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Showing posts from August, 2006

Beware booming asset markets!

A recent article from Dr. Marc Faber, who cautions investors of an impending slowdown in the economy and the effect it will have on the stock market and bonds.

Having noted last month that Two-Year Treasury notes offered an attracted alternative to equities, Faber returns in this latest column to warn about the potential ceiling hanging over the market as represented by the S&P 500. He is particularly bearish on the brokerage and financial sector in this environment:

I think brokerage stocks could decline by as much as the homebuilders did over the last 12 months. Please note that homebuilding stocks are down more than the housing index because the housing index also includes other building related companies. Brokerage stocks seem to have completed a similar decline as homebuilders did between July and October 2005.

But why should brokers decline much more? On the first sign of economic weakness, the Fed will cut again interest rates, which will in the long term be even more inflati…

The New Art Sharks

A recent article from BusinessWeek tells us about the current state of the contemporary art market.

"The New Art Sharks" hones in on the new breed of buyers in the market, who are bidding up prices well beyond reason. Chief among them: newly rich members of the "financial engineering" economy. Also known by their other moniker, "hedge fund types".

I think that what you will read in this article is an excellent illustration of what was discussed in Friday's post, "Tangible Investments". At one end of the market, you have a group of very wealthy people throwing huge amounts of money at a select group of artists, while vying for the title of "ultimate collector". This is just where the silliness begins, as wealthy collectors battle each other for the latest and greatest (read: fashionable) works.

Here's one of my favorite segments of the article:

ROTTING INSTALLATION
Cohen is snatching up some of the best contemporary pieces. Last …

Tangible investments

Over the past few years, we've seen the beginning of a move away from paper assets and towards tangible investments and stores of value.

Check the news and you'll see the trend is clear. Wealthy investors, wary of the stock market and the machinations of Wall Street salesmen, are embracing "alternative investments" such as hedge-funds, commodities and commodity-related investments, and art. Economic growth in Asia is leading to increased demand for time honored stores of wealth. In India and China, the burgeoning middle classes will step up their purchases of precious metals and increasingly, diamonds. Global investment demand for gold has grown and this, as a result, is leading to a revived interest in silver's monetary value.

Private investors are not the only ones getting in on the act. Central banks across the globe are now diversifying out of some of their dollar holdings and heading back into gold. Pension and endowment funds are moving some of their assets…

Russian oil production tops Saudi Arabia

We're no longer getting the larger portion of our oil from places like Texas and Saudi Arabia. Crude oil is increasingly coming to the market from places like Venezuela, Central Africa, and Russia. Now a report from The New Zealand Herald confirms this trend.

From, "Russia oil production overtakes Saudi Arabia":

Russia is extracting more oil than Saudi Arabia, making it the biggest producer of "black gold" in the world, figures show.

The statistics, from the oil cartel Opec, reflect a trend that has seen the Russians periodically surpass the Saudis as the world's biggest oil producers on and off since 2002.

These latest figures are being hailed in Russia as evidence that such periodic production spikes are not one-offs though and that Moscow really does have a right to lay claim to the No 1 spot.

According to Opec, Russia extracted 9.236 million barrels of oil a day in June, 46,000 more than Saudi Arabia.

The article goes on to note that, "money from oil &a…

How high could silver go?

How high can silver go? That is the question posed by Chris Weber in this Howestreet.com article.

Weber notes that he has a large position in silver himself, so he wants to make a careful examination of the unfolding bull move in silver and the best way to (hopefully) profit from it.

Lots to read here, and I see that Weber's price forecasts are influenced by the readings of the "50% principle", a measure also utilized by Richard Russell of the Dow Theory Letters.

Interestingly enough, I've just been listening to a fairly recent interview with metals watcher and trader, Jim Sinclair at Goldseek Radio.

At about 17 minutes in to the clip, Sinclair made some very interesting comments about silver while responding to Chris Waltzek's questions about the silver market of the 1970s and early '80s during the time of the Hunt Brothers' famous corner.

Here is a bit of what Sinclair said when asked about the role the Hunts played in silver's move towards $50 back …

How to brew great coffee

Not a coffee drinker myself, but I thought some people might like this information. Learn how to make Turkish coffee, brew a single cup of Vietnamese coffee, or find the equipment you'll need for grinding and roasting your own at Howtobrewcoffee.com.

Speaking of coffee, we've had some notable news this week in the futures markets, with Robusta coffee hitting a seven-year high. See more on this story at Bloomberg.com.

Homeowners desperate to sell

Building on yesterday's theme of the housing boom and its aftermath: the tactics some homeowners and agents are resorting to in order to get their listing sold.

MSN Moneycentral gives us a state-of-the-nation look at the real estate market in "When homeowners are desperate to sell".

As you'll come to find out, some of these sales may require a little saintly intervention. Enjoy!

Lessons from Australian housing boom?

Not the first article we've seen drawing parallels between the property booms in Australia and America, but Reuters serves up some interesting points in this piece, entitled "Australia's housing tale holds lessons for US".

Key points from the article:

1) While similarities exist among these property booms, it's likely that eventual outcomes will be influenced by differences between the two.

2) Goldman Sachs economists studying the issue felt a housing slump would have a more pronounced effect on the American economy.

"They argued that a downturn in housing would have a far greater impact on U.S. consumption than in Australia since American consumers had largely used equity withdrawn from their homes to fund spending.

While Australians had withdrawn just as much equity as Americans -- equal to about 10 percent of disposable income -- they spent far less of it."


3) Differences in the national economies. Australia is being kept afloat thanks in part to its stra…

Quantitative modeling & investing

James Montier, author of Behavioral Finance - Insights into Irrational Minds and Markets, gives us as overview of quantitative modeling exercises and their success rate over predictions made by human experts.

Montier feels that there is a clear body of knowledge that suggests statistical modeling can consistently match or beat the success rate of experienced actors. His article, "Painting by Numbers: An Ode to Quant" is the subject of John Mauldin's latest "Outside the Box" column.

Mauldin describes Montier's article as an important point of reflection for investors on the results of quantitative versus qualitative decision making. See the link for the full article.

What's the real federal deficit?

We kind of hinted at this subject with the comments in the last post. The question being: is the government giving citizens an accurate picture of our country's financial condition?

USA Today recently ran an article entitled, "What's the real federal deficit?", that tackles this question. Here's an excerpt:

The federal government keeps two sets of books.

The set the government promotes to the public has a healthier bottom line: a $318 billion deficit in 2005.

The set the government doesn't talk about is the audited financial statement produced by the government's accountants following standard accounting rules. It reports a more ominous financial picture: a $760 billion deficit for 2005. If Social Security and Medicare were included — as the board that sets accounting rules is considering — the federal deficit would have been $3.5 trillion.

Congress has written its own accounting rules — which would be illegal for a corporation to use because they ignore impo…

Speaking of the dollar...

Talking about the strength of the dollar in the last post, I'm reminded of frequent comments made by Richard Russell (of the Dow Theory Letters) regarding the strength of the US economy and our currency.

Russell is an old hand in the markets, but has been around long enough to know that his ideas about what might happen are no match for the signaling power of the markets themselves.

With that in mind, here is a recent article on Russell's view of the economy, courtesy of Reuters. I stumbled across this piece while looking at Reuters' report on the dollar today. Staying with that subject, I'll include a short section from the article here:

the United States faces huge deficits in its budget and current account, which will put pressure on the dollar. So far this year, the greenback's nominal value against a basket of certain major currencies is down 7 percent.

"No country can keep running up debts and deficits the way we are doing and still be a strong reserve cu…

Dollar declines. Forecast: end to rate raising cycle

From Bloomberg's report, "Dollar Declines as Expectations of Fed Rate Increases Recede":

The dollar dropped to the lowest in a week against the euro and the yen as reports this week showing slowing inflation eased expectations for further interest-rate increases this year by the Federal Reserve.

The South Korean won, Brazilian real, Swiss franc and South African rand also strengthened versus the U.S. currency. The yield advantage of dollar-denominated assets over those in 12- nation euro region has narrowed to the smallest in a year as speculation increases the Fed is done boosting borrowing costs.

``The dollar is losing interest-rate support,'' said Christian Dupont, a senior currency trader at Societe Generale SA in Montreal. ``There is a bigger sense that the Fed is coming to the end of its rate hike cycle. I think they are done. This weighs on the dollar.''

The dollar declined for a third day to 115.50 yen at 10:26 a.m. in New York from 115.86 late yeste…

$1 million: What's the infatuation?

So you want to be a millionaire. Guess what, America? There is a big business in feeding and catering to that dream.

A recent USA Today article takes a look at this latest incarnation of the American Dream and concludes, "Millionaire madness fills our popular culture, literature and business lore."

In an article entitled, "$1 million: What's our infatuation with this number?", Edward Iwata examines the trend behind America's burning desire to be rich. Books, seminars, and gambling casinos thrive off of our collective get-rich-quick mentality, but what can a million dollars do for you?

Most of us have heard the saying, "easy come, easy go", and can relate offhand one or more stories of money easily made and easily lost. The USA Today article does seem to focus on the fact that small fortunes are more likely to be kept and enjoyed by self-driven entrepreneurs.

It also hones in on the fact that $1 million doesn't represent as much as it used to. F…

Why markets trend

Came across an interesting review of a book called Taming the Lion by Richard Farleigh. This title was included in a recent Telegraph "summer reading" column by Tom Stevenson, and a detailed review of the book is available in an earlier Investment column.

While Stevenson notes that book is subtitled "100 Secret Strategies for Investing", he has focused on Farleigh's ideas about the nature of price trends in financial markets. In Farleigh's estimation, markets not only exibit trending behavior (thereby refuting efficient markets theory), the trends are driven by fundamental and psychological factors that are unlikely to change.

For more on Farleigh's book, and others in Stevenson's recent reading list, see the links above.

Oil and gasoline futures fall.

Bloomberg reports that futures prices of crude oil and gasoline are falling today as an improved picture for crude oil production in Alaska and Nigeria has emerged, along with a cease fire in the Middle East.

From Bloomberg: Crude oil fell and gasoline dropped to a two-month low after BP Plc said it will keep half of the output flowing at the largest U.S. oil field, and a cease-fire began in Lebanon.

BP plans to pump about 200,000 barrels a day from Prudhoe Bay in Alaska while it replaces corroded pipelines, rather than shutting the entire field as initially intended. Middle East supply concern also eased as the cease-fire began early today. Royal Dutch Shell Plc's Nigeria venture last week began pumping oil through a pipeline that was damaged in July.

``The cessation of hostilities in Lebanon, the improved outlook for Prudhoe Bay and the return of the Shell output in Nigeria have combined to move us lower,'' said Michael Fitzpatrick, vice president of energy risk management …

Reading

Haven't had much time to post lately, but I wanted to drop a quick note and tell everyone to check out Financialsense.com for some interesting articles that have recently been posted.

Be sure to check out Martin Goldberg's wrap-up for Thursday, August 10. An interesting overview of value (or lack thereof) in the stock market. Also seeing some interesting notes on gold/mining from Julian Philips and an article called "Nuclear Energy & the Environment" from Elliot Gue.

Interesting stuff. I see that they've also scheduled an interview with Steven Drobny, author of Inside the House of Money, for this weekend's Newshour broadcast. You can access the site quickly by clicking on the Financial Sense bookmark in my link list.

British CPI, or the "Chav Price Index"

A recent article in the Sunday Times suggests that Britain's inflation is low, but only when measured in the prices of goods favored by the nation's lower classes.

The basket of goods used to assess the increase in cost of living is weighted towards bargain items, says the Times. Data compiled by the Office for National Statistics suggest that the government's Consumer Price Inflation basket has been piled high with cheap goods. This led one observer to refer to the CPI as a "Chav Inflation Index".

For more on Britain's inflation measure, see the article entitled, "Inflation is low...but only on the Chav Price Index".

Post-Castro Capitalism?

Well, the word is that Cuban leader Fidel Castro will recover from his recent surgery and be back to run the country in a matter of weeks. In the meantime, power has been transferred to brother Raul and this has the world media wondering about an eventual shift towards normalized US-Cuban relations.

According to a BBC report, this is the first time in 47 years that Fidel Castro has ceded power. While the official line out of Cuba and supporting countries suggests a quick return to power for Castro and business-as-usual, many Cuban exiles and people in the business community are looking forward to a more open, capitalist Cuba.

One has to wonder how the growing support for left-wing politics in South America and Mexico might influence future events in this Caribbean island nation. For more on the fate of Cuba, see this August 4 BBC article, as well as Forbes' "Post-Castro Capitalism?".

An Interview with Bill Powers

Today we’ll be talking with energy analyst and hedge fund manager Bill Powers, of Powers Asset Management. Bill has published two successful energy investment newsletters, Canadian Energy Viewpoint and US Energy Investor, and has been a contributor and guest to Financial Sense Online and the Financial Sense Newshour.

In 2005, he decided to focus his full attention and energy to running his investment fund, Powers Asset Management.

Mr. Powers originally came from a background in technology, and had thoughts of becoming a tech analyst. After working in the securities business and technology related work, he set his sights on finding a field that was inversely correlated to the overcrowded tech sector of the late 1990s. His growing involvement in the energy sector showed him that oil and gas fit that description.

A magazine cover supplied the contrary indicator that signaled an end to the downtrend in oil prices. The appearance of The Economist’s now famous “Drowning in Oil” issue was somet…

Oil prices climb higher

Oil climbed higher today, while natural gas declined after surging 14% higher on Monday's session. From CBSnews.com:

Oil prices climbed Tuesday as energy traders kept an eye on supply threats ranging from a tropical storm in the Caribbean to fighting in the Middle East.Natural gas futures plunged 7.5 percent, giving up more than half of the gains from a Monday rally fueled by a heat-induced surge in electricity demand.

Light sweet crude for September delivery rose 55 cents to $74.95 a barrel on the New York Mercantile Exchange, where gasoline futures jumped by more than 5 cents to $2.27 a gallon.

In London, September Brent crude rose 32 cents on the ICE Futures exchange, to $75.47 a barrel.

The strength in gasoline came as refiner Valero Energy Corp. said during a conference call that units at two of its plants _ one in Louisiana, the other in Texas _ would be shut for the next week for repairs, according to Dow Jones Newswires.

"We're moving into a very strong seasonal tren…