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Showing posts from September, 2007

Features of the week

We've got a lot to cover in this Friday's edition of, "Features of the week".

Energy, food prices, environment, culture, liberty, protests, and emerging markets; It's all here, so pull up a chair and get acquainted with the following stories.

1. "Myanmar Forces Chase Down Protesters". Let me withdraw my earlier question and simply state the fact that the country's military has assaulted and killed civilian protesters.

Now make some of those protesters buddhist monks and you have some idea why this story is carrying such weight in the international press.

Even President Bush has condemned the acts of violence carried out by this "brutal" regime in their efforts to quell civilian protest, and if that's not irony, I don't know what is.

2. Meanwhile, I don't hear much objection to the rounding up and jailing of protesters when the acts are carried out by a "key ally" of the US, as is the case in Musharraf's Pakistan.

3…

The path to $80 oil

Since we talked about investing in natural resources and energy in, "Profiting from the reflation", I thought that we should follow up that discussion with an in depth look at the fundamentals driving higher oil prices and the outlook for our energy future.

For a thorough examination of these topics, let's revisit our August 2006 interview with energy investor, Bill Powers, of Powers Asset Management.

In this wide ranging discussion on energy, Powers fills us in on the outlook for global oil and gas production, the onset of "peak oil", possible options for an alternative energy future, and the increased role that nuclear power is likely to play in providing for our future energy needs.

You'll also find some discussion of Bill's notable (and very on the mark) oil price forecasts, and the reasoning behind his calls for significantly higher crude oil prices. You'll find that much of the reasoning behind his past energy calls is still in force, and that …

Profiting from the reflation

As we mentioned yesterday in, "A good bear is hard to find", most everyone has recently been quite bullish on the U.S. stock market since the Fed came to the rescue with their liquidity injections and interest rate cuts.

Now, you may not be so eager to go out and start loading up on stocks just because there is a lot of money sloshing around and someone is keeping the party going. But you might be interested in some areas of the stock and commodities markets that could benefit from the reflation, bolstering their ongoing fundamentally driven advances.

Today we'll take a look at the concept of "profiting from the reflation" by highlighting some comments made by investor Jim Puplava in a recent Financial Sense Newshour broadcast.

If you've listened to the broadcasts before (and I highly recommend them), you'll certainly be familiar with some of the themes we're discussing here today. Jim has been recommending that his listeners gain exposure to the ar…

A good bear is hard to find

Bloomberg reports that the latest Fed rate cuts have induced widespread feelings of bullishness among investors.

Now that the mood of the marketplace has turned positive once again, it seems that bears are thin on the ground these days. Bloomberg notes that Wall Street strategists are the most bullish they've been since 2000. Investors are said to be "celebrating".

Excerpt from, "Suddenly a Good Bear is Hard to Find..."

Investors have been celebrating since the Fed's surprise half-point rate cut Sept. 18 sent the Morgan Stanley Capital International World Index of 23 developed markets on its biggest two-day rally since June 2006. They snapped up shares of commodity producers and industrial companies -- which became cheap last month after global stock prices fell to the least expensive in 12 years and will benefit the most when the economy grows.

So things are humming along nicely, and there are bargains to be had in the stock market.

But wait, they did manage …

Features of the week

Ready for this Friday's edition of "Features of the week"? Splendid. Pull up a chair and enjoy these great articles and interview links culled from the web & blogosphere.

1. Gold hits 28-year high as oil surges. Here's some of our past commentary on gold and oil prices.

Plus, a recap of last April's oil price debate between Steve Forbes and T. Boone Pickens.

2. Canadian dollar trades above US $1 mark for the first time in nearly 31 years.

3. John Authers discusses long-term consequences of a dollar decline in this September 20 video update at FT.com.

4. The Big Picture on, "Fear of a dollar collapse - Part II".

5. Sub-Saharan markets attract interest Gulf investors' interest.

6. Worries that Saudi Arabia might end its dollar peg.

7. Jim Rogers and Marc Faber comment on the Fed's recent moves.

8. Wilbur Ross sees value in the wreckage of the mortgage business.

9. Bear Mountain Bull highlights some important charts.

10. New Order fans: one from the juke…

"The Fed is irrelevant"

Have you been keeping a close eye on the Fed's moves? Did the recent 50 basis point cut in the fed funds rate shock or surprise you? Is the Fed doing the right thing?

Well, according to noted investor Jim Rogers, the Feds actions are likely to hasten the dollar's demise and will be disastrous for the markets and the nation's economic well being.

Excerpt from Bloomberg article:

Interest rate cuts by Federal Reserve Chairman Ben S. Bernanke will spur inflation, cause the U.S. dollar to collapse and push the world's largest economy into recession, investors Jim Rogers and Marc Faber said.

``Every time the Fed turns around to save its friends on Wall Street, it makes the situation worse,'' Rogers said in an interview from Shanghai. ``If Bernanke starts running those printing presses even faster than he's doing already, yes we are going to have a serious recession. The dollar's going to collapse, the bond market's going to collapse. There's going to be …

A.W. Jones & hedge fund history

Here's something that I've wanted to post for a while now, but somehow never got around to. 

Many of you are, I'm sure, familiar with the historical development of hedge funds and the story of how they came to be. For those who haven't heard/read the story, I thought the following might provide a useful introduction to the world's most glamorous investment vehicle, the "hedged fund"


Most media accounts of the hedge fund industry's growth typically begin with the founding of Alfred Winslow Jones' original long/short fund back in 1949. Jones reportedly had the idea for his hedged style of investment partnership while researching and writing the article, "Fashions in Forecasting", that year for Fortune magazine. 

By 1966, A.W. Jones and Co. posted returns which trounced all the leading mutual funds over a 5 and 10 year period. 

His success spawned a new group of offspring hedge funds, and led Fortune's Carol Loomis to revisit Jones' r…

Features of the week

We've got some great stories and interviews for you in this week's installment of "Features", so kick back and browse away. You'll be a little bit more informed by the time you finish!

1. "They've Got Class". Berkshire Hathaway tops the Barron's survey of most respected companies. Hat tip to Fat Pitch Financials.

2. Marc Faber says there is, "No option for Fed except a bail out!".

3. "Major rally seen for cotton". Investors like Jim Rogers and Roland Jansen see room for this agricultural commodity to run.

4. Putin dissolves government, names Victor Zubkov as new Prime Minister.

5. Abe resigns as Japan's Prime Minister, leaving Yasuo Fukuda and Taro Aso to battle for the position.

6. Mohamed El-Erian in a recent interview with Pensions and Investments, just before his departure from Harvard Management Co. and return to Pimco.

7. Face to Face with John Paulson, of Paulson & Co. funds.

8. Financial firms such as HSBC, Merrill Ly…

Again with the "savings glut"?

I'm sure by now you've seen or heard Ben Bernanke's latest references to the global "savings glut", the phenomenon that is supposedly responsible for the fabulous demand for U.S. debt and low interest rates.

For those who are in the dark, here's a quick refresher, courtesy of Bloomberg:

Federal Reserve Chairman Ben S. Bernanke said the ``global saving glut'' is still helping to keep interest rates low, and they may not rise much in the event that the pool of excess capital dwindles in coming decades.

While theory suggests that yields, adjusted for inflation, would rise as saving diminishes, ``factors other than the saving- investment balance affect long-term interest rates,'' Bernanke said in a speech in Berlin. ``We are again reminded of the need to maintain appropriate humility in forecasting.''

Nations such as China have invested the proceeds of trade surpluses in U.S. Treasuries, driving yields lower. China has a record $1.3 trillion …

Excellent timing: John Paulson

You may have heard about the outstanding performance of the Paulson Credit Opportunities Fund, which sailed through, and greatly profited from, the recent credit market turmoil.

The fund, established by John Paulson of Paulson & Co., has done extremely well this year, thanks to its timely shorting of subprime mortgage bonds.

I thought it might be interesting to update our "Subprime: winners and losers" post with a recent profile of John Paulson, man of the hour of the investment universe (and no doubt, man of the year to his investors).

In this July interview with Pensions & Investments, Paulson described the thinking behind his fund's investment stance.

What attracted us to this particular position is that overall, we feel that we are in a credit bubble. We feel that there is too much risk going long (in) credit instruments since spreads are so tight. So we concluded that the best opportunities were on the short side.

The beauty of shorting a bond is that the maximum…

Interest rates & inflation arbitrage

Where are U.S. interest rates headed? This seems to be the question that's been on everyone's mind in recent days.

Actually, it's beginning to seem like a Fed rate cut is a foregone conclusion (at least in the consensus view), and that the only real question remaining is the extent of the expected rate cuts. Will it be 25 basis points or 50?

There was an interesting discussion of interest rates and inflation in the first hour segment of the Financial Sense Newshour broadcast (September 8, 2007).

Host Jim Puplava spoke with guests Tim Wood and Paul Nolte about the likely direction of interest rates, and the economic picture going forward. There were some interesting comments made about the political outcomes of a possible/likely recession, as well as some discussion of the Fed's ability to revitalize the economy via a helicopter-liquidity drop.

Who would still want to borrow money in the next easy money cycle? Jim Puplava had an interesting response to this question voiced …

Features of the week

Some articles and blog posts of interest:

1. Jim Rogers says India and China will continue to drive commodity prices.

2. "Commodity prices hurting consumers in India".

At least they got the part about supply and demand right. Notice that there is no mention in this article of government fueling inflation through double-digit rate increases of the money supply. As usual, speculators and middlemen take the blame.

3. "What Lies Beneath", from Doug Wakefield and Ben Hill.

Ah, here we find those pesky little money supply growth figures for India and China. A taste of global money and credit creation. And you wonder why we have inflation worldwide?

4. Top 25 quotes on the Credit Crisis of '07.

5. Richard Bove of Punk Ziegel says the Fed is interfering with the markets by pouring money into the financial system. Interview with Bloomberg's Tom Keene (hat tip to the Mises blog).

6. Global stock market performance round-up from Investment Postcards.

7. Traderfeed tells us how…

Expert vs. the machine

I've been coming across and reading a fair amount of material on the rise of data-driven decision making lately.

In fact, Monday's expert quiz was taken from an FT.com article on the subject, entitled, "How computers routed the experts".

Whether by accident or design, I seem to be stumbling on one piece after another on the subject, as well as some analysis on expert performance.

I thought it might be a good idea to put all of these items into one post, and allow you, the reader, to sort them out. But first, a few words about our latest theme, the expert vs. the machine.

Over at EconLog, Arnold Kling mentions that he is currently reading through Ian Ayres' new book, Supercrunchers.

The book's focus is the rise of statistical decision making, and Kling quotes a relevant passage from an early part of the book to establish this idea's importance.

"We are in a historic moment of horse-versus-locomotive competition, where intuitive and experiential expertis…

Becoming an expert

After posting Monday's expert quiz, I decided to do a quick Google search on the "are you an expert?" theme. I found some more useful info on this topic right off the bat, and thought I'd share it with you.

While Monday's "Are you an expert?" quiz demonstrated that most people are overconfident when making forecasts, today's info is a little bit different in nature.

Instead of focusing on most people's tendency to view themselves as experts, we will learn exactly what it is that makes someone an expert in a given field or activity.

We'll also learn about expert performance, and whether or not experts provide value in assessing situations and solving problems. Should be interesting, especially since these lessons are applied to the field of investing.

Here then, is Legg Mason Capital Management's take on expert performance, "Are you an expert?" (PDF).

Written by Michael J. Mauboussin, this piece makes an excellent follow up to our re…

Are you an expert?

Are you an expert?

Do you have confidence in your ability to reasonably predict figures and outcomes when presented with new questions and problems, or are you (like most of us) overconfident in your ability to guess correctly?

Here's an interesting little quiz from FT.com that will help you find out.

But first, an explanation and some ground rules, taken from the quiz site:

The human mind tends to suffer from a number of well-documented cognitive failings and biases that distort our ability to predict accurately. We tend to give too much weight to unusual events that seem salient. And once we form a mistaken belief about something, we tend to cling to it. As new evidence arrives, we’re likely to discount contrary evidence and focus instead on evidence that supports our pre-existing beliefs.

In fact, it’s possible to test your own ability to make unbiased estimates. For each of the following 10 questions, give the range of answers that you are 90 per cent confident contains the correc…