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Showing posts from April, 2007

Grantham and Faber on bubbles

Jeremy Grantham's latest commentary to investors at GMO seems to stress the bubble-like atmosphere that's enveloped asset markets across the globe; at least that's what we hear from a number of sources, including John Mauldin and Barry Ritholtz (who might have actually read the thing).

Meanwhile, I can't help but notice that Grantham's observations sound a lot like what we heard from Marc Faber earlier in the year, and as far back as 2006. Let's compare.

Here's Mauldin quoting Grantham:

Grantham says we are now seeing the first worldwide bubble in history covering all asset classes.
"'Everything is in bubble territory,' he says. 'Everything. The bursting of this bubble will be across all countries and all assets.'
"'From Indian antiquities to modern Chinese art,' he wrote in a letter to clients this week following a six-week world tour, 'from land in Panama to Mayfair; from forestry, infrastructure and the junkiest bonds t…

Turkish market & political fears

Reuters reports that Turkish shares are down sharply on worries over the country's political future.

A standoff between supporters of Islamic and secular government has sent shares reeling; at one point in the day's trading, the Turkish market was down close to 8 percent. Reuters has more:

Istanbul's main index (.XU100: Quote, Profile, Research was down 6 percent and Turkish sovereign bonds sold off after a court challenge to the presidential election process and a mass demonstration against the ruling party.

Fears of army intervention, prompted by a warning to the Islamist-rooted AK Party government that it would protect the secular state, added to the concerns.

Meanwhile, Bloomberg reports that the latest drops in the share market and the Turkish lira come at a time when the market was enjoying a bit of a rebound over last year's poor performance.

The lira's drop today pares a gain of 5.4 percent since the start of the year and the benchmark National 100 Index of …

Features of the week

The most interesting stories in business and world events are right here. Let's begin!

1. Ocean freight rates (Baltic Exchange Index) hit an all time high, as capacity in dry bulk shipping is outpaced by global demand.

2. Nicholas Vardy at Seeking Alpha asks, "Are We Currently in the Middle of a Commodities Super Cycle?".

3. Bloomberg speaks with global investor Mark Mobius about emerging markets and US and world GDP figures. Thanks to Ivan of At These Levels for his comments on this clip.

4. More on the upcoming launch of uranium futures contracts on the NYMEX from MarketWatch. They pulled together some interesting quotes for this story, and its good to see them speaking with people who have been watching this market closely for the past several years.

5. Financial Times investigates the true state of the carbon trading market and finds "widespread failings in the new markets for greenhouse gases".

6. Biofuels are speeding up deforestation, but the UN is backing …

Forbes and Pickens on peak oil

Here's something for your viewing pleasure.

Yesterday Bloomberg posted some interview video clips from the Milken Institute Global Conference in Los Angeles. Among the guests: Steve Forbes and T. Boone Pickens, both of whom stopped to chat with Bloomberg's Brian Sullivan about the economy and rising energy prices.

It's not everyday you get to field back to back interviews with the likes of Forbes and Pickens, but what's especially interesting about these clips is that the two took the opportunity to argue their respective side of the "peak oil" debate.

Judging by their arguments, I'd say Steve Forbes is firmly in the "cornucopian" camp, while Pickens believes that we have reached a worldwide peak in oil production.

In responding to Forbes' assertion that market forces will solve our oil production concerns, Pickens hits the nail on the head by answering that the free market will take care of the energy problem (by shifting demand to new cost…

Conde Nast's Portfolio

Had a chance to flip through Conde Nast's new business magazine, Conde Nast Portfolio, for a few minutes the other day.

The title's much-discussed first issue was not exactly a great success in the eyes of many reviewers, but I have to say that what I saw and read was not half bad.

A few of the features that I can recall offhand:

An article on the rise of Dubai and its recent oversized entry into the world of horse racing/horse auctions;

A study of T. Boone Pickens' troubled personal life;

The story of some private equity investors who made a successful bet in the music industry, backing the label that spawned the multi-platinum selling group, Maroon 5;

Roger Lowenstein's review of Nassim Taleb's new book, The Black Swan;

And an article on the recent craze over Chinese contemporary art.

I didn't bother with the Tom Wolfe piece, and I remembered too late that there was supposed to be an article on fly fishing in there somewhere that I did not see as I was flipping…

More commodity ETFs

We've got more commodity-based ETFs coming down the pike this week.

Sponsors ETF Securities and Swiss bank ZKB are getting ready to roll out exchange-traded commodities (ETCs) based on several of the precious metals.

Forbes reports:

ETF Securities is scheduled to launch five new physically backed exchange-traded commodities (ETCs) based on platinum, palladium, gold and silver on the London Stock Exchange tomorrow.

Meanwhile, Swiss bank ZKB is planning to launch an EFT in platinum, palladium and silver on May 10.

ETCs, like ETFs, trade commodity futures, backing up every ounce of stock bought on paper with actual physical stock. As a result, the launch of an ETF often squeezes the market as it eats up the amount of physical stock available.

More coverage on the forthcoming ETCs can be found at Resource Investor. You may also want to check out their note on tightness in the silver market and Roland Watson's "empty ETF" theory.

A few practical notes on how some of the commo…

Matthew Simmons interview

Just a heads up on the recent Financial Sense Newshour interview with guest expert Matthew Simmons, for anyone who might have missed it a couple weeks ago.

Jim Puplava speaks with Simmons about the need for greater awareness of peak oil-related issues, and for reexamining our current energy-intensive lifestyle and economic framework. As always, an interesting discussion.

You might also wish to contrast Matt Simmons' views with those of another recent FSN guest expert, Duncan Clarke. Clarke is the author of The Battle For Barrels: Peak Oil Myths and World Oil Futures and he is the guest expert interview for the April 14 broadcast.

Check it out.

Bullish on gold, gold shares

The prognosis for gold bullion and gold mining shares is bullish, according to two reports from market watchers, The Aden Sisters, and Financial Sense contributor Martin Goldberg.

Mary Anne and Pamela Aden are telling investors to "Keep Focused" on the major long-term trend for gold, which is up. Silver is also very strong, and rising against major currencies such as the euro. The Adens currently see a bullish pattern in all the precious metals.

Marting Goldberg, writing in Thursday's FSO Market Wrap-Up, wonders if the Amex Gold Bugs Index (HUI) will break through the important 370 level to the upside.

While the index failed to do so last November during a similar trading range pattern, Goldberg feels that this time the technical indicators are better aligned for an upward move through 370. However, watch out for that overbought signal, which does present the risk of another correction.

One more point from Goldberg's article: he notes that among the less-than-bullish si…

Small caps at a premium?

Here's something for you to consider: does the "size effect" still give small cap stocks a performance advantage over large cap stocks?

That's the question posed by James Montier in a piece highlighted by John Mauldin's "Outside The Box" e-letter.

In, "Meaty Beaty Big and Bouncy", Montier examines the small cap effect and finds the performance advantage lacking in recent years.

To hear why the small cap size effect should be considered more of a "value effect", read on at the link above.

Selling beta for the price of alpha

The All About Alpha blog has posted a link to a recent EDHEC interview with "Handbook of Hedge Funds" author Fran├žois-Serge Lhabitant, who talks a bit about hedge funds and their strategies.

Lhabitant also discusses replicable hedge fund strategies, and in the midst of some rather arcane discussion about possible replication of hedge fund performance, notes that some hedge funds may be "selling beta for the price of alpha".

Here's the quote in context:

In the average hedge fund, there are probably a lot of these static risk exposures and replication will work well. But in the “best” hedge funds - the few ones I am typically looking for as an investor - what I pay for is proprietary strategies with skilled traders, robust risk management and technology, and constant capital reallocation towards the best opportunities.

I am also buying the experience of a manager that has been going through crashes and knows what to do when liquidity dries out, his credit lines a…

Kasparov & the "Other Russia"

Bloomberg video clip of Russian opposition figure Garry Kasparov, discussing his role in a mass arrest that took place during a Moscow protest, as well as his view of life in Putin's Russia.

Contrast Kasparov's views with those of the ruling party and allied corporate chieftains, such as Gazprom's Alexander Medvedev, whose Bloomberg interview clip was posted here last week.

Are Kasparov and his ilk, "extremists", as the Russian government claims? Will the transfer of leadership role in Russia's 2008 elections prove to be nothing more than a farce?

I see very little attention being paid to the political developments taking place inside Russian here in the US.

For more info on the recent protests in Russia and a big picture view of that country's future, see the Russian Standard blog's post on a Stratfor piece entitled, "The Coming Era of Russia's Dark Rider".

Bombings kill 119 people in Baghdad

Another series of deadly, multiple bombing attacks has killed at least 119 people in Baghdad today. Financial Times reports:

Car bombs killed at least 119 people in Baghdad on Wednesday, hours after Prime Minister Nuri al-Maliki said Iraq would take security control of the whole country from foreign forces by the end of the year.

One car bomb alone in the mainly Shia Sadriya neighbourhood killed 75 people and wounded 100, police said

Maliki is under growing pressure to say when U.S. troops will leave, but the rash of at least five bomb attacks in mainly Shia areas underscored the huge security challenges.

The combined attacks were the deadliest in Baghdad since US and Iraqi forces began deploying thousands more troops onto the city’s streets in February under a plan seen as a final attempt to halt Iraq’s slide into sectarian civil war.

The war-torn country is attempting to move forward in handing over control of its provinces from foreign forces to Iraqi security forces.

Sell London, Buy Zurich

Fintag brings us news of rising costs for hedge funds in London, and the resultant look to the Continent some hedgies might be taking in search of lower taxes and costs.

Fintag has set their sights on Zurich as a very likely candidate for a new home. Why?

Probably has a lot to do with the lower costs of living and running a business, quality of life, and a possible low tax environment for hedge funds that might come about as a bid to lure business from London.

In any event, we'll let you get their take on it. Click the link above for Fintag's site to see their comments on this possible spread trade.

Subprime market panel

Bloomberg News hosts a panel discussion on the subprime market; video clip is available and runs about an hour an a half long.

Guests include Scott Simon of Pimco, David Teicher of Moody's, Andrew Tilton, chief US economist at Goldman Sachs, and Mark Tecotzky of Ellington Global Asset Mgmt. Bloomberg's Brian Sullivan moderates.

For anyone who wants to wade through the mess in the mortgage market, this would be an interesting resource.

Vietnamese stocks: Asia's priciest

Cool article from last week's Bloomberg.com selection on share valuations in Vietnam.

Vietnam is now home to Asia's most expensive share market, with the Ho Chi Minh City's VN Index fetching 32.6 times this year's estimated earnings (China's CSI 300 index is valued at 32.4 times est. earnings).

The Vietnamese stock market was propelled to dizzy heights last year, as a flood of investment money pumped the share market capitalization up 40 times in the space of one year. From a market valuation of $500 million at the end of 2005, shares rose to a peak value of around $20 billion in late 2006.

Valuations have backed off a bit in the latest decline, but the Vietnamese government will continue expanding the pool of tradeable companies. Excerpt:

The value of the Ho Chi Minh trading center's shares through today has risen to $14.8 billion from about $500 million at the end of 2005. The number of listed companies on the six- year-old market has more than doubled over the…

Dollar downtrend

Barry at The Big Picture notes that the US dollar index has broken down through its most recent level of support.

Most recent support line was drawn in at around the 82.25 level. That support has now been violated, at least on the daily chart, as the $USD closed today at 82.174.

The downtrend continues...

Update: The British pound has traded over the $2 mark for the first time since 1992. More on that from Bloomberg.

Virginia Tech: a needless massacre?

You've probably seen the news of the horrible shooting spree that took place on the Virginia Tech campus today.

When I saw the first reports this morning around 9 am, one student had been shot and the brief summary of the incident noted that the university web site was instructing students to stay in their dorms. Soon afterwards, the shootings started up again and over 20 students were killed.

All this occured while the school was on "lockdown" mode, with entrances to the university blocked and students isolated inside their dorm rooms.

I don't usually comment on the tragedy of the day, but in the case of these latest school shootings at Virginia Tech, I feel compelled to post something that someone else wrote.

In light of this latest tragedy, I thought back to a post that I'd seen at the Mises.org site in March about the students that died while trapped in their school during an Alabama tornado.

In that instance, school and local officials herded kids into school…

A new portrait of Thomas Edison

Bloomberg reviews a new biography about inventor Thomas Edison, which portrays the famous inventor as a tireless worker and endless promoter.

The book also details Edison's shortcomings: his lack of savvy in business matters, and the liberal manner in which he bent the truth.

An excerpt from, "Thomas Edison Hoodwinks Reporters, Misjudges Markets in New Bio":

Edison persuaded a toadying press and eager investors that his rollout of this or that revolutionary invention was days or weeks away, chronically ``blurring the distinction between what he hoped for and what he had achieved.'' Anyone in business knows the phenomenon.

One day, he switched on a prototype light bulb for a visiting reporter. ``Sitting in front of the bulb that would burn out in a couple of minutes were he to leave it on beyond the brief demonstration, Edison was asked, `How long will it last?' He answered, `Forever, almost,''' writes Stross, a business professor at San Jose State U…

Features of the week

It's time once again to roll up all the great stories and article features of the week and post them up here for your reading & viewing enjoyment. Here we go:

1. John Arnold of Centaurus Energy is crowned the new king of hedge funds.

Thanks to Fintag for the heads up on this Guardian article chronicling the latest roll call of hedgie masters and their place among the world's top financiers.

2. "Why some funds do not want your money". The Financial Times reports on the difficulty some investors face in trying to invest in the hedge funds of their choice. Some investors have even tried to trick their way in!

Article related note: Did you know that there is now a small secondary market that lets investors buy and sell hedge fund investment units? I did not. Read all about it at the link above.

3. Uranium crosses the $100 mark. It's been quite a ride for anyone who's been watching the chart or investing in the metal or in shares of uranium producers.

From a low o…

Pressure on Wolfowitz to resign

The flap at the World Bank over Bank president Paul Wolfowitz's involvement in securing a pay raise for a female staffer has led to calls for his resignation.

The Financial Times reports in, "Pressure grows on Wolfowitz to resign":

Paul Wolfowitz was under pressure to resign as president of the World Bank on Thursday after admitting he was personally involved in securing a large pay rise and promotion for a Bank official with whom he was romantically involved.

The Bank president issued a public apology, saying: “I made a mistake for which I am sorry”.

The apology came after the Financial Times revealed that Mr Wolfowitz ordered the World Bank’s head of human resources to offer Shaha Riza the pay rise and promotion as part of a secondment package.

The instructions were set out in a memorandum dated August 11 2005, according to two sources who have seen the document.

The details of the 2005 memo are laid out further down in the article. It seems apparent that the pay raise and …

Global investing in 2007

Currently reading Gary Dorsch's latest article up on Financial Sense Online, entitled, "New Rules for Global Investing in 2007".

Dorsch is explaining how, to his view, the yen carry trade has seemingly become a bigger factor in moving the US stock market than "traditional indicators such as the health of the US economy, company earnings, cash flow, and future sales forecasts".

According to Dorsch's charts and explanation, the continued growth of the yen carry trade and the "endless flow of cheap capital from Tokyo" is pumping the Dow Jones Industrial Average to new highs. This upward movement in US stock prices is occurring despite slowing growth in S&P 500 earnings and at a time when US economic growth is also slowing.

I'm just making my way through this piece, but it looks like there's a lot of info relating market movements back to currency fluctuations and money growth trends. Charts tracking everything from economic data to the Shang…

U.S.- Made Mess in Somalia

I came across this editorial about America's involvement in foreign conflicts on Google News while glancing at the headlines on the massacre in Mogadishu, where 1,086 are dead and more than 4,000 are wounded after clashes between "Ethiopian forces and Islamist fighters".

Excerpt from The Independent Institute's, "U.S.–Made Mess in Somalia":

Somalia is the third example of the United States creating a potentially anti–U.S. Islamist threat where none previously existed. The U.S.–supported Ethiopian invasion weakened the Somali Islamists, but they are still fighting fiercely for control of Mogadishu, the capital.

Like those in Iraq, all the Somali Islamists have to do is hang on until the foreign occupier gets exhausted and leaves. When that happens, the Islamists could very well become the dominant political force in the country, capitalizing on their “patriotic” resistance to the hated Ethiopian occupiers and their U.S. benefactors.

The author's point is t…

Art: Kandinsky, Man Ray for $110

Excerpt from a Bloomberg.com article on Katherine Kuh's life in modern art, entitled, "Buying Kandinsky, Man Ray for $110: Katharine Kuh's Last Laugh".

In January 1937, Katharine Kuh was fortunate enough to attend an art sale in Chicago where the auctioneer had ``no idea what he was doing,'' as she put it. That day she bought two Kandinskys, two Man Rays, a Gabriele Muenter and a Bonnard lithograph -- for a grand total of $110.

Her conclusion? ``Prices, then as now, are interesting social barometers having nothing to do with the quality or staying power of art,'' she wrote in her posthumously published memoirs, ``My Love Affair With Modern Art.''

Check the money quote; I think she summed it up nicely.

Deal news

The big news going into the weekend was the announcement that Berkshire Hathaway had taken a 10.9 percent stake in railway company, Burlington Northern Santa Fe Corp.

Now CNBC reports that Berkshire has made two additional, smaller, investments in railroad companies. So far Berkshire and its chairman, Warren Buffett are keeping mum on the specifics of those investments.

Berkshire's foray into the railway sector is being analyzed closely. According to an SEC filing, Berkshire is now Burlington Northern's largest shareholder.

In a Friday filing with the U.S. Securities and Exchange Commission, Berkshire said it owned 39,027,430 Burlington Northern shares, making it the company's largest shareholder. The market value of the shares was $3.23 billion as of April 5.

In other deal news, Reuters is reporting on the movement in Dow Chemical shares after a UK paper suggested that a consortium of Middle Eastern investors and a US private equity firm were preparing a $50 billion bid fo…

Zimbabwe: Africa's titanic problem

A brief report on the problems facing Zimbabweans as their country experiences growing poverty, violence, and rising political tensions amidst a growing hyperinflation.

Anyone who's familiar with the details of past hyperinflationary episodes will see that history really does rhyme.

See The Economist's report on, "Africa's Titanic Problem".

20 questions w/ Cheap Stocks editor

Value investors, be sure to check out this interview with Clyde Milton of the Cheap Stocks blog over at Gannon On Investing.

The Cheap Stocks blog is a great site based on editor Milton's take on value investing and it features many of his value stock picks. A great site and one of the first blogs I ever marked as a favorite.

Check it out and learn a bit from Milton's value investing know-how!

Is the Fed really "pumping money"?

There's an interesting exchange on the issue of Fed induced liquidity over at Mish's blog.

Author Mish seems to think the idea that the Fed is able to pump money and liquidity into the system is a bit of a misconception. He decided to contact one of the writers at the Minyanville website and voice his objections to a statement about the "Fed pumping money" that appeared in the writer's article.

In Mish's view, "pumping money" is not exactly what is going on here. He makes his case clear to the writer in question, who decides that Mish has made an interesting argument that merits further study and added insight from his community members.

Here is a small excerpt from that debate, starting with Mish's point of view:

Here is how I look at things:

This Fed has chosen to defend an interest rate target. The Fed must supply all demand for credit at that target. If the Fed failed to do so the interest rate target would not be hit and interest rates would …

Gold poised for record run

Gold is poised for a record run. So says The Financial Times in its recent report by Kevin Morrison. The news regarding gold's bright prospects comes from an annual survey issued by metals consultancy group GFMS, which sees a renewed attack on last year's high above the $700 an ounce mark.

Here's an excerpt from FT's article, "Gold poised for record run":

Gold prices could exceed last year’s 26 year high of $730 an ounce within the next 12 months due to a weaker dollar, rising geopolitical tensions and an investment led rally, according to the annual survey by GFMS, the metals consultancy.

GFMS said given the general favourable backdrop and the still low level of participation form institutional and private inventors in most countries, there remains considerable upside potential for gold even as the current rally enters its seventh year.

The GFMS survey highlights the role of investment demand in keeping gold prices high. Jewelry demand for gold is said to be d…

Ready for a retirement surprise?

A Bloomberg.com article by Kevin Haas asks the question, "are you saving enough"?

In, "Ready for a Big Retirement Surprise? Save Now", Haas lays out the case for examining retirement needs more closely and working towards saving the appropriate amounts.

This is a familiar refrain, but what's helpful about Haas' article is that its advice is based on two underlying, and important, real-world trends.

Put simply, many Americans underestimate the amounts they'll need for retirement. Add to this the knowledge that a large percentage of retirees wish they had saved more, and you will see that Americans are not saving enough.

An excerpt from "Retirement Surprise?":

The evidence suggests that many people aren't saving nearly that much. One study cited by Skinner found that fully a third of Americans see a drop in their consumption of at least 33 percent when they retire. Some 73 percent of retirees report that they wish they had saved more as they p…