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Showing posts from June, 2009

Madoff, the "little guy", and the SEC

Bernard Madoff has been sentenced to 150 years in prison for defrauding investors of at least $13 billion.

We all pretty much know the details of his crime by now, given the months-long media coverage devoted to Madoff's decades-long ponzi scheme (which many refer to as the biggest ponzi scheme in history). We won't rehash all the details here. Instead, let's focus on how this giant fraud against investors was uncovered.

Madoff confessed to his crime back in December when adverse market conditions led to a wave of redemption requests from investors. In spite of one whistleblower's attempts to shed light on Madoff's fraudulent scheme (essentially handing the agency an investigative case file), and repeated examinations into Madoff's business by the SEC and other regulatory agencies, the fraud was never revealed. That is, until Madoff was forced to reveal it.

So what does the SEC concern itself with if it's not actively pursuing cases against the largest, most s…

Lie to me, please

Have you ever noticed how pervasive lying has become in our culture?

Whether it's mass media advertising, political speech, or a sign announcing a new home development or "office park", we seem to be bombarded daily with insincere, vacuous messages or outright lies which try to re-frame our perceptions of reality.

Charles Eisenstein has written a very interesting article on this topic entitled, "The Ubiquitous Matrix of Lies"(hat tip: Chris Nelder). Here's an excerpt from that piece:

"Increasingly, words don't mean anything. In politics, campaigning candidates make statements that flatly contradict their actions and policies, and no one seems to object or even care. It is not the routine dissembling of political figures that is striking, but rather our near-complete indifference to it. We are as well almost completely inured to the vacuity of advertising copy, the words of which increasingly mean nothing at all to the reader.

Does anyone really believe…

Eric King interviews Rick Rule

Eric King serves up another great interview for us at King World News Broadcast, this time with investor Rick Rule, of Global Resource Investments.

It's been a while since we've heard from Rick here at Finance Trends, but as long-time readers and Rick Rule fans will know, his views on everything, from investing in the natural resource markets to free-market economics and libertarian philosophy, are always insightful and often fascinating.

Enjoy the interview with Rick Rule, and check out more of King's interviews with guests such as Marc Faber, Barry Ritholtz, and Jim Grant at the King World Broadcast page (Hat tip: Controlled Greed).

Related articles and posts:

1. Rick Rule: The Golden Rule - Finance Trends.

2. Three rules for buying resource stocks - Finance Trends.

Fading dollar reserve status brings opportunity?

The US dollar's status as the world's reserve currency seems to be quickly fading, as our creditors become intensely worried about the nation's finances and move to diversify out of their huge dollar holdings.

Puru Saxena (hat tip to Bear Mountain Bull) notes that the profligate spending and propping up of failing industries (banking, in particular) with debt-financed bailouts is by no means limited to the US. In fact, it's become a global phenomenon as governments spend trillions of dollars, effectively implementing a worldwide transfer of wealth from savers to debtors.

"...After decades of excess credit and over-consumption, the developed world is finally being forced to deal with private-sector deleveraging. However, the governments seem to have other plans and they’ve decided to fight these deflationary forces tooth and nail. Their solution – even more credit and even more consumption! Rather than accept a painful adjustment period, policymakers are desperatel…

"Know Thyself" - Richard Russell on identity

This essay, from Richard Russell of Dow Theory Letters, is probably one of the most important pieces of writing you'll ever find on this site.

Russell's recent piece on self identity is not only a must read for traders and investors, it's essential knowledge for the entire human race.

Without further ado, here's an excerpt from Russell's recently penned essay, "Identity: Know Thyself":

"The following is what I think is wrong with the world. It’s a worldwide lack of IDENTITY on the part of the great majority of the earth’s population. 

There are three Levels of existence -

(1) the highest Level is who or what you are

The next lower Level is

(2) what you’re doing or what you have done.

(3) the lowest Level is what you own.

An example of Level (1) is Jesus, who changed the world based on who he was. An example of Level (2) is George Patton, one of the great generals of World War II, whose daring exploits amazed the world. As for Level (3), we have John…

Eric King interviews Jim Puplava

Eric King recently interviewed Jim Puplava (part 1 & part 2), of Puplava Securities and Financial Sense Online, for his King World News Broadcast program.

Those of you who regularly visit Financial Sense Online, or listen to its weekly Financial Sense Newshour broadcast, will need no introduction to Jim's work. Since its start in the late 1990s, Puplava (with help from much of his family) has built FSO into one of the best financial portals and macro news/interview programs around.

Fans of the FSN broadcast are used to hearing Jim conducting the guest interviews, so it's great to hear his thoughts on the markets and economy as an interviewee.

Be sure to listen to both segments (part 1 & part 2) of this Jim Puplava interview, and see the King World News broadcast archive for more great discussions with guests such as Marc Faber and Barry Ritholtz.

Obama's plan could boost Fed's power

Dear leader Obama is speaking out today on another of his far-ranging plans to "save the world"; this time it's a proposal to reshape financial industry regulation and expand the powers of the Federal Reserve.

Bloomberg has the details:

"President Barack Obama said his plan to refashion supervision of the U.S. financial system is needed to fix lapses in oversight and excessive risk taking that helped push the economy into a prolonged recession.

The proposal, much of which will be subject to approval by Congress, sets out the biggest overhaul of market rules in more than seven decades, adding an additional layer of regulation for the biggest firms. It would create an agency for monitoring consumer financial products, make the Federal Reserve the overseer of companies deemed too big to fail, and bring hedge and private equity funds under federal scrutiny.
“This was a failure of the entire system,” Obama said at a White House event that included the leaders of the Treasu…

Doug Casey - "Deflation is a good thing"

I was participating in Stocktwits' MacroTwits discussion last night, when someone brought up the idea that inflationary policies by the Fed were a necessary "cure" for a looming deflation.

Although I've tuned out most of the mainstream discussion on "inflation vs. deflation" and related debates, I have heard and learned enough in the past to know that the fear of deflation is a widespread phenomenon in modern America (and probably throughout the developed world).

Considering the high amounts of debt carried at all levels of our society (personal, government, corporate), this fear is very understandable. Deflation, a decrease in the supply of money and credit, results in an increase in the value of money in circulation.

In a deflation, debtors must pay back loans to their creditors with money that is steadily increasing in purchasing power. The onus is on the debtor to pay back his loan with money that is more valuable than the principle he was originally le…

Paul Tudor Jones on trading macro

Here's something that's been making the rounds on Twitter lately - a 2008 Institutional Investor magazine interview with hedge fund Hall of Famer, Paul Tudor Jones.

For those who don't know, Jones has enjoyed an extremely successful career as a commodity trader and hedge fund manager. He is known for an employing a global "macro" style for much of his investing, taking positions in a variety of markets (commodities, equities, currencies, derivatives) as a means of expressing market bets on big-picture speculative themes.

Here's an excerpt from his II mag profile interview:

"What’s so special about macro hedge fund managers?

I love trading macro. If trading is like chess, then macro is like three-dimensional chess. It is just hard to find a great macro trader. When trading macro, you never have a complete information set or information edge the way analysts can have when trading individual securities. It’s a hell of a lot easier to get an information edge on…

Jim Grant on CNBC: get set for inflation

Jim Grant joined CNBC for an in-studio appearance Wednesday and left the network bubbleheads with a few things to think about.

Big topic of discussion: inflation and its appearance in the US following the recent raft of money creation by central banks, the Fed in particular.

Grant notes that many in the US believe that inflation will not flare up due to "excess capacity" in the economy. However, Jim points out that measures of "output gaps" in the economy are not a useful leading indicator of inflation, and he reminds the assembled crowd that inflation is simply a product of "too much money".

At some point, that money will begin to chase something, be it consumer goods, services, commodities, and those price rises will signal the arrival of inflation as measured by CPI.

Always good to hear some thoughts from James Grant, especially since his equally thoughtful contemporaries, Marc Faber and Jim Rogers, have been notably absent from CNBC America lately (probab…

Peter Bernstein - FT.com interview

Noted author and economic historian, Peter Bernstein passed away last weekend at the age of 90.

Here is Bernstein speaking about the financial crisis with The Financial Times in 2008 for the video interview series, "View from the Markets". Part one, part two, and part three.

Related articles and posts:

1. Peter Bernstein, 'Capital Ideas' author, dies - Bloomberg.

2. Remembering Peter Bernstein - CFO.com.

Creating a new reserve currency

There is a growing buzz over the possibility that the IMF will create a new global reserve currency based on special-drawing rights (SDRs) to replace the US dollar.

Bloomberg reports on the proposed new reserve currency:

"The International Monetary Fund said it’s possible to take the “revolutionary” step of creating a new global reserve currency to replace the dollar over time.

The IMF’s so-called special drawing rights could be used as the basis for a new currency, First Deputy Managing Director John Lipsky told a panel discussing reserve currencies at the St. Petersburg International Economic Forum today...

...The SDRs would have to be delinked from other currencies and issued by an international organization with equivalent authority to a central bank in order to become liquid enough to be used as a reserve, he said.

As much as 70 percent of the world’s currency reserves are held in dollars, according to the IMF, leading to calls for nations to diversify their cashpiles to avoid e…

Barron's interview with Niall Ferguson

For those who missed it, Niall Ferguson was the featured interview in the latest issue of Barron's magazine.

Ferguson shared his thoughts on the global economy and offered a historically reasoned view on whether or not we face another Great Depression-style downturn. Here are some excerpts from that interview:

"Barron's: Is the worst over for the global stock markets and the economy?

Ferguson: It may look that way, but appearances can be deceptive. The stock market has actually tracked almost perfectly its downward movements between 1929 and 1931. Now that doesn't mean that we are going to repeat the Great Depression. I don't think we will, because the policy responses have been different.

It would be excessively optimistic, however, to conclude from a relatively small set of green shoots in the economic data that we are all going to live happily ever after. It is certainly way too early to say the Obama administration is right that the economy is going to grow at …

Links: hedge funds, deficits, & monetization

Been spending a lot of time on Twitter (see our page) and catching up with some important reading lately. Here are some links that have piqued my interest in recent days:

1. Bernanke warns deficits threathen financial stability - Bloomberg.

2. Geithner says there is "no risk" of Fed monetizing US debt (despite that already occurring); Bernanke should quit propping up the debt market if he's concerned about deficits - Clusterstock.

3. Profile of hedge fund legend Julian Robertson, plus a look at Robertson's steepener swap play (short US Treasuries) - Market Folly.

Note: we also mentioned Robertson's "curve steepener" trade earlier this year in, "Seasoned investors search for values".

4. Hedge fund industry climbs its 'slope of enlightenment' - FT.com

5. What you can learn from "old man socks" - Financial Philosopher.

6. Rock n' rollers: Ardent Music is reissuing Big Star's studio albums & releasing a new Big Star box se…

What's the Baltic Dry Index telling us now?

Saw an interesting tweet from Maoxian over the weekend on the (extreme) inflationary signals that the Baltic Dry Index seems to be giving us.

Have a look at the chart in Maoxian's tweet. I wonder if any of us have ever seen such a devastating decline (-94% drop), followed by such an amazingly quick and robust (BDI is up 427% since its Dec. low) recovery move?

Regulars here at Finance Trends may recall our past discussions of the Baltic Dry Index and its increased use as a gauge of global economic activity. So what is the BDI be telling us now?

Our March 23rd post (previous BDI update) focused on the relationship between (then) recent moves in the price of copper vs. the Baltic Dry Index.

At that time, copper prices were steadily moving higher, despite analysts' claims that the move up was not supported by "real demand"; the move up was supposed to be driven more by a temporary restocking of strategic inventories by the Chinese. I wondered, at that time, if copper woul…