannister's research into commodities and inflation cycles, as well as G. Gorton and K. Rouwenhorst's paper "Facts and Fantasies about Commodity Futures" . PS: the same issue of Barron's included an adjoining article that gave a technical look of the gold price. It was one of the few informed examinations of gold's dollar-denominated price movement I've seen in a mainstream financial outlet to date.

You might know the name Lutz Kleveman if you've read his articles or heard him speak about his book, The New Great Game: Blood and Oil in Central Asia . Last year, Lutz went off to South America to chronicle the drug trade and the rising tide of urban warfare between drug lords and paramilitary police. Very much the kind of thing we were hearing about in the news out of Brazil a couple weeks ago. I read Kleveman's article, "Street Fighting Boys" , last night and you can read his account of time spent among the drug gangs by clicking the link.

Bloomberg reports that US Treasuries declined after Federal Reserve Chairman Ben Bernanke signalled the Fed would not pause its interest rate hikes. From Bloomberg.com : Bernanke said recent increases in measures of inflation ``are unwelcome'' and he will ensure the trend isn't sustained, at a banking group's conference. Futures traders raised bets the central bank will raise borrowing costs to 5.25 percent later this month, three days after a jobs report indicating the economy slowed more than forecast prompted them to pare expectations. More news on the Fed watch front, as Reuters weighs in with two Bernanke centered stories of its own. The first is a brief three paragraph piece entitled, "Bernanke says flat yield curve makes his job harder" . Here's an excerpt: Federal Reserve Chairman Ben Bernanke said on Monday that low long-term yields were complicating monetary policy because it was hard to be sure what was responsible for the flatness of the yield...

Yesterday I listened to a roundtable discussion aired during hour 2 of the Financial Sense Newshour between Jim Puplava, Frank Barbera and Brian Pretti of Contraryinvestor.com . Their discussion is focused on determining the shape of things to come for the markets and the global economy, but the ideas presented here reach are larger in scope than the future direction of the Dow Jones Industrial Average. I can practically assure you that the ideas discussed in this interview will not be heard on Monday's major business and cable news broadcasts. If you want to open yourself up to some less-than-popular notions regarding economic reality, give this broadcast a listen . One section I found particularly engaging occurs with the group fleshing out the idea of the credit cycle's emerging preeminence over the conventional business cycle. Lots more though, including a comment on fractional reserve banking, a subject that was discussed by Paul van Eeden in Thursday's post . Lest you...

The following is an excerpt from J.R. Nyquist's recent article, "The Torah of Geopolitics" : While on a trip to Israel reporters asked Milton Friedman to explain “the whole Torah” of economics while standing on one foot. Friedman simply said, “There is no such thing as a free lunch, and all the rest is merely an explanation.” Taking this as a point of departure we may speculate as follows: If reporters had asked Niccolo Machiavelli about the “Torah” of politics he might have held up one foot and said, “Politics is about gaining and holding power, and all the rest is merely explanation.” If Robert Michels were asked to comment further, he might have explained that democracy is merely another way of organizing oligarchy. Americans are taught to regard democracy as a good and noble thing, but democracy isn’t all it’s cracked up to be. The authors of the U.S. Constitution feared democracy, even as the ancients called it the worst form of government. I find this interesting ...

Read a short piece from Paul van Eeden yesterday called, "Musing on a Gold Standard" . In it, Paul looks at the practicality of reestablishing a gold backed currency system and whether or not such a system would last. Reviewing the lessons of the past, in conjunction with the realities of current money and credit use, he decides that the real question is "do we want fractional reserve banking, and if so how can it be changed?" (paraphrasing). Here are Paul's own words on the possible dollar value of gold should it retain its place in the currency system: Many hardcore believers in the gold standard feel that fractional banking has to be demolished. I personally never liked the idea of fractional banking, but I also don't think the population at large is ready to do without it. And, even if fractional banking were eliminated and a pure gold standard recreated, the temptation to issue receipts in excess of gold on deposit would just exert itself again. So inst...