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Showing posts from May, 2007

Investing: index funds vs. ETFs

Today, a little bit of info in the personal finance and investing department.

Ever wonder about the benefits of investing in index funds vs. ETFs, or vice versa? Here's a post from The Financial Philosopher blog that might help you to fine tune your investment strategy.

Parts one and two in The Financial Philosopher's index fund vs. ETF debate.

See also: Altruist Financial Advisor's ETFs vs. index funds breakdown.

Let us know if you have any additional info on the subject.

Remember: all posts on investing made here are for educational purposes only. Responsibility for your investment decisions rests with you alone; do your own research and/or consult a trusted investment adviser.

Speaking of bubbles...

The fallout from the U.S. housing bubble continues, as Barry Ritholtz details in his recent post, "Housing Freefall Continues Unabated".

He notes that the S&P/Case-Shiller Home Price indices show negative returns in the National Home Price Index, and many of the other sub-indexes besides.

Ritholtz also points to recent news that suggests the housing and construction bust is far from over, despite constant reiterations to the contrary from the media and its endless parade of talking heads.

Check out Barry's post at the link above.

Mises on Tulip Mania

An interesting essay from the Mises Institute called, "The Truth About Tulip Mania".

Here's the author explaining why this speculative mania, much misunderstood and frequently mischaracterized, is important to understand:

The story of Tulipmania is not only about tulips and their price movements, and certainly studying the "fundamentals of the tulip market" does not explain the occurrence of this speculative bubble. The price of tulips only served as a manifestation of the end result of a government policy that expanded the quantity of money and thus fostered an environment for speculation and malinvestment. This scenario has been played out over and over throughout history.

This is an important view of what may have fueled the speculative bubble in Holland, and the author goes so far as to present evidence of a rising money supply before and during the bubble period. This, the author argues, shows conditions for a bubble were ripe.

Read on for an interesting vie…

On gasoline "price-gouging" laws

I wanted to hold back from commenting on the idiocy of this latest gasoline price gouging legislation I'd heard about until I got a little more feedback and information.

My first reaction upon hearing of this ill-conceived exercise in demagoguery was a lack of surprise, combined with a head-shaking disgust regarding the undefined nature of the supposed crime.

Assuming that our wise and omniscient politicians were able to "correct" the alleged flaws in the pricing of this commodity, how would they go about identifying the so-called gougers?

Is there a reasonable and logical definition of price gouging as described in the House of Representatives' legislation? The answer, unsurprisingly, is no, there is not.

Here's a taste of what the politicians have cooked up, in their latest attempt to save us all:

The gouging bill would prohibit the sale of gasoline or other refined petroleum products at ``unconscionably excessive'' prices or prices that take ``unfair adva…

Features of the week

Welcome to this Friday's edition of "Features of the week". Many interesting stories and article links ahead!

1. Wolfowitz has departed his role as the World Bank president, but the media focuses on the search for a new president.

Meanwhile, few bother to ask what the World Bank really does in the first place.

2. At James Simons' Renaissance Technologies hedge fund, only scientists need apply.

3. Bloomberg Markets Magazine on a growing force in the markets: artificial intelligence.

4. Another exchange merger: Nasdaq to buy Sweden's OMX for $3.7 billion.

5. Jim Rogers talks about investing in China, Japan, and commodities.

6. Another hedge fund manager goes public: FT Alphaville on the IPO of Platinum Asset Management and founder Kerr Neilson, the "Warren Buffett of Australia".

7. Reuters on Britian's "surveillance society".

8. Bloomberg discusses a row over Okinawan history during the second World War.

9. Archaeologists struggle to uncover the se…

On agricultural commodity prices

So you've come back from the grocery store, ready to fire up the grill and throw on a few delectable corn cobs with your steak.

The only problem is that you seem to be more hot than your recently turned on grill, and what's got you fired up is rising food prices! Kind of hard to enjoy the bountiful meal you've prepared when you're paying out the nose for it, right?

At times like this, there's only one thing to do: blame the hedge funds!

We've all heard the recent reports of rising food costs across the globe. Media and Wall Street analysts have labeled this trend, "food price inflation", or more recently, "agflation".

But are the higher food and grain prices we're seeing a "driver of inflation" as the news media reports, or a symptom of the higher cost of living we face as true inflation erodes the purchasing power of paper currencies across the globe?

As I wrote in, "Agflation is the new buzzword", the true cause of in…

Got platinum/palladium?

Platinum's hot, palladium's hot. So let's take a quick look at what's happening in the platinum group metals (PGMs) space.

We recently covered the news of some newly-launched exchange-traded commodities (ETCs) in the precious metals groups. ETF Securities and Swiss bank ZKB both recently introduced ETCs representing physical platinum and palladium.

No platinum or palladium ETFs currently exist in the U.S. More info on the European PGMs ETCs from Reuters.

Demand for the ETFs has been strong, and additional demand has started to come on for palladium as jewelry use, speculative buying, and auto/industrial use has increased.

Some analysts are starting to see demand for platinum shifting over to palladium, and think that the current gap between platinum and palladium prices could be narrowed.

We talked about the trends that could drive a resurgence in palladium demand last spring; for more on this see, "Metals action and palladium notes".

Marc Faber on Bloomberg

Marc Faber says most financial markets are in the "final stages of a bubble" in this interview with Bloomberg TV.

He points out that in previous periods, the bubble or bubbles tended to be limited to one or two sectors or asset groups .This was the case, for example, with gold and silver during their late 70's-early 80's runup, or for internet and technology stocks in the late 90's to early 2000.

However, the most recent period is characterized by a bubble-like atmosphere across the spectrum of financial markets and collectible assets. As Faber points out, everyone is bullish on something, whether it be stocks, bonds, commodities, art, wine or even worthless collectibles.

The fact that these bubbles are so numerous and widespread will greatly affect the global economy when they are finally reversed.

What we don't know is how or when this bubble period will end; Faber feels some event or set of circumstances will bring about an end to the bubbles in the not too…

Private equity = backdoor imperialism?

Fintag has an interesting take on the growth of the high-profile private equity business.

The site's proprietor, an anonymous hedge fund manager, has lately aired his view of private equity dealings as a form of back-door imperialism, whereby firms undertake debt-financed deals for the prized assets of other countries.

Now, news of the Chinese taking a $3 billion stake in private equity firm, Blackstone, is prompting Fintag to call an effective beginning to China's "communist imperialist takeover of the West". In other words, two can play at that game...

Is this just a sign of severe animosity between "hedgies" and "pirates", or is there something to this?

Alternative energy Q&A

FT.com hosts an "Ask the expert" Q&A on alternative energy investing with Robin Batchelor and Poppy Allonby of the BlackRock New Energy Fund.

Here's a sample from that Q&A session with FT readers:

Q: What types of electricity generation are likely to be commercially viable while reducing carbon emissions?
Paul Davies, Adelaide, Australia Robin Batchelor and Poppy Allonby:Some forms of alternative energy are cost competitive today. In many cases producing electricity from wind and geothermal are cost competitive when compared with traditional energy sources such as natural gas. Furthermore, if one assumes there is a cost associated with emitting green house gasses such as carbon dioxide, the economic positioning of alternative energy increases further. In certain geographic locations where high domestic prices prevail, or incentive schemes are present, the range of alternative energies that are cost competitive increases, e.g. solar photovoltaic in Japan and…

Ron Paul 'Net Storm

Free Market News Network is focusing on the spreading internet coverage of attempts to shut Congressman Ron Paul (R-TX) out of upcoming presidential debates.

In fact, much of the social internet and blogosphere has been abuzz lately over perceived attempts by mainstream media and political insiders to stifle Congressman Paul and drown out his message to the American public.

Here's FMNN contributor Anthony Wile's take on "The Ron Paul Problem":

The GOP simply does not know what to do with Ron Paul. He can change the context of the presidential debates with one simple phrase - and indeed he did so by questioning how the "war on terror" got started...

The idea, as Ron Paul expressed during the recent debate, that America was not right in the first place to attack and destabilize the Middle East over the last 100 years or so is something that the monetary and power elite simply cannot stomach. Allow a frame of reference to creep in, allow "libertarian&quo…

Features of the week

Put on your reading, thinking, and relaxation caps; its' time for our, "Features of the week".

1. "White House to quickly replace Wolfowitz". The AP reports that the White House would like to quickly find someone to replace departing World Bank president Paul Wolfowitz.

Wolfowitz announced that the would resign his post on Thursday following a flap over a compensation package arranged for his girlfriend, Shaha Riza, a bank employee.

2. "Damien Hirst Seeks $99 million for Skull With 8601 Diamonds". The sight of this headline prompted a maniacal, "Ah-Ha-Ha!", moment on the part of your editor that even the Mogambo himself would have been proud of.

3. Meanwhile, in their current May issue, ARTnews is asking, "Are You Looking at Prices or Art?".

4. The Aden Forecast takes a look at, "The Bubbling Metals", and finds their long term uptrend lines intact.

5. Paul Lamont on the, "May 10th Credit Collapse", of 1837. A prelude …

Buffett, Icahn ride the rails

News out on Tuesday revealed that investors Warren Buffett and Carl Icahn were increasing their stake in railroad investments.

SEC filings from earlier in the week showed that Icahn held a 2.7 million share stake in CSX Corp, as well as a 29 percent stake in American Railcar Industries.

Meanwhile, filings from Warren Buffett's Berkshire Hathaway showed that the company had added to its rail holdings, with holdings in Union Pacific and Norfolk Southern rounding out Berkshire's recently announced stake in Burlington Northern.

More on the recently disclosed railroad investments from Bloomberg:

``The rail group has attracted a lot of attention in a year and a half that could've led to a lot of smart people looking into it,'' Tony Hatch, an independent rail analyst based in New York, said yesterday in an interview.

``This group has clearly changed in many ways and has been stronger about talking about how it's changed.''

CSX and companies such as Union Pacific…

$2000 gold by 2010?

Can gold breach the four digit mark by 2010? Check out Bloomberg's interview with Rob McEwen of U.S. Gold for a replay of Rob's forecast.

Key points:

1. Investment demand has started to trump jewelry demand in the gold market.

2. Gold is money.

3. Central bank selling of gold was dominant at the beginning of the decade near gold's price bottom; selling has stopped and been replaced with central bank purchases of gold.

4. Mine production has fallen off. McEwen expects production to rise as the gold price increases, but notes that new supply is taking longer to develop and has been more costly to produce.

Check it out.

Fidelity dumps Petrochina holdings

Reuters and FT.com are reporting that Fidelity Investments has cut its holdings in the US-listed ADRs of PetroChina.

Summary from Reuters:

Fidelity Investments, the world's No.1 mutual fund company, has cut its exposure to PetroChina Co. Ltd. (0857.HK: Quote, Profile , Research) following pressure by human rights groups over the Chinese oil firm's links to Sudan.

In a regulatory filing on Tuesday, Fidelity said it had cut its holding of PetroChina (PTR.N: Quote, Profile , Research) American Depositary Receipts (ADRs) by 91 percent in the first quarter of 2007.

Apparently, Fidelity has decided to give in to the pressure from various human rights groups who are worried about PetroChina's business operations in Sudan and feel that China's influence is obscuring the issue of genocide in that country.

Similar pressure tactics and criticisms have been aimed at Berkshire Hathaway and its highly visible chairman, Warren Buffett, for the company's investment stake in PetroChina.…

"Agflation" is the new buzzword.

It seems that economists and media have latched onto a new economic buzzword.

"Agflation" is the term being tossed about lately to describe the recent rise in food and grain prices worldwide. The term seems to recall the 1960s-coined phrase "stagflation, while alluding to the supposed inflationary effects of rising prices for staple food items.

But to say that rising food prices produce an inflationary (or, I suppose, an "agflationary") effect is to say that inflation is, itself, an occurrence of rising prices. While modern use of the term "inflation" has been corrupted to reflect this meaning, it is incorrect in light of its classical definition, an increase in the supply of money and credit.

When considering the term's original meaning, an increase in general prices reflecting a decrease in purchasing power is properly seen as an effect of inflation, not the cause of inflation, and not a precise description of the phenomenon itself.

This misuse …

Features of the week

Welcome to our features of the week. Lots of interesting article links and interviews ahead, so enjoy!

1. Who will succeed Warren Buffett as chief investment officer at Berkshire Hathaway? BNN interviews Canadian investor Jeff Hull and finds the model for one potential candidate.

2. CME raises its offer for CBOT. The Chicago Mercantile Exchange has increased its offer for CBOT Holdings by 16 percent in an effort to stave off a rival bid from Intercontinental Ecxhange (ICE).

Will CBOT make a match or choose to go it alone? See FT's analysis for more.

3. Newspapers aren't dead yet. Sam Zell discusses his deal for the Chicago Tribune and the role of newspapers in the internet age, as well as his view of the commercial property market, on FT.com's View from the Top.

4. Newsvine on "The censorship of Ron Paul".

5. The Economist on "How to fight back" against Russia's "inept bullying".

6. Gordon Gekko is back, and this time the popular Wall Street vi…

M&A in the metals, mining sectors

Heard the rumors about BHP Billiton's planned takeover bid for rival miner Rio Tinto? Reuters reports that a bid is forthcoming, or at least is expected by market participants.

Here's more from Reuters:

Shares in Rio Tinto (RIO.L: Quote, Profile, Research (RIO.AX: Quote, Profile, Research rose as much as 21 percent on talk that bigger rival BHP Billiton (BHP.AX: Quote, Profile, Research (BLT.L: Quote, Profile, Research was planning a bid to create the world's fifth biggest firm, but Rio denied it had been approached.

"Markets are betting that an offer is due soon," one London trader said.

Talk swept Australian markets that BHP was readying a hostile bid for Rio after it had rebuffed a friendly offer of A$100-A$110 per share, a premium of up to 23 percent to Tuesday's closing price, traders and analysts said on Wednesday.

But Rio later issued a statement denying there had been an offer. "Rio Tinto is not aware of any takeover approach from BHP Billiton," …

Chinese bubble, Wall St. correction

Couple of stories on the recent action in the stock market. Let's look at what's happening with two of the biggest players on the world stage, the U.S. and China.

"Wall St. falls ending 5-week rally". FT.com noted during the afternoon trading session that a down performance on the day would end "a winning streak that had driven blue-chip stocks on their best run since 1927.".

And that's what happened, as CNNMoney.com reports in, "Dow's record run done". An excerpt from that piece:

The Dow Jones industrial average closed lower Tuesday, ending its bid to claw out the longest up streak in Wall Street's history.

The Dow (down 7.07 to 13,305.90, Charts) ended about 4 points lower, after finishing with record closes for five sessions in a row. The blue-chip barometer has risen in 24 of the last 27 sessions - a feat last achieved almost 80 years ago.

Meanwhile, things are getting very hot again in China. The country's mainland stock exchanges…

Art flippers in force

Thanks to Finance Trends reader, David, who sent along this article from Bloomberg, "Art `Flippers' May Push Spring Auctions to $1.4 Billion Record".

Here's an excerpt:

A growing breed of art buyer -- the ``flipper'' -- will be out in force along with new and established collectors and dealers today through May 17, when aggressively priced Rothkos, Warhols and Picassos go under the hammer at Christie's and Sotheby's in New York.

The auction houses predict that they will move almost $1.4 billion of Impressionist, modern and contemporary artworks during the high-stakes spring sales, 60 percent more than last May's record $854.9 million.

Not surprisingly, gallerists, collectors, auction-house executives and art advisers say they are hopeful, even confident, that the boom will continue. But almost everyone agrees that the rapid rise in prices -- especially for contemporary art -- has to do less with a love of art than with an influx of art investors.

``P…

Happy Birthday, Friedrich A. Hayek

The Library of Economics and Liberty notes the birthday of classical liberal economist Friedrich A. Hayek in their birthday commemorations section.

F. A. Hayek (1899-1992) is remembered as one of the great 20th century economists and an advocate of liberty and free market economics. He is closely allied with what is known as the Austrian School of economics, and was author of the famous work, The Road to Serfdom.

More on Hayek from this econlib.org biography. If you'd like to learn more about Hayek and Austrian economics, there is a wealth of information on the web and in your local library!

Renewed talk of a metals bubble

There is renewed talk of a possible bubble in the industrial metals market, as Bloomberg.com reports in their May 7 piece, "Metals Bubble Poised to Burst on Increasing Supplies".

Here's an excerpt from that article:

Copper, nickel and lead, the best performing commodities in the past four months, may be the worst by year-end.

On Wall Street, the chorus is getting louder that rising metal supplies are outpacing demand. From Goldman Sachs Group Inc. to JPMorgan Chase & Co. to Societe Generale, there are warnings of a mania that is showing all the signs of a climax.

``This is a real bubble,'' says metals trader David Threlkeld, who first got the world's attention in 1996 when he showed that Sumitomo Corp.'s copper hoarding would lead to a market collapse. Once again, ``we have an enormous amount of unsold copper,'' says Threlkeld, president of Resolved Inc. in Scottsdale, Arizona.

The metals bears are convinced that consumption may drop partly becau…

Features of the week

Interesting stories and interview links lie ahead. Read on for the features of the week...

1. Reactions to last night's Republican debate. Ron Paul is doing quite well in MSNBC.com's online rating poll, sharing high positive marks with Mitt Romney.

2. EU regulations to affect the City of London. Apparently, New York is not the only city feeling the pressures of financial regulation; Londoners are a bit agitated over regulations from Brussels that will "attempt to create a harmonised, pan-European market for financial services".

See FT's story for futher details of the Markets in Financial Instruments Directive, or Mifid.

3. Dow Theory flashes a "Buy" signal. The technical confirmation is taken as a bullish indicator by the investment officers quoted in the article, but I'd like to get Richard Russell's (editor of the Dow Theory Letters) take on it.

I know John Mauldin said Richard Russell kind of took him by surprise recently by saying he expected

Heads up: Republican debate

Why am I posting on a political debate? One reason: this televised debate will provide many Americans with their first glimpse of Ron Paul, 2008 presidential candidate.

Ten Republican candidates will share the stage at the Ronald Reagan Presidential Library, which is set to begin at 8pm ET. The debates are scheduled to air on MSNBC-TV and will stream live on MSNBC.com and Politico.com.

Check it out!

Dow Jones mulls Murdoch offer

Well, the big news on Tuesday was News Corp's unsolicited $5 billion bid for Dow Jones & Co., publisher of the Wall St. Journal and leading financial news provider.

News of the takeover proposal prompted more discussion about Rupert Murdoch's plans for competing in the business news space, as well as the appeal for newspaper investments in light of some recent deals made by interested moguls.

MarketWatch covers all these aspects of the story, as well as the consideration Dow Jones' controlling family owners are giving to News Corp's offer, in "Dow Jones mulls Murdoch offer; family to reject".

We'll be focusing more on the newspaper industry and related deals a little later in the week. Are newspapers dead or have the latest offers for prime print & online news outlets confirmed their appeal? Stay tuned.

Peak oil and climate change: beliefs

The Oil Drum reader/contributor Nate Hagens has finished a three part series on peak oil and climate change, and how we humans think about and react to these event scenarios.

Here's an excerpt from part one of the series, "Peak Oil - Whom to Believe?".

Peak oil, as will be discussed below, has many definitions... It represents the general time frame when human demand for the energy services derived from oil will permanently diverge from our capacity to provide them.

Modern human culture, capitalism, globalization, food production, and essentially all aspects of life as we know it (unless *we* are Amish, 3rd world, or off-the-gridders), centers around oil, electricity and natural gas. Peak Strawberries or Peak Snapple obviously wouldn't be as big of deal.

Peak Oil is not a theory. It is a fact. Only the timing, magnitude, and implications are open to interpretation. How we interpret them should be a top priority for us individually and collectively. This post addresses w…