Wednesday, November 29, 2006
They fly so high, nearly reach the sky
Then like my dreams they fade and die."
I'm Forever Blowing Bubbles - Jaan Kenbrovin & John William Kellette 1919.
With all the talk about financial bubbles these days, we might start to get comtemplative and ask ourselves a couple of basic questions.
First, what is a bubble? And second, have the conditions that define a bubble been shown to exist in one or more areas of the economy? Are we in fact living in a "bubble economy", or is the term being indiscriminately applied to any phenomenon where rapid growth and speculation have been observed?
Let's begin by defining our terms. A financial bubble is properly defined as a situation in which the market for an asset or valued object has been taken over by rampant speculation, with increasing disregard for the underlying economic fundamentals.
In Manias, Panics, and Crashes: A History of Financial Crises, Charles Kindleberger outlines the process by which financial manias become financial panics. He describes a recurring pattern in which easily available money and credit fuel increasing investment and speculation. This cycle feeds off of itself, to a point where the expectations of the speculative boom are no longer pinned to reality.
Thanks to M.A. Nystrom for providing the following Kindleberger passage:
The object of speculation may vary from one mania or bubble to the next. It may involve primary products, or goods manufactured for export to distant markets, domestic and foreign securities of various kinds, contracts to buy or sell goods or securities, land in the city or country, houses, office buildings, shopping centers, condominiums, foreign exchange. At a late stage, speculation tends to detach itself from really valuable objects and turn to delusive ones. A larger and larger group of people seeks to become rich without a real understanding of the process involved. Not surprisingly, swindlers and catchpenny schemes flourish.
At some point, the value of the sought after object is called into question and the crowd begins to realize that there is no real substance underpinning their investment. The bubble bursts and the cycle is complete. A similar pattern is described in Edward Chancellor's book, Devil Take the Hindmost: A History of Financial Speculation.
So now that we know how a bubble works, the question becomes: are we currently experiencing one or more bubbles in the financial markets? This question has recently been taken up by more than a few writers. We'll reproduce some of their views here and get an idea of where we stand.
I should note at the outset that I would not bother to examine the arguments of those who failed to identify the previous market bubble, the Nasdaq telecom and technology share mania which ended in 2000-2001. While I am open to the dissenting views of any informed commentators, I would be loath to follow the advice of anyone playing the role of "market cheerleader". On to the good stuff...
"There is nothing better than a good bubble", says Financial Times columnist James Altucher. In this recent article, Altucher disregards the current obsession for labeling bubbles and focuses instead on the values he is finding in the shares of America's leading companies.
Rather than be put off by talk of a resurgent bubble in the Dow Jones Industrial Average and its large cap, blue-chip components, Altucher is looking for relative value. He says that the average is being led higher by a small group of stocks while most have lagged behind.
Many of these shares, he claims, remain attractive. He cites Microsoft, Disney, Verizon, and Wal-Mart as examples. Despite poor performance in the post-2000 bubble contraction, Altucher feels that these large-cap shares will follow the Dow higher in the future.
Surprisingly, this is a view that was recently shared by none other than Dr. Marc Faber. In the September 22 article, "Dr. Doom turns bullish on U.S. large cap stocks", Marketwatch picked up on the news of Faber's favorable near term outlook for American large cap and technology shares. While Faber had taken a largely cautious stance on all asset and investment markets, this news provided a bit of a reprieve for the U.S. market.
Still, the news of Faber's bullishness also carried the message of a pessimistic long-term outlook for the dollar and U.S. economy relative to Asia. Dr. Faber's latest message to investors is this: do not expect the Fed to bail out the economy time and time again with ample liquidity.
The notion among investors has again arisen that the Fed will soon cut interest rates and support the economy and asset markets with monetary policy measures. I believe that, sooner or later, this scenario is very likely, but instead of boosting the real economy and asset prices in the US, it will lift precious metals, commodities and foreign assets further.
The point that Faber makes is that further liquidity injections will likely spill over into the speculative arena. Instead of successfully propping up the economy and housing market, the money will find its way to the markets that are already bouyant and getting ready to rocket higher. Be sure to read all of Dr. Faber's recent writings for a better understanding of these trends.
Jim Puplava provides an interesting overview of how monetary and fiscal policy gave rise to asset inflation in an article entitled, "The Two Bens". Citing the arguments of Debt and Delusion author Peter Warburton, Puplava describes how central banks put forth a prescribed set of solutions for government to combat inflation in the 1960s and '70s. These actions provided the impetus for subsequent asset inflations/bubbles that we still refer to as "bull markets".
The advice given was three-fold; raise short-term interest rates, cut government spending, and finance the deficit through the issuance of debt to foreign and domestic investors. Instead of monetizing debt, governments turned to the international bond markets to finance their largesse. Deficits still grew along with government spending. The difference was that inflation was transferred to the financial system.
The result was a bull market in paper in both stocks and bonds. Central banks still monetized debt, but not at the same pace. The money supply still expanded and currencies still depreciated, but we no longer called it inflation. The new term was asset bubble as we went through asset bubbles in farm land, oil, stocks and real estate in the 1980s. This was followed by additional asset bubbles in foreign bonds, emerging markets, U.S. stocks, especially technology stocks in the 1990s. In this century we now have asset bubbles in bonds, mortgages, real estate, stocks and in consumption, as reflected in a rising trade deficit.
And lastly, we should look to recent events in the mergers and acquisitions arena and the latest wave of leveraged buyout activity. The most recent string of deals have moved some people to suggest that the private equity led LBOs represent a bubble in themselves, or at least a highly visible sign of an ongoing credit bubble worldwide.
For more on this, see the writings of Doug Noland, who has been chronicling the dynamics of a "credit bubble" for some time.
As you will see in the writings of Doug Noland, Marc Faber, and others, a worldwide expansion of money and credit can spill over into other areas of the economy, fueling speculation in any number of items. Repeated efforts to "save" the economy from the course of a normal boom and bust cycle, through liquidity injections, disrupts markets and may give rise to a bubble economy.
In such an environment, one ready-to-burst bubble will be swiftly replaced with another asset bubble in an attempt to "keep things going". We have already seen this process at work in the mortgage finance and real estate bubbles that replaced the deflated stock market bubble of 2000. Only time, and a careful investigation of the facts, will tell us when and where the next bubbles will appear.
Tuesday, November 28, 2006
In, "Hedge-Fund Returns Can Be Matched Without Fees", Bloomberg gives us the low down on Kat's findings.
Synthetic funds would have outperformed 82 percent of the 2,000 hedge funds and 500 funds of hedge funds studied by Kat, a former head of equity derivatives at Bank of America Corp. Most of the gains generated by hedge funds were eaten up by fees, typically 2 percent of a portfolio and 20 percent of profits, he found after studying 15 years of monthly fund results.
``In most cases, managers aren't good enough to make up for the massive fees that they charge,'' said Kat, a professor of risk management at Cass, part of London's City University, in an interview. ``The combination of excessive fees and minimal opportunity in the market makes alternative investments really doubtful in terms of their value for portfolios.''
The story goes on to mention that Professor Kat's "Fund Creator" system will replicate the performance of any fund and has been shown to return 10 percent a year. This compares with returns of 6 to 7 percent after fees for the average hedge fund studied.
Update: The All About Alpha blog has included a link to Kat and Palaro's research papers on hedge fund returns. To read the papers, open the links and scroll down to the "SSRN Electronic Paper Collection" heading. There you can choose a source from which to download the document in PDF format.
Monday, November 27, 2006
The last time I was here, two years ago, the thing that struck me was the number of cars and trucks on the streets of Beijing, and the realization that we (as Americans) were going to be in competition for oil. But this time, I was struck by something else: a sense of Chinese invincibility. In the English-language news, there’s almost no mention of the war in Iraq, the mid-term elections or North Korean nukes; it’s as if they’re side issues (think of Americans covering Britain’s Boer War in 1880) and tangential to the future. It’s the Chinese century. And however an important trade partner we may be, we represent the past.
Have a look. It's a short piece, and an interesting account of one traveler's experiences and observations.
Sunday, November 26, 2006
This week, Jim Puplava interviews Matthew Simmons, Chairman of Simmons & Company International. The topic: a critique of the recent CERA report, which claims oil supplies are plentiful and that a peak in production with ensuing decline curve will resemble an "undulating plateau".
Check it out.
Friday, November 24, 2006
Enjoy the video for the insights expressed by Dr. Faber and for the refreshing break from financial fantasy land.
Thursday, November 23, 2006
Last year, we lamented the passing of M3 reporting. This broadest of money supply measures had shown a discomforting increase in liquidity, far greater than what M2 was revealing.
At the time of the M3 announcement, we suspected the Fed was attempting to cover their tracks, disguising an ongoing increase in money supply and an unstated "easing" in Fed bias. Since that time, we have learned: the Treasury Department was also adding liquidity -- a duty they have assumed, in part, in addition to the same performed by the Fed. Indeed, based on the credit growth data Doug Noland published last month (October Credit Review), it appears that the Fed has – despite increasing interest rates – actually eased over the last two years.
Barry also mentions the websites where M3 figures are being reconstructed from publicly available data. One such source is the excellent Nowandfutures.com (see "Key Stats (M3)" at the top of their home page for those figures). Another is John Williams' Shadow Statistics site.
For more background on the Fed's discontinuance of M3 reporting, please see the following article, "M3 Outrage".
Wednesday, November 22, 2006
We asked this question back in March in a post entitled "Mergers and global liquidity". All the usual reasons for doing deals still applied (savings, "synergies", empire building, etc.), but it seemed that the recent upsurge in M&A and buyout deals has been fueled by something else: in a word, credit.
Well now comes news that the most recent deal binge has, in fact, been financed through easy and cheap debt.
In yesterday's Financial Times (November 21, 2006 print edition), John Authers looked at the deals done in the previous 24 hour period and asked, "where did yesterday's rash of deals come from? The answer is the credit market".
Authers went on to say that because of low borrowing costs, it is now cheaper for companies to finance themselves more cheaply through debt, rather than equity. This, being opposite from the usual case where tapping the equity market is seen as a more favorable option.
A similar point was made by FT writer Christopher Brown-Humes earlier in the month. See his November 4 article, "Debt and equity markets point to continuing boom in M&A" for more.
These points were echoed in John Politi's piece, "$75bn in 24 hours". He noted that deals announced in the recent 24 hour period were driven partly by "the protracted availability of inexpensive debt to finance takeovers".
We are seeing a rush of mergers and private equity deals financed largely through easily available credit and debt. As Richard Russell recently noted, this huge pool of money may not be easily available to you and me, but it is there for the big players constructing the deals.
Tuesday, November 21, 2006
In "Mafia Loot Financed Aborted Gas Scheme...", reporter Steve Scherer describes how the arrest of Mafia boss Bernardo Provenzano led to knowledge of the Sicilian Mafia's dealings in the natural gas business.
The deal -- which was thwarted by Italian investigators -- highlights the changes in the Sicilian Mafia over the past few years. The Sicilian mob, known as Cosa Nostra, has had a stranglehold on the island's economy since the organized crime families first rose to prominence in the mid-1800s.
It's only recently that the Mafia has been in contact with people capable of putting together a legitimate transaction of the scale and sophistication of the Kazakh gas deal -- involving some of the biggest companies in Europe and one of the world's most- sought-after commodities. It's the kind of deal that would make television's Tony Soprano sit back and light up a cigar.
``Today's mobsters try to create their own businesses,'' says Pietro Grasso, Italy's chief Mafia prosecutor. Grasso formerly was the top prosecutor in Palermo, Sicily, where he spent seven years hunting Provenzano.
``It's more and more common that when we seize a mobster's holdings, 40 percent of what we take is either a business or a commercial activity,'' Grasso says.
Interesting stuff. Read on at the link above for details of the deal and the Mafia's increasing economic sophistication (to borrow Bloomberg's phrase).
Sunday, November 19, 2006
SCOTLAND Yard is investigating a suspected plot to assassinate a former Russian spy in Britain by poisoning him with the deadly metal thallium.
Aleksander Litvinenko, who defected to Britain six years ago, is fighting for his life in a London hospital. A medical report shows he has three times the maximum limit of the odourless, tasteless poison in his body.
It is unclear how the poison was administered, but on the day he became ill he had a meal with a mysterious Italian contact.
Friends of Mr Litvinenko, a former lieutenant-colonel in Russia's Federal Security Service, are convinced he is the victim of a murder attempt by former colleagues. They regard it as similar to the plot in which a Bulgarian dissident was killed in 1978 with a poison-tipped umbrella on Waterloo Bridge in London.
One gram of thallium, a restricted substance in Britain, is enough to kill the fittest of men.
And more from Reuters: a rundown of Eastern European poisoning plots.
It's plain to see that some of the more recent poisonings are linked to the war between Russia and Chechnya; Litvinenko was investigating the murder of Russian journalist Anna Politkovskaya at the time of his poisoning. Politkovskaya was an outspoken critic of Russian President Vladimir Putin and the Kremlin's policies in Chechnya.
See also the suspected poisoning of Yuri Shchekochikhin, a Duma deputy and deputy editor of Novaya Gazeta in Moscow. Reuters reports that friends and family believed his death to be the result of dioxin poisoning. "He had been investigating the involvement of Russian security agencies in a series of apartment bombings in Moscow in 1999."
According to BBC News, Mr. Litvenenko had written a book on this subject called, Blowing up Russia: Terror from Within, which alleged "that FSB agents coordinated the 1999 apartment block bombings in Russia that killed more than 300 people."
Friday, November 17, 2006
Sure enough, The Oil Drum has come right back with a response to CERA's recent report, which predicts that oil supplies "will continue to grow and sustain economic growth". That's Oil Drum's phrasing, not mine, and it's a thread that I'll have to read carefully.
Be sure to set aside some time and have a look at this important energy debate.
Wednesday, November 15, 2006
Kazakina: What's driving the demand for art?
Glimcher: The amount of money in the marketplace and the incredible discretionary income. Money has very little meaning to certain people anymore who are making hundreds of millions dollars a year. It doesn't matter if they are paying $80 million for a Pollock. It does not alter their lifestyle at all. It's just, ``I want it and what does it take to get it?''
That's why the auction market is a little bit crazy. We'll have a show of 10 works by an artist, and they'll all sell. And then other people want them, can't get them. One comes up on the open market, and they'll pay twice what they were in the gallery.
Do have a look.
Monday, November 13, 2006
Bloomberg reports that the California Public Employees' Retirement System has decided to set up a pilot commodities investment program. Calpers is the largest US public pension, so this decision is likely to carry some weight with the boards of pension and endowment funds across the country.
The increased acceptance of commodities as an "asset class" was forecasted by investor Jim Rogers in his 2004 book, Hot Commodities.
At that time, Rogers pointed out that an increasing body of academic and professional research had legitimized the case for commodities investment, which meant that investment institutions would increasingly climb aboard.
This recent news is evidence of that trend unfolding.
Sunday, November 12, 2006
Saturday, November 11, 2006
In an interview segment with Bloomberg TV, Mr. Ross gives his outlook and tells us why default rates will accelerate from their recent lows. Something you might want to look at and consider if you have any exposure to high-yield bonds through fund holdings, or investments in at-risk industries.
Disclaimer: Not a recommendation to buy or sell any security. Consider all such news and opinions as educational material, for informational purposes only. We are not an investment advisor.
Friday, November 10, 2006
In an interview with CNBC-TV18, Rogers offers his view on some of the opportunities that are present in Asia, as well as some of the danger signs on the road ahead.
You will find a small "Watch video" icon at the top of the article, or you can click here to watch the video clip of this interview.
Thanks to mprofit.org for highlighting this recent interview.
TIMBUKTU, Mali (Reuters) - Researchers in Timbuktu are fighting to preserve tens of thousands of ancient texts which they say prove Africa had a written history at least as old as the European Renaissance.
Private and public libraries in the fabled Saharan town in Mali have already collected 150,000 brittle manuscripts, some of them from the 13th century, and local historians believe many more lie buried under the sand.
The texts were stashed under mud homes and in desert caves by proud Malian families whose successive generations feared they would be stolen by Moroccan invaders, European explorers and then French colonialists.
Written in ornate calligraphy, some were used to teach astrology or mathematics, while others tell tales of social and business life in Timbuktu during its "Golden Age", when it was a seat of learning in the 16th century.
"These manuscripts are about all the fields of human knowledge: law, the sciences, medicine," said Galla Dicko, director of the Ahmed Baba Institute, a library housing 25,000 of the texts.
Conservationists hope to keep the manuscripts inside the country and out of the hands of duplicitous dealers and collectors. A major find, for sure.
"Gulf markets in general and the Saudi bourse in particular are negatively affected by the regional political situations, especially the Iranian nuclear stand-off and the fighting in Iraq," said Ali Dakkak, head of Dakkak Financial and Economic Consultants.
"They are also psychologically affected by the drop in oil prices. In the Saudi market, a huge amount of cash was withdrawn by major portfolios and some mutual funds," Dakkak said.
The seven stock markets in the six GCC states have shed some $600bn of their capitalisation since a severe correction began in September 2005 following some three years of strong rises.
For more on how the Middle Eastern share indexes have fared in the wake of last year's drop, see the Gulf Times article link above.
Thursday, November 09, 2006
In, "Fortress to pave way with IPO", the FT reports that the Fortress Investment Group IPO will be the "first public listing of its kind in the US and will provide a critical test of investor appetite for publicly traded hedge funds".
Regardless of whether investors pile into the issue or leave it alone, it seems that hedge funds and private investment groups have left a profound influence on the investment world. The groups have influenced the mainstream investment community with their strategies and philosophies.
From, "Hedges begin to blur at the edges":
THE distinction between hedge funds and the mainstream asset management business has become increasingly "arbitrary" as the two industries converge, according to the head of Barclays Global Investors, the world's biggest money manager.
BGI chief executive Blake Grossman told the Financial Times this week: "The notion that there is a traditional way of investing that is long only, and then there is hedge funds, is crazy. We're seeing real convergence. We're getting mandates to employ some degree of short selling, some degree of derivatives ... If you look out five years, there will be much less of a divide between what's considered a hedge fund and what's considered a traditional strategy."
You may have witnessed some of these changes firsthand. Read on in the articles above for more.
There is, however, one key difference between Deutsche Borse's CX index and others, according to Chris Flood's report in Thursday's Financial Times:
What differentiates Deutsche Börse's approach is that its CX index is based on trading liquidity rather than a weighting of each commodity in the index on historical production data.
For more on the contruction of the index and its unique "dynamic rolling approach", see the preceding article link and Deutsche Borse's CX Commodity Index info page.
Also, if you'd like to subscribe to Mauldin's free email newsletters, you can check out the Investors Insight website and choose what you like.
Wednesday, November 08, 2006
The world is facing an energy future that's “dirty, insecure and expensive” unless governments take steps to promote alternatives such as nuclear and renewable energies, the International Energy Agency said Tuesday.
“The energy future we are facing today, based on projections of current trends, is dirty, insecure and expensive,” the global energy watchdog said in its 600-page outlook. However, “new government policies can create an alternative energy future which is clean, clever and competitive.”
I'm all for it, but just out of curiousity, why do these type of reports always have to be 600 or 1000 pages long? Is it to ensure that noone will read them?
Also, if you read the article you'll see that the emphasis is placed on government; government policies need to be created, government action needs to be taken, etc. I see this kind of language in every kind of news report, regardless of the topic. If there is a problem, government will, or should, solve it. I'm afraid people have become totally powerless and look to government to do everything.
Will government make alternative energies or nuclear power truly cost efficient? They can create subsidies to speed their adoption, which many will argue is a good thing. But over time, these artificial boosts can interfere with the natural role of the marketplace, leading participants to embrace products and solutions that are merely efficient enough to meet minimal standards.
As an example, some people could be moved to install a not-so-cutting edge solar panel on their roof simply because a state tax incentive makes it seem like an attractive option. Let's say you have the following options: you can wait for a more efficient, next-generation solar panel system to come on the market or you can choose in favor of the currently available product and grab that fat tax incentive while it's still on the table. What do you do?
For someone who wants to "go green" and nab the benefit of a tax subsidy, it seems the motivation is there to buy now rather than later. What's so wrong about that? The danger is that a reliance on incentives will create an artificially large market for a so-so product, one whose technological progress has been slowed by a dulling of market forces.
Instead of spurring the market to create a better solar product that creates electricity at say, 10 cents a kilowatt hour, it creates a more complacent marketplace that embraces the current generation 30 cents/kWh product.
The same principle can hold true for the construction of power plants. Some observers have pointed out that nuclear power has been unable to prove itself a cost-efficient energy source in the absence of government subsidies. As the Financial Times noted in their editorial comment on the IEA report:
Even though nuclear power is an issue that still divides its member governments, the agency makes its biggest pitch ever for the building of more reactors. Its argument for low-carbon and relatively indigenous and reliable nuclear power should carry political weight in a week that has seen a widespread black-out in Europe and resumed negotiations to extend the Kyoto protocol on climate change.
Less convincing is its claim that the economics has moved in favour of nuclear power, particularly given the agency also calls on governments to help nuclear power overcome its inherent handicap in liberalised electricity markets.
For more info and opinions, please see the following on solar subsidies and energy subsidies.
Tuesday, November 07, 2006
New voting machines confounded some poll workers around the country on Election Day, and a combination of electronic glitches and human error forced some precincts to extend voting hours or switch back to paper ballots.
More than 80 percent of Americans were expected to cast some type of electronic ballot Tuesday, which was the deadline for major reforms mandated by the federal Help America Vote Act, passed by Congress to prevent a rerun of the 2000 election debacle.
With one in three Americans voting on a machine they had never used before, the effort to improve the integrity of the election system got off to a shaky start in hundreds of precincts from the Rockies to the Poconos. Long lines formed.
Forbes goes on to report that while many poll workers and election judges are confounded by the new machines, no major problems have occured.
"Lots of fender-benders, but no major tie-ups," said Doug Chapin, director of electionline.org, a nonpartisan group that tracks election problems. "It's been a steady drumbeat, but nothing that rises to the level of `This could compromise the results.'"
Still, frustrations abound at many voting centers and the usual reports of voter intimidation and manipulation have cropped up. We'll see how it turns out.
Monday, November 06, 2006
First off, Bloomberg reports that uranium is the hot investment theme at a growing number of hedge funds. This will come as no surprise to anyone who's followed the uranium market over the past few years. We've seen a growing interest in the element as nuclear power stages a comeback, and new investment vehicles such as Uranium Participation Corp have given investors a way to play the metal's rise.
Paul van Eeden, an early investor in the recent uranium boom, is skeptical regarding continued upside potential for the uranium price. As he explains in an August 16 ROBTV appearance, hedge funds and investment funds have driven the spot price through the roof and this has nothing to do with the fundamentals.
By Paul's reckoning, the amount of raw material yellowcake (U308) that nuclear plants need to run their plants can be reduced through the enrichment process. Therefore, we don't have a uranium deficit hovering over us - we now have a surplus. I have seen arguments with Paul's reasoning, but you'll have to try and do the research to come up with your own conclusions.
Also, some very exciting news regarding solar power. Travis Bradford, author of the new book, Solar Revolution, says the US could surpass Germany and Japan as the biggest installer of solar energy.
CNNMoney.com echoes this sentiment with an article from Business 2.0 magazine, which highlights the way Silicon Valley is reshaping the solar power industry. Considering some of the things I've seen in Business 2.0 magazine, I had to read this article with a grain of salt, but it turned out to be a really solid & interesting piece.
Ever since hearing about the success of Cypress Semiconductor's solar unit, I had been wondering if the efficiency of solar panels and equipment could be improved through the engineering and manufacturing know-how of the microchip industry. Here's what I read:
Other old-line Valley tech companies are also jumping into the market. Among the most significant is Applied Materials (Charts). The world's largest chip-equipment maker will begin producing machines to manufacture solar wafers, laying the groundwork for an industrial infrastructure that should lower the cost of producing solar cells. For the first time in many years, high-tech manufacturing plants - yes, factories - are being built in Silicon Valley.
Be sure to check out this article, there are just a lot of interesting elements to this story. As one solar entrepreneur puts it, "Silicon Valley, is moving from a place that uses silicon to make something that consumes energy to one that uses silicon to produce energy."
Saturday, November 04, 2006
A bit of a weekend round-up; recent news stories and other items of interest.
(1) First off, Bloomberg reports that slave labor exists in the Brazilian Amazon. It's the old story; workers are recruited with the promise of a steady-paying job, only to be trapped into slavery via forced work-off of incurred debt.
Modern-day slaves in Latin America aren't bought and sold as slaves were in the U.S. before the Civil War. They're lured from impoverished cities in Brazil's northeast or from the Andean highlands of Bolivia and Peru.
Recruiters dispatched by slave camp owners promise steady- paying jobs, Campos says. Once at the Amazon camps, some workers are forced -- at times at gunpoint -- to work off debts to their bosses for food and clothing bought at company stores.
Many go months without pay or see their wages whittled to nothing because of expenses such as tools, boots and gloves. Lack of money, an impenetrable jungle and a long distance to get home make it impossible for the slaves to leave.
Sounds rather similar to the problems reportedly faced by migrant workers in the outlying encampments of Dubai. Let's hope that businesses and their customers do not turn a blind eye to such practices.
(2) Also at Bloomberg.com, audio of a Korean news conference Q&A with Jim Rogers. See, "Jim Rogers Says U.S. Economy Is Probably Already in Recession".
(3) Video of Matthew Simmons addressing the ASPO-USA conference in Boston on October 26,2006. Simmons is author of Twilight in the Desert and a prominent speaker on energy and issues relating to Peak Oil. One of the many interesting posts you'll find at theoildrum.com.
(4) Fairfax Financial said that a recent rebound in the company's share price can be partially attributed to the success of a lawsuit against overly aggressive hedge funds. From FT Business and The Australian:
the lawsuit, launched last July, halted what they claim was a dirty tricks campaign against the company by hedge funds including SAC Capital Management and Exis Capital.
In the lawsuit, Fairfax claimed that the hedge funds generated bogus analyst reports critical of the company, sent threatening letters to Prem Watsa, Fairfax's chief executive, and his friends and family, tried to intimidate employees into providing sensitive inside information and attempted to plant negative news stories about the company.
The hedge funds deny all of the allegations and are vigorously contesting the civil lawsuit.
Will the measures taken by Fairfax shine a new light on short sales that are allegedly helped along through share manipulation and various other underhanded tactics? See, "Hedge funds halted as insurer fights back".
(5) "Money 'Aint a Thing". Rapper Jay-Z is profiled in the weekend edition of the Financial Times. In, "I'm with the brand", writer Carl Wilkinson describes how Shawn Carter made a mint by building his music career into a personal brand.
Thursday, November 02, 2006
In the following stories, we'll see how the "value", or purchasing power of the dollar can determine the ways in which people allocate their resources. And you don't have to stop at just trading your dollars (or euros, etc.) in for paintings and gold. Some form opinions on the underlying weakness or strength of a currency and use their view as a basis for a currency trade.
You'll see, in this post, a high profile example of how difficult it can be to time such a bet.
Before we begin, I want to give a quick nod to Richard Russell and his Dow Theory Letters report for the heads up on two of the following articles.
Let's start first with this headline-grabbing forecast of the upcoming New York auction season: "Billion-Dollar Record Likely at Art-Jammed Manhattan Auctions". According to writer Lindsay Pollock, auction estimates for the upcoming November art sales at Christie's and Sotheby's are projected to result in the biggest selling season in history. Many expensive items and higher profile works are now coming onto the market:
``People think it's a good time to sell,'' said New York art dealer David Nash. ``The prices things have sold for over the past three to four sale seasons are very encouraging for people to put their works on the market.''
But will the buying interest match the sellers' desire to unload? So far, everyone seems to believe that the newly expanded pool of deep-pocketed buyers will turn up with their checkbooks in tow.
The auction houses also say that the buying pool has grown. Russian billionaires, Asian collectors and a recent influx of hedge-fund managers are all vying with traditional American and European collectors.
``Our bidder lists are more diverse than ever before,'' said David Norman, head of Sotheby's impressionist and modern art department. ``You almost wonder what currencies to put on the board,'' he said, referring to the large electronic displays in sale rooms that convert bid prices into various denominations.
There is a flood of new money circulating across the globe, and the rich and wary are looking to transfer some of these funds into tangible stores of value (while at the same time, exhibiting some of their newly gained status). For more on this trend, see "Tangible Investments".
Now, we also have another time-honored store of wealth: gold.
Richard Russell has recommend that we read John Hathaway's excellent article on the subject, entitled, "Trivial Pursuit". I'm reading this now, and it seems that there is a very insightful analysis regarding gold's correlation to the commodities as a whole. Quote:
Until gold broke above the 350 Euros/oz barrier that had contained it for four years, conventional wisdom held that the currency was a superior way to hedge dollar weakness because it had both yield and liquidity in its favor. In our March, 2005 website article, "Euro Trash," we noted that the relaxation of the stability pact which was supposed to underpin the integrity of the currency was good news for gold. Within two months, gold broke above the supposedly impenetrable threshold, and signaled a new advance of nearly a year in which gold attained new highs against all currencies. Gold's current identity crisis will be resolved when it breaks to new highs against a basket of commodities.
And since we're getting long on type, I'll quickly mention the following article, "Dollar Roulette". A very interesting piece on the currency bets made by Robert Rubin and Warren Buffett.
Why didn't their bets work out? Maybe it was timing, maybe they were just wrong. Who knows, but read it for yourself. It doesn't hurt to learn from their experience, right?
Wednesday, November 01, 2006
Here's an excerpt from the October 30 edition of Richard's Remarks:
A weakening dollar represents a "wake-up call" for gold. Most people don't realize it, but rising gold is a form of dollar-devaluation. It's not an official devaluation, I call it a "free market devaluation".
Question -- Why does the US government continue to keep the official price of gold at $42.22 when the free market price for gold is over $600?
Answer -- This is the government's way of denying that the dollar has been greatly devalued. It's the government's method of keeping its citizens "stupid" and unaware of what's been happening to its money.
Be sure to read the whole thing!