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Showing posts from February, 2007

Market update

International share markets continue to head lower as yesterday's selloff in Chinese markets spread to markets across the globe.

Shares in US and Latin American markets have rebounded slightly, while markets in Eastern Europe, Turkey, Russia, and Asia continue their slides.

Many of the markets seeing pronounced drops in this week's global corrections are the very ones that, just last week, made a series of almost synchronized new highs. Japan, Australia, South Korea, and Malaysia are just some of the markets where stocks are retreating after making recent new highs.

Meanwhile, famed investor, Jim Rogers is speaking to Bloomberg about his view of the correction in Chinese share markets. Click to see the video for Jim's point of view.

Things have certainly been frothy lately in almost all the financial markets. Is the party over or will the madness continue?

Shanghai slump & the midday report

A large drop in the high-flying Shanghai Composite index has prompted investors to sell shares on Wall Street and in international markets today, as investors bail out of US and emerging market stocks.

The drop in Chinese shares was also enough to bring worries of a possible US recession and international conflict over Iran to the fore. FT.com reports:

Wall Street stocks fell sharply in early trading as a slump in China’s main stock index encouraged investors to sell riskier assets.

The biggest drop for the Shanghai Composite in a decade prompted a broad sell-off in US stocks that hit most severely at the materials, financials and consumer discretionary sectors.

Disappointing US economic data and news of falling house prices added to the markets’ anxiety and dragged the Dow Jones Industrial Average briefly into negative territory for the year.

“There are multiple catalysts driving this market lower, not least China,” said Arthur Hogan, chief market analyst at Jefferies & Co.

“There is …

Sprucing up the joint

You may have noticed some new links and additions to the blog's sidebar layout. I've decided to add a few things to help make browsing and acquiring information more enjoyable and convenient for Finance Trends readers.

Hence the new links, with everything from futures quotes and charts, to added news and commentary sites. You might also create your own virtual stock portfolios at Yahoo! Finance, or jump on over to Project Gutenberg to search for classic, out-of-print books online.

There's also a new section devoted to blogs, highlighting some of the sites I've been looking at more regularly, and find especially interesting and informative. For more finance and market related blogs, have a glance at the Inveslogic and Stockblogs directories.

I hope you'll find something you like in these new links.

Added Note: If there is something you feel we've left out, and would like to see it added to our link list, please let us know. If it's especially useful, we migh…

Sam Zell talks real estate, EOP buyout

Real estate mogul and Equity Office Properties co-founder, Sam Zell sat down with Bloomberg TV's Brian Sullivan to discuss the recent buyout of EOP by private-equity firm Blackstone, as well as some of Zell's other interests outside commercial real estate.

In this 21 minute interview segment, Zell answers questions about the outlook for commercial and residential real estate, his views on recent home financing practices, and his varied interests outside of US real estate, like waste management and waste-to-energy firm Covanta.

I was especially interested to hear, towards the end of the interview, Zell's thoughts on risk.

As he talked about balancing risk and reward, he said something that reminded me of Warren Buffett's stance on accepting risk in Berkshire Hathaway's insurance business; said Zell, "There's almost no risk I'm not willing to take, as long as the reward is comensurate.".

More liquidity, more art

A recent Bloomberg article focuses on the "flood" of art fairs hitting New York this weekend.

New money, and slightly-aged money (think Martha Stewart and the Hermes crowd) are out in force, working their way between the aisles of fashionable sales events, the Art Show and the Armory Show.

From, "Art Fairs Flood Manhattan With Pollocks, Richters, Bargains":

``People have seen art go up so much in the last 24 months,'' said dealer David Nash of New York's Mitchell-Innes & Nash gallery, who has booths at both the Art and Armory shows. ``People don't feel they are risking anything. They feel they are missing out if they don't buy.''

Nash said he sold an Impressionist painting for more than $1 million last week to a new collector flush with a Goldman Sachs bonus.

``There's a lot of liquidity and even more complacency,'' said money manager and collector David Dechman, who added he was at the opening to socialize, not necessari…

New highs by the score

If you were watching the markets this week and last, you might have noticed a definite theme unfolding, even from a distance. Simply put, the number of new highs being set in financial markets across the board is almost staggering.

We saw new, synchronized highs in the Dow Transports, Industrials, and Utilities averages last week, prompting some to warn of danger ahead.

We have reports of new highs in margin debt, with a record $285.6 billion set in January on the New York Stock Exchange. Margin debt increased 24.2 percent in 2006, while the Dow gained 16.3 percent, according to the Sacbee.com article.

The Nasdaq reached a six-year high Thursday, helped along by a rally in chip stocks. It marked the Nasdaq Composite Index's highest close since February of 2001.

Looking across the globe, we witnessed new highs in Australian share markets, with the ASX 200 and the All Ordinaries index both ending the week at new highs.

The Nikkei closed at a seven-year high, finishing over the 18,000 ma…

Emerging market debt soars

The Financial Times reports that trading volumes of emerging market debt has soared to a record high of $6,500bn ($6.5 trillion dollars), according to a recent industry study.

From Joanna Chung's FT article, "Emerging Market Debt Trade Soars":

"The emerging markets investor base has evolved from one of highly active, short-term traders into one comprising more stable, buy-and-hold investors," said Joyce Chang, global head of emerging markets research, foreign exchange and commodities at JPMorgan, adding that non-traditional emerging market investors now accounted for more than half of sovereign debt volume at her company compared with a 10 per cent share in 1998.

These developments come at a time when emerging market governments are increasingly borrowing in their own currencies, rather than the dollar or the euro.

At the same time, yields in local currency debt markets have become relatively more attractive than yields in hard currency markets.

This is partly bec…

Examining BRIC and "psuedo" ETFs

An interesting article, written by Michael Dawson and entitled, "Building a Better BRIC-Trap", examines the BRIC (Brazil, Russia, India, China) investment theme and offers advice on how to construct your own BRIC-focused investment portfolios.

Here's the meat of Dawson's approach explained:

Individual investors no longer have to wait on Wall Street’s products. Low cost brokers and basket trading have made it financially feasible and practical to create your own “pseudo-ETF.” Read my article on low cost basket trading for more details.

Currently, I am using two pseudo-ETFs to invest in the BRIC theme. The first is composed of stocks that provide raw materials and supplies necessary for the industrialization of the BRIC economies. The second is simply an equal-weighted basket of EWZ, TRF, IFN and FXI. I prefer this approach versus the Claymore, since I can control the allocations. So, if you only want broad exposure use the Wall Street products or a variation similar to…

Commodities

In his recent article, "Commodity Opportunity Roundup", Commodities Trends editor George Kleinman provides a brief survey of what's happening in some of the individual commodity markets.

He opens his overview with an interesting call on the corn market.

Kleinman begins, "For reasons I’ve reiterated for nearly a year now (ethanol and exports), I expect to see July corn trading with a “five” in front of it before it goes off the board."

Due to a recent bullish closing pattern, Kleinman says the momentum is with the bullish trend.

Also included are a brief overview of the sugar, cotton and nickel futures.

Check out his piece as a tool for staying in touch with the futures market, and have a look at some of his past articles as well. You might find something of value here (and remember to treat these articles as educational tools, not as direct investment advice from on high).

Let's catch up

In the interests of catching up to the new week following the President's Day holiday, here are some items of interest to help us get back in the swing of things. Enjoy!

(1). The Oil Drum pointed us to the following story from the Telegraph.co.uk, "Cheap solar power poised to undercut oil and gas by half".

The crux of the article: new materials are making solar power cheaper than ever on a per watt basis. Utilities are now concerned that an increasing number of people will use solar power instead of their fossil fuel derived electricity during peak hours. Oh, the horror!

(2). I can't say that I'm an ardent reader of Jim Jubak's investment articles at MSN Money, but the topic of his most recent article seems very interesting.

In, "How long can China pollute for free?", Jubak examines the costs of water and air pollution that arise from China's relentless push for economic growth. While countries such as England and the US took a very long time to e…

Jukebox

Tonight's jukebox is a blast back to the mid-1980's with a live in studio performance by New Order for BBC Radio 1.

There are some very noticeable flubs in their performance (I think Bernard may have been feeling a little "rushed"), but the songs are amazing and it's like being an eyewitness to a studio rehearsal.

An excellent video snapshot of one of the most inventive modern pop groups doing their thing. Enjoy, and thanks Adz!

New Order, live 1984: "Sooner Than You Think", "Age of Consent", "Blue Monday", "In a Lonely Place", "Temptation".

Links for a Friday

Notable news and readings on variety of subjects. We've got credit and derivatives, thoughts on value investing, pop culture & history, and more. Peruse away!

FT's Gillian Tett on turmoil in the credit markets and the rising cost of insuring against default in US subprime mortgages. See also: Saskia Scholtes' commentary on the ABX index and its reflection of credit risk in the subprime bond market.

The question of whether or not Ecuador would default on its debt payment was answered on Wednesday when the country's economic minister said the payments would be approved. That decision surprised many in the market, causing "sharp movements" in prices as "hedge funds and speculative accounts" made up most of the activity in that market. The most dramatic moves were seen in the credit default swaps (CDS) market, according to FT.com.

Property derivatives market gets a major boost in the form of price transparency, as CB Richard Ellis-GFI launches a new on…

Russia's Great-Power Strategy

Geopolitics for a Thursday. With all the talk about Vladimir Putin's recent speech in Munich, in which the Russian President criticized the US' current role as an overly meddlesome world power, many observers have been trying to understand the importance of Putin's words and Russia's ambitions.

John Mauldin gives us Stratfor strategist, George Friedman's view in his latest "Outside The Box" e-letter. Here is an excerpt from Friedman's analysis, "Russia's Great Power Strategy":

At Munich, Putin launched a systematic attack on the role the United States is playing in the world. He said: "One state, the United States, has overstepped its national borders in every way ... This is nourishing an arms race with the desire of countries to get nuclear weapons." In other words, the United States has gone beyond its legitimate reach and is therefore responsible for attempts by other countries -- an obvious reference to Iran -- to acquire n…

Bill Gates & Microsoft in 1987

I was checking out the new article archives feature on the Google News page a couple of weeks ago.

If you haven't noticed this feature and would like to try it out, just head over the Google News page (link provided at the top of our "links" section) and look underneath the main search toolbar for "News archive search".

Anyway, I think the first search term I entered into the archive search was "Microsoft".

Here's one of the search results that I found interesting: a 1987 BusinessWeek feature on Bill Gates and Microsoft entitled, "The Billion Dollar Whiz Kid".

Rare example of the article subject living up to the hype, huh?

Enjoy the article and check out the Google News search feature for yourself. Most of the articles seem to be behind a pay wall, but there are some nice examples of free content from the past.

Taking another look at the CRB index

I've mentioned before that I feel it's essential for us, as investors and market observers, to learn more about the makeup of the various commodity indexes (see, "Double Down on Commodities?").

For anyone who'd like to know more about the ins and outs of the construction of these leading indexes, with specific emphasis on the CRB, see Adam Hamilton's excellent recent article on the, "Continuous Commodity CRB".

Hamilton writes that many investors and onlookers have been misled into a bearish stance on commodities because of the recent correction in the CRB index. After all, a technical breakdown in the price chart of a leading index, such as the one that occured last summer in the CRB, is bound to be interpreted as bearish indicator.

However, changes in that index led Hamilton to believe that the price movements in the overall average did not actually constitute a bearish secular signal for commodities, but in fact were merely reflecting the recent p…

Sunday reading

We haven't talked about real estate and property prices much lately, but I think that the following essay will be of interest to anyone who holds even a passing interest in the recent property boom and bust cycle.

In, "A Brief, Superficial, and Arbitrary History of Property-Price Collapses", Fred Sheehan discusses the manner by which the most recent national housing boom (bubble?) was consistently mischaracterized by economists, academics, and local and national interests.

Is now "a great time to buy and sell a house", as the National Association of Realtors trumpeted in a recent ad campaign?

Sheehan deftly responds to this claim and considers the possible fallout arising from the current boom, with a few historical comparisons along the way.

I think he accomplishes quite a lot in this brief, to-the-point missive (link to this PDF file courtesy of Gloomboomdoom.com). Have a look.

Oil back above $60

Crude oil is back above the $60 a barrel mark, as traders react on supply worries following an explosion at a California oil field owned by Occidental Petroleum. Bloomberg reports:

Crude oil rose above $60 a barrel for the first time in five weeks after an explosion shut down a California field owned by Occidental Petroleum Corp., the fourth- biggest U.S. oil company.

Occidental said about 120,000 barrels of oil and gas liquids a day has been lost after a fire at its Elk Hills site. It is the seventh-largest field on the U.S. mainland. Nigeria, Africa's biggest oil producer, will comply with production cuts set by the Organization of Petroleum Exporting Countries and has no plan to increase that limit, a spokesman said.

``The reaction to the closure of the oil field in California underlines the supply worries out there,'' said Michael Fitzpatrick, vice president for energy risk management at Fimat USA in New York. ``The field only produces 120,000 barrels of liquids a day. I…

Chasing EMBI: the hunt for high yield

Not too long ago, in the comments section of our site, one of our dear readers suggested a discussion topic for an upcoming post. The proposed idea: that, "the high-yield market is really the new investment grade market".

Well baby, you asked for it; you got it. We aim to please, after all. What follows are a few bits of insight and analysis into this trend towards high-risk, high-yield investment in the corporate junk-bond market and the world of emerging market debt.

First off, a word about the current investment climate. The main idea behind this post topic is that investment yields and perceptions of risk are low, pretty much across the globe wherever you look. As we see it, real returns on US government bonds are basically flat to negative if you factor in the expenses of taxes and the current rate of inflation (when judged more honestly than by the government's measures).

Investors have had to look farther afield for higher returns in recent years. This applies to al…

Real cost of corn ethanol?

Have a look at this article by Ronald Cooke on the true costs associated with corn ethanol production.

In, "What Is the Real Cost of Corn Ethanol?", Cooke weighs the perceived benefits of corn ethanol use against the tally of its direct and indirect costs.

Will corn ethanol result in grain shortages and higher food prices? Does its production and use in automobiles result in a reduction of greenhouse gas emissions? Can we really reduce our reliance on foreign oil with this homegrown energy scheme?

Read the article and hear Cooke's arguments for yourself. While you're at it, keep in mind all the things we've been told about corn ethanol in advertisements and news media.

Consider the importance of the return on energy metrics laid out by Robert Rapier in his recent essay for the Oil Drum.

Especially keep in mind the following assertion made by ADM Chairman G. Allen Andreas in a May 2006 Reuters article:

"I think any knowledgeable person in today's world wou…

Red Kite is talk of the town

An interesting article from FT.com centers on well known hedge fund, Red Kite, and its influence over the metals markets.

The fund, and its leading investment managers, have been the subject of some talk lately as market participants are wondering how badly it has been hit by recent declines in copper and zinc.

Excerpt from FT's article, "Red Kite buffeted by heavy winds":

On Friday, the copper price dropped about four per cent and zinc prices fell more than nine per cent. Much of this fall was attributed to fears of heavy losses suffered by Red Kite, which has offices in London and New York. Ever since Amaranth and MotherRock imploded last year on taking the wrong bets in the US natural gas markets, commodity markets have been waiting for the next fund blow-up.

Red Kite was reported by the Wall Street Journal to have lost 20 per cent from the start of the year until January 24. That compares with a six per cent loss suffered over the whole of last month by the basket of …

The Single Best Investment

Be sure to check out Financial Sense Newshour's recent interview with author and investor Lowell Miller, who discusses the investment philosophy behind his latest book, "The Single Best Investment: Creating Wealth with Dividend Growth".

Lots of useful insights for the individual investor, especially those looking to produce stable income and capital growth for retirement. You'll hear a lot of (un)common sense discussion related to protecting your money from the ravages of inflation as well.

Very important points to consider, but exactly the ones that are often overlooked or distorted in a lot of the mainstream financial media's portrayal of these issues.

See the link above to take you to the interview.

Mark Mobius Q&A: Emerging markets

Mark Mobius, Franklin Templeton's famous globe-trotting investment manager, has participated in a recent Q&A session on emerging markets investing over at FT.com.

Mobius answers readers' questions on the investment outlook in a number of countries and he also responds with comments on a few of his current favorites. Everything from investing in Pakistan to the re-nationalization of industries in Russia and Latin America is discussed in this online Q&A. Check it out.

Bush seeks $2.9 trillion budget

"We've got to spend our way to prosperity. Plus, I want to get me one of those diamond encrusted space shuttles."

The New York Times reports that President Bush has sent a proposed $2.9 trillion budget for next year over to Capitol Hill, "where it is certain to be sharply criticized by the Democrats, who control both houses but are by no means all powerful".

Yes, I'm sure it will be criticized by the Democrats. But not entirely whittled down. I mean, have you ever seen a modern era U.S. government hold back the uptrend trend in spending and government enlargement? It will never happen, for reasons aptly described by Harry Browne in the book, Why Government Doesn't Work (a book which I'm finally around to reading and I highly recommend).

Far more likely that the Democrats will flaunt their disapproval in print and on TV, settling, in the end, for a modest cut in the proposed figure. Something more reasonable: say a sum of only $2.65 trillion.

Meanwhile…

Matthew Simmons on Bloomberg

The Oil Drum has posted a recent Bloomberg interview clip with Matthew Simmons to their site.

In it, Simmons (chairman of Simmons & Co. International and a prominent spokesman on the issue of "peak oil") warns that the world faces a shortage of oil supply and action must be taken immediately to mitigate the situation.

As Simmons sees it, we may have reached peak production of oil supply and we need to start dealing with the question of how to cope with shrinking production numbers. In other words, how do we respond to a world in which crude oil supplies are dropping (from say, 85 million barrels down to 70 million barrels) at a time when most people are expecting supplies to increase?

There was a bit of confusion when, during the interview, Simmons made the point that some global consumers are already paying an effective price of $300 barrel oil in finished products. The interviewer seemed to interpret this as a directional call for $300 barrel oil.

While I'm sure tha…

Hits from the Drum

Yesterday we talked about advances in solar power and the recently heightened profile of renewable energies due to increased adoption by business. Today I wanted to share some recent articles and post topics from a very interesting site, The Oil Drum, that will provide some background and insight on a wide variety of energy related topics.

Alternative energy, fossil fuel depletion, and sustainability: it's all covered here. Whatever your grasp of these issues, I can assure you that you'll find some interesting perspectives and probably learn something in the process. Just be sure not to get lost in the often long-running comment threads!

In, "Key Questions on Energy Options", Oil Drum member and contributor Robert Rapier lays out the key questions we must answer to determine whether an energy source is a good choice for our planet. Here is how Robert lays out the issue:

A question was recently posed here: What is the most important question concerning ethanol product…