Skip to main content

Posts

Showing posts from October, 2009

Happy Halloween! Welcome Great Pumpkin

Earlier in the week I noticed we were suddenly getting a batch of Google image search traffic into our October 2007 post archive. When I looked at the link, I was quickly reminded why: "It's the Great Pumpkin, Charlie Brown!".

Since watching the Peanuts Halloween special is a Finance Trends tradition going back to 2006, I had to update the post's video link and, of course, watch it again for myself!

Let's all watch it together and find out if the Great Pumpkin appears this year. Enjoy the show!

Jeremy Grantham GMO 3Q letter

GMO chief investment strategist, Jeremy Grantham is out with the firm's latest missive to investors; the GMO quarterly letter for 3Q 2009 is available at the GMO website and at Zero Hedge.

For a quick preview, here are some excerpts from Business Insider:

"The idea behind my forecast six months ago was that regardless of the fundamentals, there would be a sharp rally [to S&P 1000-1100]. After a very large decline and a period of somewhat blind panic, it is simply the nature of the beast. Exhibit 1 shows my favorite example of a last hurrah after the first leg of the 1929 crash…


Today there has been so much more varied encouragement for a rally than existed in 1930. The higher prices preceding this crash (that were far above both trend and fair value) had lasted for many years; from 1996 through 2001 and from 2003 through mid-2008. This time, we also saw history’s greatest stimulus program, desperate bailouts, and clear promises of years of low rates. As mentioned six…

Links: history, present, and future

Sharing some of the more interesting links and stories that I've come across (or revisited) this week.

We've got Paolo Pellegrini on US debt, an honest and brief overview of the global energy picture, a comparative look at China and the US, and much more. Enjoy the links.

1. Paolo Pellegrini says shorting US debt "attractive bet" - Bloomberg.

2. Capitalism, Socialism, or Fascism? - Washington's blog.

3. Leonard Kleinrock: Mr. Internet (interview) - LA Times.

4. The Truth about Energy - Puru Saxena.

5. The "democratization of credit" is over - John Rubino.

6. Why the Dreyfus Affair Matters: Louis Begley interview with Bloomberg.

7. Niall Ferguson: US on collision course with China.

8. Gore Vidal thinks the US is headed for dictatorship.

9. Milton Friedman makes the case for limited government (PBS).

Jeff Saut on "Permanent Investments"

Checking out this article from Raymond James strategist, Jeff Saut, on the "Intrigue of Permanent Investments" (hat tip: Derek Hernquist).

There are some very interesting comments here on gold, farmland, and the "intriguing concept" of a permanent investment portfolio - if such a thing can ever really exist.

Rather than spoil the surprise (or front-run the excellent Bernard Baruch story), we'll let you read it for yourself. Enjoy the article!

Related articles and posts:

1. Tangible Investments - Financial Sense Online.

2. Unloved, Undervalued, & Underowned - Jim Puplava at FSO.

Warnings on Euro hedge fund regulation

Highlighted this Financial Times article on Twitter yesterday; certainly wanted to mention it here as well.

This story on proposed European regulations of the hedge fund and private equity industries and its likely effects may also reverberate here in the US. Here is an excerpt from, "ECB warns Brussels on hedge fund rules":

"Europe’s controversial plans to regulate hedge and private equity funds were dealt a fresh blow on Thursday when the European Central Bank warned the proposals would put the industry at a significant competitive disadvantage.

The opposition voiced by the Frankfurt-based ECB, which feared a go-it-alone approach in Europe would backfire, is likely to be seized upon by the alternative investment fund sector – and influence the extensive re-writing of the proposals that is already under way.
Hedge funds have warned that business could be driven out of Europe as a result of the plans to regulate the sector for the first time on a pan-continent basis."

Julian Robertson interview at FT.com

Tiger Management founder and hedge fund legend, Julian Robertson sits down for an interview with FT.com's "View from the Top".

On tap for this discussion: Robertson's views on US debt and our reliance on foreign creditors (especially China), lessons from the tech bubble, risk control and avoiding "the big loss", the future of the hedge fund industry, and even his outlook on gold and gold mining shares.

Speaking of the precious metal and its allure to savers and investors, Julian says, "I don't believe in gold". Despite being bullish on the outlook for gold mining shares, Robertson dismisses gold as a worthwhile inflation hedge.

Interestingly, he comments that gold is a "psychological store of value" and that a psychiatrist would be better suited to understanding its appeal. I say interesting, because this is exactly the topic Dr. Phil Pearlman (trader and psychologist) took on in a recent episode of "Market Shrinkology" on Sto…

Gold's inflation adjusted high: $2,000+

Here's an article on gold from Bloomberg that we highlighted on Twitter this morning. It notes that gold's recent nominal high of $1,072 an ounce still puts it well under the 1980 inflation-adjusted peak.

For gold to surpass that peak in real (inflation-adjusted) terms, it would have to climb north of the $2,000 an ounce mark. More on that from Bloomberg:

"Gold’s rally to a record means prices are still 53 percent below the 1980 inflation-adjusted peak.

While gold rose 19 percent this year to $1,072 an ounce on Oct. 14, consumer prices almost tripled in the past three decades, eroding the metal’s value. Bullion hasn’t kept pace with the cost of bread, fuel or medical care. In 1980, gold hit a then-record $873 an ounce. In today’s dollars, that would be $2,287, according to the U.S. Labor Department’s inflation calculator..."
However, I take exception to the statement that "consumer prices tripled...eroding the metal's value". If anything has been eroded ov…

Marc Faber on investment strategy (Bloomberg)

Famed investor and market commentator, Marc Faber joins Blooomberg TV to talk investment strategy.

There is an interesting and lengthy discussion of the inherent worth of the US dollar and other fiat currencies, and why paper currencies are losing their purchasing power against most asset prices, especially gold.

You'll also find an update on Marc's view of Intel shares and technology, along with his views on natural resource shares and why you should try to focus on buying assets and shares when prices are depressed.

Related articles and posts:

1. Marc Faber on Lateline Business - Finance Trends.

2. Marc Faber: Another Case for Inflation - Financial Sense Newshour.

Dow 10,000, we meet again

Being plugged into the market chatter on Twitter and Stocktwits, it was hard to avoid yesterday's talk (often dismissive) of a return to Dow 10,000.

So now we're back to the vaunted high number mark that serves to remind us of the glory days of the dot.com era & the possibility for an even higher 5 digit readout in the not-too-distant future. But what does Dow 10,000 really mean, if anything at all?

Noting the fact that inflation over the past decade has reduced our purchasing power by at least 20-30 percent, we should remind ourselves that a trip back to a nominal high in a widely followed market average does not automatically translate to money in our pockets.

Reflecting on these thoughts yesterday, I went off to dig up my old copy of the Wall Street Journal from March 30, 1999, the first time the Dow Jones Industrial Average crossed 10,000. I could not find that old paper, but I did find this interesting article instead.

Excerpt from, "Dow 10,000 and the Lost Decade&qu…

FSN inflation vs. deflation debate updates

We recently called your attention to the inflation vs. deflation debates aired on the Financial Sense Newshour.

Some of the interview guests in the debate included Mike "Mish" Shedlock, Daniel Amerman, and Marc Faber. Earlier broadcasts included inflation vs. deflation arguments from Bob Prechter at Elliot Wave and Peter Schiff.

FSN host Jim Puplava recently concluded the debate series by replaying segments of these broadcast interviews, and offering his own views on the likelihood of a future US inflationary or deflationary environment. I won't hesitate to add that, in spite of Puplava's partiality to the inflation side of the debate, you'll be hard pressed to find a fairer or clearer treatment of these arguments.

If you caught any of the earlier broadcasts, or would just like an overview of this broadcast debate, check out this excellent macro overview (part one, part two) on the great inflation vs. deflation debate.

FT Alphaville: debt and dollar's demise

Over in London, at the FT Alphaville blog, they're talking about the US' federal debt (now $11.9 trillion or $38,000 per citizen) and the fact that we are fast approaching the point at which the government will once again have to raise its "debt ceiling" past the current $12.1 trillion mark.

More from Alphaville on the implications for the US dollar:

"...Fine, but what would an increased debt limit actually mean for the US exactly?

Well, for a start it effectively `kicks the can’ of the debt problem to the next generation. But it could also have more near-term implications — namely a massive effect on the US dollar — a currency already under pressure from the Federal Reserve’s unconventional monetary policies and journalists from The Independent...."
Will we see a dollar devaluation in the not-too-distant future? Read on if you're up for a rather dour view on the US' ability to deal with its "gigantic and excessive levels of debt".

Related art…

Features of the Week

It's been a while since we last updated our regular linkfest, but have no fear: "Features of the Week" is here. Enjoy the market-fueled goodness.

1. Jim Rogers chats with Pimm Fox about commodities, inflation, and the outlook for global equity markets - Bloomberg.

2. Hedge fund managers are cautious on market rally while real economy is shrinking; see liquidity driven market - FinAlternatives.

3. David Rosenburg fumes over the bear market rally - FT Alphaville.

4. The rise and fall and rise of US cities (interactive graphic) - Infectious Greed.

5. In depth interviews with Jim Chanos - Marketfolly.

6. Are gold and US Treasuries in conflict? - Gregor.us.

7. Don't miss MacroTwits discussion hour with GregorMacdonald, Sundays at 9 pm EST - Stocktwits TV.

8. Has anyone noticed that silver is up 56% year to date? - Reuters.

9. Be sure to check in with Upsidetrader and Abnormal Returns for more excellent weekend linkfests.

Thanks for reading Finance Trends Matter. You can also keep …

Bill Fleckenstein: wary of dollar, long gold

William Fleckenstein has some very interesting things to say about the US dollar, gold (with quotes from John Paulson), and an impending turn in inflationary psychology in this new Minyanville article.


Bill is also seen here in this Bloomberg TV interview, explaining why he is currently long gold stocks and looking for future short opportunities in the market.

He also makes a few choice points about the Fed's culpability in bringing about this financial crisis, and why we can't "print our way to prosperity". Check it out.

Related articles and posts:

1. Bill Fleckenstein on PPIP, inflation - Finance Trends.

2. FSN interview w/ Bill Fleckenstein - Finance Trends.

Gold rises to new record price

Certainly one of the biggest stories of yesterday's market action is carrying over to today; gold's breakout to new record highs.

We spoke quite a bit about gold in yesterday's Twitter stream, noting that gold's latest upsurge has come amidst a global tide of inflationary worry and growing anti-fiat money sentiment. This is quite remarkable, as much of gold's rise this decade was, previously, widely perceived as a "weak dollar story".

Reuters shares this quote from gold watcher and newsletter writer, Dennis Gartman:

"Gold's rise is not a dollar phenomenon but an "anti-currency" phenomenon as money is flowing away from almost any and all currencies.".

Interestingly enough, today's coverage from the Financial Times seems to take an opposing tack, quoting an analyst who noted the lagging performance of gold in euro terms:

Eugen Weinberg of Commerzbank said: “The fact that the rally of gold prices is mainly attributable to the weak US d…

Poker investing: Jeff Yass of Susquehanna

Here's a cool post from John, "The Masked Financier" on, "Beating the odds with (Texas Hold'em) poker investing - Jeff Yass and Susquehanna".

While I'm not much of a card player, I do appreciate the discussion of probability and rational decision making in trading and investing. We also get a glimpse inside the workings of one of America's more secretive trading firms, Susquehanna International Group.

Here's an excerpt from John's post:

"Jeff Yass (and his trading firm Susquehanna) is a prominent example of Texas Holdem Investing in action. Although Yass has been intensely secret about himself and his firm in recent years he first appeared in the popular investment media through an interview with Jack Schwager for “The New Market Wizards: Conversations with America’s Top Traders”.

However, just this week the Philadelphia Magazine has written a detailed background piece on Yass and Susquehanna – Beating the Odds – which demonstrates the exte…

Paolo Pellegrini interview on Bloomberg

Paolo Pellegrini, the man who helped John Paulson structure his short trades in the subprime mortgage bond market, is the subject of a new Bloomberg profile.

An excerpt from that piece:

"Paolo Pellegrini has a nose for trouble. He saw it in rising housing prices in early 2006, when he cranked through decades of home price data and concluded the bubble was poised to burst. Pellegrini then helped engineer a massive bet against subprime mortgages that catapulted Paulson & Co. hedge funds to 2007 gains of as much as 590 percent -- and firmwide profits of more than $3.5 billion.

Pellegrini, 52, pocketed tens of millions of dollars, allowing him to buy a couple of what he laughingly calls “entry- level supercars”: a silver Ferrari F430 with a base price of $168,000 and a black $109,000 Audi R8.

By April 2008, the Rome native smelled danger again. Nearly six months before the collapse of Lehman Brothers Holdings Inc. and the bailout of American International Group Inc., he and his colle…

Inflation adjusted home prices (US)

Source: Chart of the Day

This chart of US inflation-adjusted home prices caught my eye as I leafed through Investment Postcard's recent, "Words from the wise", roundup.

As you'll note from looking at the chart above, we are currently in the midst of a sharp correction from the near-parabolic highs reached during this decade's "housing bubble". From the peak in 2004 to the most recent low (just below $170,000), we see a decline of around 50 percent in the median home price.

If this were a stock chart, we might note that the most recent low also violated a line of long-term support (drawn in red) at the $170,000 price level. This is the level from which home prices "broke out" in an advance above their previous highs beginning in the mid-1990s.

Assuming this type of chart inference is applicable to real estate prices, can we expect median home prices to return to their previous "trading range" of $145,000-$170,000 in inflation adjusted ter…