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Showing posts from May, 2009

John Paulson, hedge funds move into gold

There was a good amount of buzz last week surrounding hedge fund manager John Paulson's move into the gold sector, one that coincided with the opening of a new Paulson & Co. fund (the "Paulson Real Estate Recovery Fund") that will invest in real estate.

Market Folly has more on Paulson & Co.'s investments in gold and the gold mining shares in, "Paulson & Co. buys tons of gold":

"The first major move that everyone will be talking about is Paulson's big entrance into gold. His position in the Gold Trust (GLD) is brand new and is brought up to a whopping 30% of his portfolio.

Now, there are indeed a few caveats with this move: Paulson & Co have said themselves that they have done so as a hedge, as they now own well over 8% of this exchange traded fund (ETF). Their hedge funds have a share class that is denominated in gold (instead of in US dollars or Euros).

Still though, that's quite a large hedge to have. Not to mention, Paulson …

I keep hearing about a "dollar collapse"

I've been getting a lot of questions lately from readers and friends asking about what's going to happen with the dollar, gold prices, and future inflation. If only I knew.

One thing I can tell you is that discussion of a potential "dollar collapse" or US hyperinflation has ramped up noticeably in recent months; an idea that seemed fringe two or three years ago is now openly discussed on blogs, economic and investing/trading forums, mainstream news sites, and business television.

John Rubino's website which tracks these dour trends, aptly named Dollar Collapse, is starting to look prescient, as well as gloomy. Is the trend towards dollar destruction inevitable, or will we somehow manage to escape this fate with some successful maneuvering by the Fed?

While you ponder that, here are two recent articles from Bloomberg (see Christopher Wood's comments near the bottom) and The Financial Times which caught my attention, due to their frank discussion of dollar deval…

Niall Ferguson on "What Price Liberty?"

One of the best things I read over the Memorial Day weekend was Niall Ferguson's review in the Financial Times of Ben Wilson's new book, What Price Liberty?. I'd like to share some of it with you.

Here's an excerpt from that review:

"“The privileges of thinking, saying, and doing what we please, and of growing as rich as we can, without any other restrictions, that by all this we hurt not the public, not one another, are the glorious privileges of liberty.”

These are the words of “Cato” (the nom de plume of John Trenchard and Thomas Gordon), writing in the early 1720s. For the better part of two centuries, that view was widely held in England, and Englishmen were not wrong to believe that it set them apart from continental Europeans and “Orientals”.

Also integral to the English conception of liberty was John Locke’s linkage of freedom and private property. In the landmark Entick v Carrington case (1765), Lord Camden ruled against the government for raiding the home …

Bjorn Lomborg: Barron's interview

Kind of a think piece for Friday and your Memorial Day weekend: Barron's interviews Bjorn Lomborg, "the skeptical environmentalist", for a profile entitled, "Global Warming is Manageable - if We're Smart".

Here's an excerpt from that piece:

"Barron's: Bjorn, what do you think will be the outcome of the negotiations to curb global warming this December?

Lomborg: The participating nations will again agree to spend quite a bit of money to cut carbon emissions and again achieve virtually nothing. We already tried that twice -- in Rio in 1992, and in Kyoto in 1997. Both of these treaties failed.

We will see a lot of posturing, but presumably this isn't about having a lot of environmental ministries or even presidents and prime ministers come out and claim credit for making costly commitments that we won't be able to live up to, and which would barely make a dent in the problem anyway.

When I first started in the global-warming debate, I was s…

Finance Trends on Twitter

Just wanted to (finally) let you all know about our Finance Trends Twitter page.

You may have already noticed the new Twitter update links in our sidebar column; I'll use this post to briefly explain (a) what Twitter is and (b) what you'll find at my Twitter site.

Quick explanation of what Twitter is about, for the uninitiated: Twitter is basically an open text messaging system that lets you share your thoughts with the world. You can also think of it as a micro-blogging service with a 140 character limit on each message, or, "tweet" (see example tweet below).

Anyone can read public Twitter messages or "tweets", but you must sign up if you wish to follow or communicate with other Twitter users. By following other Twitter users and encouraging others to follow your own tweets, you can create a network of friends and followers based on dovetailing interests ("hey, he trades stocks and surfs too!") or any criteria you like.

I've actually found Twit…

Marc Faber: Capitalism might fail

Marc Faber told a CNBC Europe "Squawk Box" panel that capitalism may fail like communism did if corporate enterprises and the financial system are not purged of the excesses and losses of the recent past.

Some excerpted (see above article link) comments from Marc:

"A sustainable recovery will occur only when the corporate system will be cleaned of losses and capitalism risks collapsing if this does not happen, Marc Faber, the author of "The Gloom, Boom & Doom Report," told CNBC Friday.

The central banks will continue to print money at full speed, but long-term this strategy will lead to a fall in purchasing power and living standards, especially in developed countries, Faber said...

..."I think the final low in markets will occur when the system is cleaned out," Faber said.

Unless the system is cleaned out of losses, "the way communism collapsed, capitalism will collapse," according to Faber. "The best way to deal with any economic p…

Barron's ranks top 100 hedge funds

Barron's is ranking the top 100 hedge funds of 2009, while highlighting funds that were especially adept at navigating the stormy financial seas of 2008 (hmm, I think all those episodes of Yacht Rock that I recently watched are having their effect on me).

Jay at Marketfolly has provided a super overview of the Barron's rankings; rather than compete with him, let just highlight some of Marketfolly's post here. Here's an excerpt from Jay's post on Barron's ranking methodology and the stars of this year's Barron's 100:

"...Barron's breaks down their top 100 hedge fund list by 3 year annualized returns. They rank by individual investment partnerships, so a couple of firms actually have multiple hedge funds on the list (like Paulson & Co, Galleon Group, etc). Barron's list does have a few criteria though, as they require a minimum AUM of $300 million and have excluded funds that invest in a single "sector, country, or region."

Over…

Zhao Ziyang: the guy behind the guy

Very interesting article from this weekend's Financial Times about Zhao Ziyang, the Communist Party official who may have been the impetus for some of the major economic reforms credited to China's Paramount leader Deng Xiaoping.

Excerpt from, "Beijing fails to silence voice from the grave":

"When former Chinese Communist party boss Zhao Ziyang died four years ago, the only news published in China was a two-line statement on Xinhua, the state news agency.

The Beijing authorities were afraid the death of the leader ousted for opposing the violent crushing of demonstrators in 1989 would re-open debate about the Tiananmen killings.

Mr Zhao has not been easy to silence, however. Just weeks before the 20th anniversary of the crackdown, his secret memoirs are about to be published, based on 20 tape recordings that friends and associates managed to smuggle out of the country.

An extremely rare first-hand account of elite Chinese politics, Prisoner of the State argues that…

Features of the week

It's been a while since we rolled up a new "Features" post, but we're serving one up today. Enjoy our latest selection of Friday links.

1. Robert Murphy: busting the myth of "green jobs".

2. America's AAA rating at risk: David Walker.

3. Hayman Capital's Kyle Bass predicts sovereign defaults.

4. Global crisis 'vastly worse' than 1930s, Taleb says.

5. Distressed debt investors work fallout of buy-out boom.

6. An offer US banks could not refuse: Paulson's tactics.

See also: 10/15/08 post, "Treasury bank plan: not so 'voluntary'".

7. Deleveraging is the only real solution to the crisis.

8. TARP beneficiary says 'sham' bailouts help speculators.

9. Buffett knows how to avoid common value traps.

10. 'Buy and hold' is not dead (if properly defined).

11. A brief history and Dow Theory update: Tim Wood.

Have a great weekend, and thanks for checking in with Finance Trends Matter (click here to subscribe to our RSS feed). W…

Jim Rogers interview with Bloomberg TV

Legendary investor Jim Rogers chats with Bloomberg TV in this recent in-studio appearance from Singapore.

Rogers is still wary of stocks and says he's not looking to buy US shares anytime soon as the fundamentals for most companies have not changed. Jim is (of course) still bullish on commodities and feels that the increased money printing worldwide will surely lift the price of much-needed agricultural products in the subsequent inflationary period.

Most noteworthy, perhaps, are Jim's latest comments on the dollar, highlighted in this Bloomberg article:

"...The dollar’s rally is set to end in a “currency crisis,” investor Jim Rogers said, adding that he may bet on a slide in equities after nine weeks of gains.

The advance in the U.S. currency has been driven by investors covering their short sales, Rogers, 66, said in an interview with Bloomberg Television in Singapore. He may consider adding to his holdings of the yen and prefers the euro to the dollar or the pound, th…

Meredith Whitney on CNBC

Meredith Whitney recently stopped by the NYSE to chat with CNBC's Maria Bartiromo about the health of the banking sector and consumer spending in the current recession.

Whitney, who recently formed the Meredith Whitney Advisory Group, told CNBC that banks are currently overvalued and their recent earnings were goosed higher with government aid.

" "...At a core basis, I would not own these stocks," Whitney said in a live interview. "Their business models are not going to come back."

Whitney, a former analyst at Oppenheimer who has her own firm, is renowned for calling out the problems with banks' toxic assets before the issue became widespread.

"This is the great government momentum trade," Whitney said on why bank stocks had seen some improvement lately. "But the underlying core, earnings power of these banks is negligible." "

Whitney also discussed the coming drop in consumer spending and followed up on some of her earlier comment…

PPIP "Greatest boondoggle in history"

Last week while thinking about the stress tests and the fact that US banks won concessions on the stringency requirements of these already laughable government exercises, it occurred to me that when all is said and done, this latest chapter in American history could end up making Teapot Dome look like a freaking anthill.

While I usually try to steer clear of hyperbole, it seems that one person who's been speaking out against the stress tests and the PPIP, William Black, agrees. Last week in an interview with Tech Ticker, Black even went so far as to call Geithner's Public-Private Investment Program (PPIP) "the greatest boondoggle in the history of the world".



Here are some choice quotes and main points from Yahoo's summary of the Tech Ticker interview:

"The PPIP is the "greatest boondoggle in the history of the world," says Black, a former bank regulator who was counsel to the Federal Home Loan Bank Board during the S&L crisis. As occurred durin…

Russell Napier: The Next Crash

Sorry for the gloomy title, but here is a great FT.com interview with Russell Napier (w/ a link to part 2), author of Anatomy of the Bear.

Here, Napier discusses how secular bear market lows can often be identified by looking at Tobin's Q ratio, along with cyclically-adjusted P/E ratios. In part two, Napier offers his views on the efficient market hypothesis and a forecast for a 'cataclysmic' bear market to come.

For those who'd like to know more about Russell Napier and his views on bull and bear market cycles, please see our post, "Anatomy of bear markets", where you will find an article by Marc Faber discussing Napier's work and a 2006 interview with Napier on the Financial Sense Newshour.

Painful lessons for Chrysler lenders

Another important article from the Financial Times that I wanted to add to the blog (after adding it to the Finance Trends twitter page), this time on the subject of Chrysler's 'dissident' senior lenders.

Here's an excerpt from, "Painful lessons for lenders in Chrysler debacle":

"George Schultze will think twice before lending to another troubled company such as Chrysler.

Mr Schultze is one of a group of dissident Chrysler creditors who was rebuked by the US president and other lawmakers for tipping the company into bankruptcy. He rejected an offer aimed at slashing Chrysler’s debt in order to allow the carmaker to be sold. Mr Schultze and other investors – some of whom claim to have received death threats – say the deal is unfair because it does not honour their rights as senior lenders to get paid before other claims, such as a union benefit plan, are met.

They also argue that the deal was orchestrated by the US government, which held sway over the majori…

Gold sales cost central banks $40 billion

Financial Times reports that a decade of gold sales has cost Europe's central banks $40 billion.

"Europe's central banks are $40bn (£26.4bn) poorer than they might have been after they followed a British move taken 10 years ago todayto shrink the Bank of England's gold reserves, analysis by the Financial Times has shown.

London's announcement on May 7 1999 that it would sell a large share of the Bank's gold reserves in favour of assets offering a return, such as government bonds, was the high water mark of so-called "anti-gold" sentiment among European central banks.

Many of these banks, such as those in France, Spain, the Netherlands and Portugal, decided later in 1999 to follow Britain and sell off their reserves. At that time, gold was worth about $280 an ounce, less than a third of its current level of more than $900."

Of course, as many gold market observers will tell you, gold selling by the central banks is not typically a profit-maximizing …

Banks rally ahead of test results

Looks like those short positions in US banks that we mentioned yesterday are a tough trade to be in right now.

FT reports that bank shares 'surged' yesterday as traders bet the upcoming stress test results will reveal better-than-expected news about the large banks' capital raising needs.

"US bank shares surged on Monday as investors bet that some of the country’s largest institutions will have to raise less capital than previously feared after this week’s release of the government’s “stress tests”.

The banks believed to have been told by regulators to shore up their balance sheets, such as Citigroup, Bank of America and Wells Fargo, led the sector higher amid investor optimism that their capital needs will be manageable."

So this latest sentiment on the banks capital raising needs is in stark contrast with the views offered up by Jim Bianco in last week's Bloomberg interview.

As noted in yesterday's post, Bianco felt that the delay of stress test results m…

Back to shorting banks...

Short sales of US bank shares have increased noticeably in recent weeks ahead of the government's "stress test" results, which are scheduled for a delayed May 7 release.

Bloomberg has the details in, "Short selling of banks accelerates":

"Short sellers, the bane of Wall Street executives last year, are back.

The number of Citigroup Inc. shares borrowed and sold short increased sixfold since Feb. 27, the day the U.S. Treasury announced it would convert some of its preferred shares in the New York-based bank into common stock.

Short interest in Bank of America Corp., MetLife Inc. and American Express Co. climbed more than 40 percent in the same period, according to data compiled by Bloomberg. In total, short sales of the 18 publicly traded financial companies undergoing government stress tests were twice as high on April 15 as they were at their peak last year in July, two months before Lehman Brothers Holdings Inc. collapsed.

“People are either positioning the…

Buffett's successor + Woodstock for capitalists

It's that time again: this weekend a boatload of Berkshire Hathaway (BRK.A, BRK.B) shareholders will descend on Omaha to attend the annual Berkshire shareholders' meeting and hear the great Oracle, Warren Buffett, speak.

Only problem is, this year WB will have some explaining to do. As the Financial Times reports, Buffett faces a grilling from investors who'll expect him to account for the company's worst year ever.

Excerpt from the FT piece:

"Buffett-watchers say this year’s meeting of shareholders in Berkshire Hathaway, his candies-to-insurance group, will depart from the usual pattern of deferential questions and folksy answers and witness some criticism of the billionaire investor.

“The hard questions will be asked this year,” said James Altucher, a hedge fund manager and author of Trade Like Warren Buffett. “There will be people who always stand by him and others who will ask: ‘Have you lost your way?’”."

Another small cloud looming over Berkshire Hathaway…