Monday, April 30, 2007

Grantham and Faber on bubbles

Jeremy Grantham's latest commentary to investors at GMO seems to stress the bubble-like atmosphere that's enveloped asset markets across the globe; at least that's what we hear from a number of sources, including John Mauldin and Barry Ritholtz (who might have actually read the thing).

Meanwhile, I can't help but notice that Grantham's observations sound a lot like what we heard from Marc Faber earlier in the year, and as far back as 2006. Let's compare.

Here's Mauldin quoting Grantham:

Grantham says we are now seeing the first worldwide bubble in history covering all asset classes.

"'Everything is in bubble territory,' he says. 'Everything. The bursting of this bubble will be across all countries and all assets.'

"'From Indian antiquities to modern Chinese art,' he wrote in a letter to clients this week following a six-week world tour, 'from land in Panama to Mayfair; from forestry, infrastructure and the junkiest bonds to mundane blue chips; it's bubble time!'

Here's Marc Faber making the same point to Bloomberg earlier in the year, while talking about the easy money conditions that helped bring about the uniform rise in asset markets worldwide:

"Well, I think that the Fed, since June 2004, has increased the Fed Funds rate from 1 percent to 5.25 percent. But money hasn't been tight, because the definition of tight money is that credit/debt...credit market volume, or the debt growth, slows down considerably. That is tight money.

And believe me, when you have tight money the art market doesn't go up by 27 percent like in the US last year. And you don't see new highs in stocks, and you don't see new highs in asset markets like commodities and real estate..."

Since we are fans of both Grantham and Faber, let's just say that great minds think alike (or may at least be influenced by one another).

Update: Link to Grantham's commentary has been updated. You (and I) may now read a full reproduction of, "It's Everywhere, In Everything: The First Truly Global Bubble", courtesy of John Mauldin's Outside The Box e-letter.

Turkish market & political fears

Reuters reports that Turkish shares are down sharply on worries over the country's political future.

A standoff between supporters of Islamic and secular government has sent shares reeling; at one point in the day's trading, the Turkish market was down close to 8 percent. Reuters has more:

Istanbul's main index (.XU100: Quote, Profile, Research was down 6 percent and Turkish sovereign bonds sold off after a court challenge to the presidential election process and a mass demonstration against the ruling party.

Fears of army intervention, prompted by a warning to the Islamist-rooted AK Party government that it would protect the secular state, added to the concerns.

Meanwhile, Bloomberg reports that the latest drops in the share market and the Turkish lira come at a time when the market was enjoying a bit of a rebound over last year's poor performance.

The lira's drop today pares a gain of 5.4 percent since the start of the year and the benchmark National 100 Index of the biggest stocks was up 20 percent on the year before its slump today. Turkiye Is Bankasi AS, the nation's biggest bank, dropped 45 kurus, or 6.4 percent, to 6.55 liras, and Koc Holding AS, the biggest Turkish company, fell 35 kurus, or 5 percent, to 6.75 liras.

Turkey's economic growth has averaged 7 percent a year since 2002, compared with 1.6 percent in the countries sharing the euro. The country attracted a record $19.8 billion in foreign investment last year, twice the previous year's figure and another $11 billion in the first quarter of this year. Its benchmark stock index, which reached a record April 25, has been the world's 11th best performer this year among 90 global indexes tracked by Bloomberg.


Investor Mark Mobius remained positive about the outlook for Turkey and its share market when he spoke to Bloomberg News last week.

Despite the current political turmoil and last year's poor stock market performance, Mobius said that he is heavily invested in Turkey and sees its stock market as an area of attractive value relative to other global markets.

More info on Turkey's political situation at Bloomberg and MSNBC.

Friday, April 27, 2007

Features of the week

The most interesting stories in business and world events are right here. Let's begin!

1. Ocean freight rates (Baltic Exchange Index) hit an all time high, as capacity in dry bulk shipping is outpaced by global demand.

2. Nicholas Vardy at Seeking Alpha asks, "Are We Currently in the Middle of a Commodities Super Cycle?".

3. Bloomberg speaks with global investor Mark Mobius about emerging markets and US and world GDP figures. Thanks to Ivan of At These Levels for his comments on this clip.

4. More on the upcoming launch of uranium futures contracts on the NYMEX from MarketWatch. They pulled together some interesting quotes for this story, and its good to see them speaking with people who have been watching this market closely for the past several years.

5. Financial Times investigates the true state of the carbon trading market and finds "widespread failings in the new markets for greenhouse gases".

6. Biofuels are speeding up deforestation, but the UN is backing an EU plan for mandatory biofuel blending in automotive fuels.

7. Philanthropy steps in where the state failed. This report will come as no surprise to anyone familiar with libertarian philosophy or pre-welfare state history.

8. Entrepreneurs say business conditions are harder. A survey of British entrepreneurs shows dissatisfaction with excessive red tape and poor worker education, key among concerns over future UK competitiveness.

Interestingly, a quarter of the survey respondants seem to think that the government should do something to better the education system. Wasn't it government that gave them the education system and regulations that are currently in place?

9. In praise of entrepreneurs. The Economist reviews a new biography of economist Joseph Schumpeter.

While their review suggests that Schumpeter's work on business cycles "is little read today because the idea at its heart has not stood up to scrutiny", some observers have apparently taken notice of Schumpeter's writing on this subject.

For more, see Dr. Marc Faber's reading list in our link section.

10. Businessweek's Spencer E. Ante on David Halberstam's Last Speech. Audio tape and transcript of Mr. Halberstam's final public speech is available.

11. Reuters: Scientists find most Earth-like planet yet. Unfortunately, a search for intelligent life on the planet has only revealed the existence of a toy-dog-in-purse toting race.

12. Economist special report on credit derivatives.

13. Bloomberg columnist Caroline Baum says, "France's Sarkozy Is No Maggie Thatcher".

14. Hedge funds for the masses? Christian Baha's Superfund Pitch.

15. Gary Dorsch and Ty Andros discuss the rise in China's dollar reserves and the rise of global inflation.

16. Bear Mountain Bull on Dow 13,000.

Read and enjoy, my friends!

Wednesday, April 25, 2007

Forbes and Pickens on peak oil

Here's something for your viewing pleasure.

Yesterday Bloomberg posted some interview video clips from the Milken Institute Global Conference in Los Angeles. Among the guests: Steve Forbes and T. Boone Pickens, both of whom stopped to chat with Bloomberg's Brian Sullivan about the economy and rising energy prices.

It's not everyday you get to field back to back interviews with the likes of Forbes and Pickens, but what's especially interesting about these clips is that the two took the opportunity to argue their respective side of the "peak oil" debate.

Judging by their arguments, I'd say Steve Forbes is firmly in the "cornucopian" camp, while Pickens believes that we have reached a worldwide peak in oil production.

In responding to Forbes' assertion that market forces will solve our oil production concerns, Pickens hits the nail on the head by answering that the free market will take care of the energy problem (by shifting demand to new cost-effective energy sources), but it will not be able to create new deposits of oil in the ground.

Other notable points: Steve Forbes' views on the dollar and inflation. I was far more impressed with his views on fiat money than his take on increasing oil production. But that's me. Check it out for yourself.

A Western oligarch in Moscow.

Interesting article from The Spectator about New Zealand-born banker, Stephen Jennings called, The only Western oligarch in Moscow.

Thanks to Controlled Greed for pointing out this feature.

Have a look.

Conde Nast's Portfolio

Had a chance to flip through Conde Nast's new business magazine, Conde Nast Portfolio, for a few minutes the other day.

The title's much-discussed first issue was not exactly a great success in the eyes of many reviewers, but I have to say that what I saw and read was not half bad.

A few of the features that I can recall offhand:

An article on the rise of Dubai and its recent oversized entry into the world of horse racing/horse auctions;

A study of T. Boone Pickens' troubled personal life;

The story of some private equity investors who made a successful bet in the music industry, backing the label that spawned the multi-platinum selling group, Maroon 5;

Roger Lowenstein's review of Nassim Taleb's new book, The Black Swan;

And an article on the recent craze over Chinese contemporary art.

I didn't bother with the Tom Wolfe piece, and I remembered too late that there was supposed to be an article on fly fishing in there somewhere that I did not see as I was flipping through.

All in all, nothing groundbreaking, but a very decent showing for a glossy mag with its particular look and feel.

I found the content and style to be very evocative of Vanity Fair (no surprise there, given its publisher), with a bit of Fortune, The New Yorker, and Trader Monthly thrown in the mix. The ads seem to target a similar audience. I'm not sure how the readership is split as far as male/female demographics.

If you're at the newstand, give it a look. You might like their Vanity Fair-style take on the movers and shakers in business, or find something interesting besides.

Monday, April 23, 2007

More commodity ETFs

We've got more commodity-based ETFs coming down the pike this week.

Sponsors ETF Securities and Swiss bank ZKB are getting ready to roll out exchange-traded commodities (ETCs) based on several of the precious metals.

Forbes reports:

ETF Securities is scheduled to launch five new physically backed exchange-traded commodities (ETCs) based on platinum, palladium, gold and silver on the London Stock Exchange tomorrow.

Meanwhile, Swiss bank ZKB is planning to launch an EFT in platinum, palladium and silver on May 10.

ETCs, like ETFs, trade commodity futures, backing up every ounce of stock bought on paper with actual physical stock. As a result, the launch of an ETF often squeezes the market as it eats up the amount of physical stock available.

More coverage on the forthcoming ETCs can be found at Resource Investor. You may also want to check out their note on tightness in the silver market and Roland Watson's "empty ETF" theory.

A few practical notes on how some of the commodity-based ETFs have fared so far, and what investors should know about their actual performance and volatility:

1. Roger Nusbaum on including commodities and commodity-based ETFs in portfolios.

2. Bear Mountain Bull crew discusses problems with some of the commodity-based ETFs and MarketWatch adds their take, tying poor performance at the US Oil Fund (USO) to a contango in the futures market and the resulting hit from rolling over futures contracts.

3. Seeking Alpha contributor Richard Shaw claims ETNs sponsored by Barclays did a better job of capturing commodity related returns than some ETFs, particularly in the case of crude oil based ETF products.

However, a commentor notes that both instruments have significantly lagged their benchmark, the West Texas Intermediate crude oil price.

4. Dave Fry discusses commodity ETFs with Kevin Rich of DB Commodity Services in this recent podcast at ETF Digest.

Lots of news on the commodity ETF front, as you can see.

As mentioned in the Marketwatch piece on USO, we've also seen a recently launched natural gas ETF, and the sponsor behind these products is also planning ETFs that will track the price of heating oil and gasoline contracts.

Metals and energy are hot topics with investors, and this interest is not confined to the area of exchange traded funds. Check out the newly announced plans for a uranium futures contract at the NYMEX for further proof.

Saturday, April 21, 2007

Matthew Simmons interview

Just a heads up on the recent Financial Sense Newshour interview with guest expert Matthew Simmons, for anyone who might have missed it a couple weeks ago.

Jim Puplava speaks with Simmons about the need for greater awareness of peak oil-related issues, and for reexamining our current energy-intensive lifestyle and economic framework. As always, an interesting discussion.

You might also wish to contrast Matt Simmons' views with those of another recent FSN guest expert, Duncan Clarke. Clarke is the author of The Battle For Barrels: Peak Oil Myths and World Oil Futures and he is the guest expert interview for the April 14 broadcast.

Check it out.

Friday, April 20, 2007

Bullish on gold, gold shares

The prognosis for gold bullion and gold mining shares is bullish, according to two reports from market watchers, The Aden Sisters, and Financial Sense contributor Martin Goldberg.

Mary Anne and Pamela Aden are telling investors to "Keep Focused" on the major long-term trend for gold, which is up. Silver is also very strong, and rising against major currencies such as the euro. The Adens currently see a bullish pattern in all the precious metals.

Marting Goldberg, writing in Thursday's FSO Market Wrap-Up, wonders if the Amex Gold Bugs Index (HUI) will break through the important 370 level to the upside.

While the index failed to do so last November during a similar trading range pattern, Goldberg feels that this time the technical indicators are better aligned for an upward move through 370. However, watch out for that overbought signal, which does present the risk of another correction.

One more point from Goldberg's article: he notes that among the less-than-bullish signals for HUI is the fact that "gold stocks are tracking all stocks".

He notes that price movement in the HUI index is lately much in line with that of the S&P mid cap ETF, and is worried over the possibility that they are both driven by similar forces (liquidity induced rallies/declines).

This point is also taken up by Greg Silberman in his recent article, "All Hands on Deck - Gold Bull Run Ahead!". While Silberman is obviously bullish on gold and gold shares, he also points out the worrying correlation between resource shares and the overall stock market.

What has bothered me most about the rise in Gold and Energy (GE) stocks is the close correlation with the Stock Market. Instead of counter-cyclical hedges GE Stocks are behaving like high Beta stocks (as we found out in late February).

Therefore, it stands to reason that if increased liquidity is driving GE’s and other asset prices higher, a decrease in liquidity would do the reverse. How would we see a contraction in liquidity? I’d say we’d see it in the US Dollar.

So while the longer term trend for gold and precious metals looks bullish, we should also examine the possible stumbling blocks that could cause near-term and intermediate-term corrections in gold and gold shares.

Remember, the views represented here are the opinions of their authors. Treat this material as an educational aid, and don't count on any of it as direct investment advice. You alone are responsible for your investment decisions and due dilligence in investment research.

Having said that, enjoy the articles.

Thursday, April 19, 2007

Small caps at a premium?

Here's something for you to consider: does the "size effect" still give small cap stocks a performance advantage over large cap stocks?

That's the question posed by James Montier in a piece highlighted by John Mauldin's "Outside The Box" e-letter.

In, "Meaty Beaty Big and Bouncy", Montier examines the small cap effect and finds the performance advantage lacking in recent years.

To hear why the small cap size effect should be considered more of a "value effect", read on at the link above.

Wednesday, April 18, 2007

Selling beta for the price of alpha

The All About Alpha blog has posted a link to a recent EDHEC interview with "Handbook of Hedge Funds" author Fran├žois-Serge Lhabitant, who talks a bit about hedge funds and their strategies.

Lhabitant also discusses replicable hedge fund strategies, and in the midst of some rather arcane discussion about possible replication of hedge fund performance, notes that some hedge funds may be "selling beta for the price of alpha".

Here's the quote in context:

In the average hedge fund, there are probably a lot of these static risk exposures and replication will work well. But in the “best” hedge funds - the few ones I am typically looking for as an investor - what I pay for is proprietary strategies with skilled traders, robust risk management and technology, and constant capital reallocation towards the best opportunities.

I am also buying the experience of a manager that has been going through crashes and knows what to do when liquidity dries out, his credit lines are pulled down and his level of margins revisited. This dynamic behaviour is very difficult to replicate and this is why I might agree to pay 2 and 20 and sometimes even much more.

So, my view is that if a fund is replicable ex-ante month after month by a simple “automated” strategy, then I am not interested in this fund – its manager is essentially selling beta at the price of alpha. Note that this is probably the case of the majority of hedge funds and hedge fund indices today, so why not replicate them…

He goes on to differentiate between these "automated" strategies and the replication approach suggested by Harry Kat via his Fund Creator vehicle, both the subjects of an earlier post.

Those EDHEC interviews seem like a cool resource for understanding more about the hedge fund world; I just feel like I need someone to explain them to me. Thanks to Abnormal Returns for pointing us to the link.

Kasparov & the "Other Russia"

Bloomberg video clip of Russian opposition figure Garry Kasparov, discussing his role in a mass arrest that took place during a Moscow protest, as well as his view of life in Putin's Russia.

Contrast Kasparov's views with those of the ruling party and allied corporate chieftains, such as Gazprom's Alexander Medvedev, whose Bloomberg interview clip was posted here last week.

Are Kasparov and his ilk, "extremists", as the Russian government claims? Will the transfer of leadership role in Russia's 2008 elections prove to be nothing more than a farce?

I see very little attention being paid to the political developments taking place inside Russian here in the US.

For more info on the recent protests in Russia and a big picture view of that country's future, see the Russian Standard blog's post on a Stratfor piece entitled, "The Coming Era of Russia's Dark Rider".

Bombings kill 119 people in Baghdad

Another series of deadly, multiple bombing attacks has killed at least 119 people in Baghdad today. Financial Times reports:

Car bombs killed at least 119 people in Baghdad on Wednesday, hours after Prime Minister Nuri al-Maliki said Iraq would take security control of the whole country from foreign forces by the end of the year.

One car bomb alone in the mainly Shia Sadriya neighbourhood killed 75 people and wounded 100, police said

Maliki is under growing pressure to say when U.S. troops will leave, but the rash of at least five bomb attacks in mainly Shia areas underscored the huge security challenges.

The combined attacks were the deadliest in Baghdad since US and Iraqi forces began deploying thousands more troops onto the city’s streets in February under a plan seen as a final attempt to halt Iraq’s slide into sectarian civil war.

The war-torn country is attempting to move forward in handing over control of its provinces from foreign forces to Iraqi security forces.

Tuesday, April 17, 2007

Sell London, Buy Zurich

Fintag brings us news of rising costs for hedge funds in London, and the resultant look to the Continent some hedgies might be taking in search of lower taxes and costs.

Fintag has set their sights on Zurich as a very likely candidate for a new home. Why?

Probably has a lot to do with the lower costs of living and running a business, quality of life, and a possible low tax environment for hedge funds that might come about as a bid to lure business from London.

In any event, we'll let you get their take on it. Click the link above for Fintag's site to see their comments on this possible spread trade.

Subprime market panel

Bloomberg News hosts a panel discussion on the subprime market; video clip is available and runs about an hour an a half long.

Guests include Scott Simon of Pimco, David Teicher of Moody's, Andrew Tilton, chief US economist at Goldman Sachs, and Mark Tecotzky of Ellington Global Asset Mgmt. Bloomberg's Brian Sullivan moderates.

For anyone who wants to wade through the mess in the mortgage market, this would be an interesting resource.

Vietnamese stocks: Asia's priciest

Cool article from last week's Bloomberg.com selection on share valuations in Vietnam.

Vietnam is now home to Asia's most expensive share market, with the Ho Chi Minh City's VN Index fetching 32.6 times this year's estimated earnings (China's CSI 300 index is valued at 32.4 times est. earnings).

The Vietnamese stock market was propelled to dizzy heights last year, as a flood of investment money pumped the share market capitalization up 40 times in the space of one year. From a market valuation of $500 million at the end of 2005, shares rose to a peak value of around $20 billion in late 2006.

Valuations have backed off a bit in the latest decline, but the Vietnamese government will continue expanding the pool of tradeable companies. Excerpt:

The value of the Ho Chi Minh trading center's shares through today has risen to $14.8 billion from about $500 million at the end of 2005. The number of listed companies on the six- year-old market has more than doubled over the past six months to 107. Almost all were initially wholly state-owned. Pha Lai Thermal Power, the VN Index's fourth-biggest company, is still majority-owned by the government.

The State Capital Investment Corp., responsible for overseeing the sale of government holdings, has so far taken control of 450 companies and listed 17, including Vietnam Dairy Products Joint-Stock Co., according to Le Thi Bang Tam, chairwoman of the SCIC.

The number of companies under the SCIC's management will grow to 1,000, with plans to list at least 20 in the stock market, said Tam, a former deputy finance minister. The goal is to eventually keep control of just 100-200 ``strategic'' companies, she said.

See the article link for more.

Monday, April 16, 2007

Dollar downtrend

Barry at The Big Picture notes that the US dollar index has broken down through its most recent level of support.

Most recent support line was drawn in at around the 82.25 level. That support has now been violated, at least on the daily chart, as the $USD closed today at 82.174.

The downtrend continues...

Update: The British pound has traded over the $2 mark for the first time since 1992. More on that from Bloomberg.

Virginia Tech: a needless massacre?

You've probably seen the news of the horrible shooting spree that took place on the Virginia Tech campus today.

When I saw the first reports this morning around 9 am, one student had been shot and the brief summary of the incident noted that the university web site was instructing students to stay in their dorms. Soon afterwards, the shootings started up again and over 20 students were killed.

All this occured while the school was on "lockdown" mode, with entrances to the university blocked and students isolated inside their dorm rooms.

I don't usually comment on the tragedy of the day, but in the case of these latest school shootings at Virginia Tech, I feel compelled to post something that someone else wrote.

In light of this latest tragedy, I thought back to a post that I'd seen at the Mises.org site in March about the students that died while trapped in their school during an Alabama tornado.

In that instance, school and local officials herded kids into school hallways and refused to let them leave the building; eight kids died and more were injured when the tornado hit and the walls caved in on the kids and the parents who tried in vain to get them out.

Here's an excerpt from the Mises.org editorial, "Planned to Death":

Yes, some parents have spoken out against the decision of the school to keep the kids corralled in a trap of death. But their complaints have been shot down by the "responsible" voices of the officials in charge. Meanwhile, news has slowly leaked out that other schools in Alabama have a different policy: they shut down the school and tell the kids to get the heck out.

This is an unusual approach. The whole culture of emergency in this country seems to be predicated on the notion that people do no know what is best for them. They need authorities to tell them what to do. And whatever they do, they must do it in concert. Masses of people must be shuffled this way and that, and no one should be permitted to have any choice in the matter.

I don't know if this latest event at Virginia Tech has all the hallmarks of the "sitting ducks" scenario that befell the high school students in Alabama, but I think that this aspect of the tragedy is one of the most important elements to be explored. At least for those concerned with human safety and the rights of the individuals whose lives are at risk in such a situation.

A new portrait of Thomas Edison

Bloomberg reviews a new biography about inventor Thomas Edison, which portrays the famous inventor as a tireless worker and endless promoter.

The book also details Edison's shortcomings: his lack of savvy in business matters, and the liberal manner in which he bent the truth.

An excerpt from, "Thomas Edison Hoodwinks Reporters, Misjudges Markets in New Bio":

Edison persuaded a toadying press and eager investors that his rollout of this or that revolutionary invention was days or weeks away, chronically ``blurring the distinction between what he hoped for and what he had achieved.'' Anyone in business knows the phenomenon.

One day, he switched on a prototype light bulb for a visiting reporter. ``Sitting in front of the bulb that would burn out in a couple of minutes were he to leave it on beyond the brief demonstration, Edison was asked, `How long will it last?' He answered, `Forever, almost,''' writes Stross, a business professor at San Jose State University.

Interesting stuff. That first paragraph makes him sound a bit like Steve Jobs, doesn't it?

Check out the article and, if you have an interest in the life of this famous inventor, keep an eye out for the book.

Friday, April 13, 2007

Features of the week

It's time once again to roll up all the great stories and article features of the week and post them up here for your reading & viewing enjoyment. Here we go:

1. John Arnold of Centaurus Energy is crowned the new king of hedge funds.

Thanks to Fintag for the heads up on this Guardian article chronicling the latest roll call of hedgie masters and their place among the world's top financiers.

2. "Why some funds do not want your money". The Financial Times reports on the difficulty some investors face in trying to invest in the hedge funds of their choice. Some investors have even tried to trick their way in!

Article related note: Did you know that there is now a small secondary market that lets investors buy and sell hedge fund investment units? I did not. Read all about it at the link above.

3. Uranium crosses the $100 mark. It's been quite a ride for anyone who's been watching the chart or investing in the metal or in shares of uranium producers.

From a low of around $8 in 2001, U308 spot prices built a base above the $10 mark and have climbed relentlessly over the past several years. This week, prices moved up to $113 a lb. on news of supply disruption due to problems at ERA's Ranger mine.

What's the story behind the climb? That is the subject of our next feature...

4. "Uranium stocks about to gap higher", says newsletter writer, Elliot Gue. An interesting feature on the history of the 1950s uranium boom and a look at the fundamentals driving the recent resurgence in nuclear power.

5. "How to Get Out of Iraq". Thanks to 321gold.com for the link to this Nation article by Juan Cole. Let's read it and see if it makes sense.

6. Bloomberg reports that Russia's RTS index has hit the 2000 mark for the first time, thanks largely to rising oil prices. The country's stock market capitalization has now passed the $1 trillion mark. Quote:

The RTS, dominated by oil and gas companies, has doubled over the past 17 months, helping push the value of the country's stock market to $1.1 trillion.

7. On a related note, did anyone else catch that brief Bloomberg interview clip with the deputy CEO of Gazprom earlier in the week?

Alexander Medvedev told Bloomberg that he'd like Gazprom to reach a $1 trillion market cap, and that he thinks this goal is attainable in the next few years.

Remember, this sum represents the current value of the entire Russian share market, as we just learned in the previous article. Medvedev seems confident that this goal will be reached within a decade.

I saved the interview link and I see that it's been lengthened to include 46 minutes of discussion.

8. Ron Paul on the "Federal Reserve Monopoly over Money".

Good reading, and enjoy!

Thursday, April 12, 2007

Pressure on Wolfowitz to resign

The flap at the World Bank over Bank president Paul Wolfowitz's involvement in securing a pay raise for a female staffer has led to calls for his resignation.

The Financial Times reports in, "Pressure grows on Wolfowitz to resign":

Paul Wolfowitz was under pressure to resign as president of the World Bank on Thursday after admitting he was personally involved in securing a large pay rise and promotion for a Bank official with whom he was romantically involved.

The Bank president issued a public apology, saying: “I made a mistake for which I am sorry”.

The apology came after the Financial Times
revealed that Mr Wolfowitz ordered the World Bank’s head of human resources to offer Shaha Riza the pay rise and promotion as part of a secondment package.

The instructions were set out in a memorandum dated August 11 2005, according to two sources who have seen the document.

The details of the 2005 memo are laid out further down in the article. It seems apparent that the pay raise and promotional pay increases were rather out of line with the usual scale of advancement rewards.

As FT mentioned in an earlier report on the matter, the outrage over this controversy was also a reflection of poor relations between Wolfowitz's team and bank staff.

Wednesday, April 11, 2007

Simon of Pimco on subprime market

Scott Simon of Pimco is interviewed about his views on the housing and subprime mortgage bond markets at Bloomberg.com.

He says that Pimco is staying conservative with its asset-backed bond investments, and that they'll stay with that course, as he expects further deterioration in the mortgage bond market.

See, "Simon of Pimco Expects Subprime Market Turmoil to Worsen".

Global investing in 2007

Currently reading Gary Dorsch's latest article up on Financial Sense Online, entitled, "New Rules for Global Investing in 2007".

Dorsch is explaining how, to his view, the yen carry trade has seemingly become a bigger factor in moving the US stock market than "traditional indicators such as the health of the US economy, company earnings, cash flow, and future sales forecasts".

According to Dorsch's charts and explanation, the continued growth of the yen carry trade and the "endless flow of cheap capital from Tokyo" is pumping the Dow Jones Industrial Average to new highs. This upward movement in US stock prices is occurring despite slowing growth in S&P 500 earnings and at a time when US economic growth is also slowing.

I'm just making my way through this piece, but it looks like there's a lot of info relating market movements back to currency fluctuations and money growth trends. Charts tracking everything from economic data to the Shanghai stock market here for you data junkies.

For more of Gary Dorsch's market analysis, see the article link above.

Tuesday, April 10, 2007

U.S.- Made Mess in Somalia

I came across this editorial about America's involvement in foreign conflicts on Google News while glancing at the headlines on the massacre in Mogadishu, where 1,086 are dead and more than 4,000 are wounded after clashes between "Ethiopian forces and Islamist fighters".

Excerpt from The Independent Institute's, "U.S.–Made Mess in Somalia":

Somalia is the third example of the United States creating a potentially anti–U.S. Islamist threat where none previously existed. The U.S.–supported Ethiopian invasion weakened the Somali Islamists, but they are still fighting fiercely for control of Mogadishu, the capital.

Like those in Iraq, all the Somali Islamists have to do is hang on until the foreign occupier gets exhausted and leaves. When that happens, the Islamists could very well become the dominant political force in the country, capitalizing on their “patriotic” resistance to the hated Ethiopian occupiers and their U.S. benefactors.

The author's point is that the US should remember its founding principles, one of which is that our nation should not meddle in the affairs and disputes of foreign nations, no matter how closely aligned we feel with their cause.

The reason our Founding Fathers took this stance is because they knew that if America placed itself in the middle of these disputes, it would become sucked into the quagmire of war and entangling treaties that had beset Europe.

These involvements would lead to an eventual loss of our personal liberty and national sovereignty over time, as our nation would come to resemble the meddlesome, warring tyrants we despised.

This is the very issue we face today. Given our foreign involvements and our military presence all over the world, it would seem we have become our Founding Fathers' (and the world's) worst nightmare. Is there a way to undo this mess?

Monday, April 09, 2007

Art: Kandinsky, Man Ray for $110

Excerpt from a Bloomberg.com article on Katherine Kuh's life in modern art, entitled, "Buying Kandinsky, Man Ray for $110: Katharine Kuh's Last Laugh".

In January 1937, Katharine Kuh was fortunate enough to attend an art sale in Chicago where the auctioneer had ``no idea what he was doing,'' as she put it. That day she bought two Kandinskys, two Man Rays, a Gabriele Muenter and a Bonnard lithograph -- for a grand total of $110.

Her conclusion? ``Prices, then as now, are interesting social barometers having nothing to do with the quality or staying power of art,'' she wrote in her posthumously published memoirs, ``My Love Affair With Modern Art.''

Check the money quote; I think she summed it up nicely.

Deal news

The big news going into the weekend was the announcement that Berkshire Hathaway had taken a 10.9 percent stake in railway company, Burlington Northern Santa Fe Corp.

Now CNBC reports that Berkshire has made two additional, smaller, investments in railroad companies. So far Berkshire and its chairman, Warren Buffett are keeping mum on the specifics of those investments.

Berkshire's foray into the railway sector is being analyzed closely. According to an SEC filing, Berkshire is now Burlington Northern's largest shareholder.

In a Friday filing with the U.S. Securities and Exchange Commission, Berkshire said it owned 39,027,430 Burlington Northern shares, making it the company's largest shareholder. The market value of the shares was $3.23 billion as of April 5.

In other deal news, Reuters is reporting on the movement in Dow Chemical shares after a UK paper suggested that a consortium of Middle Eastern investors and a US private equity firm were preparing a $50 billion bid for the company.

So far, analysts seem to be saying that the buyout deal is unlikely to happen, although a deal or joint venture in some segment of Dow's business empire is very possible.

Sunday, April 08, 2007

Zimbabwe: Africa's titanic problem

A brief report on the problems facing Zimbabweans as their country experiences growing poverty, violence, and rising political tensions amidst a growing hyperinflation.

Anyone who's familiar with the details of past hyperinflationary episodes will see that history really does rhyme.

See The Economist's report on, "Africa's Titanic Problem".

Friday, April 06, 2007

20 questions w/ Cheap Stocks editor

Value investors, be sure to check out this interview with Clyde Milton of the Cheap Stocks blog over at Gannon On Investing.

The Cheap Stocks blog is a great site based on editor Milton's take on value investing and it features many of his value stock picks. A great site and one of the first blogs I ever marked as a favorite.

Check it out and learn a bit from Milton's value investing know-how!

Thursday, April 05, 2007

Is the Fed really "pumping money"?

There's an interesting exchange on the issue of Fed induced liquidity over at Mish's blog.

Author Mish seems to think the idea that the Fed is able to pump money and liquidity into the system is a bit of a misconception. He decided to contact one of the writers at the Minyanville website and voice his objections to a statement about the "Fed pumping money" that appeared in the writer's article.

In Mish's view, "pumping money" is not exactly what is going on here. He makes his case clear to the writer in question, who decides that Mish has made an interesting argument that merits further study and added insight from his community members.

Here is a small excerpt from that debate, starting with Mish's point of view:

Here is how I look at things:

This Fed has chosen to defend an interest rate target. The Fed must supply all demand for credit at that target. If the Fed failed to do so the interest rate target would not be hit and interest rates would either rise or drop accordingly.

Now I am a big fan of abolishing the Fed and letting the market set rates, but as long as the Fed has an interest rate target (as opposed to a money supply target) the Fed is not pumping money per se, the Fed is defending an arbitrary target that it has established, no more no less. Thus it is not the Fed initiating anything, the Fed is merely meeting demand for money at the arbitrary target they set.

The last sentence of Mish's excerpted comments are key to my understanding of his position. In his view, with regards to money/liquidity creation, the Fed is not "initiating anything", they are simply "meeting demand for money at the arbitrary target they set".

Now here's the key rebuttal point that I got from one of the Minyanville members (quote from "Professor Succo"):

The Fed has set an artificially low interest rate. The market wants higher rates because it sees the problems these low rates are causing: that money is getting into speculation and very low grade credit. The Fed must supply enough new credit (repo) in order to keep rates from rising. The recent steepening of the yield curve is telling us that this is hard to do: they are doing too many repos trying to keep rates low.

If the Fed wants to stop pumping money they would admit that rates are too low and would raise them.

In fact the recent steepening is very alarming. It is due to defaults/foreclosures where lenders are saying they cannot continue to pass on to speculators/low quality borrowers all that new credit the fed is trying to force into the market.

In the Professor's view, the Fed is not "merely meeting demand" for money and credit; they are actively supplying it by force to the market.

Which view is correct? Beats me. I can say one thing, though. There is some interesting debate here, and this exchange will expose a few more people to some of the lesser-known mechanics of money creation and banking.

Wednesday, April 04, 2007

Gold poised for record run

Gold is poised for a record run. So says The Financial Times in its recent report by Kevin Morrison. The news regarding gold's bright prospects comes from an annual survey issued by metals consultancy group GFMS, which sees a renewed attack on last year's high above the $700 an ounce mark.

Here's an excerpt from FT's article, "Gold poised for record run":

Gold prices could exceed last year’s 26 year high of $730 an ounce within the next 12 months due to a weaker dollar, rising geopolitical tensions and an investment led rally, according to the annual survey by GFMS, the metals consultancy.

GFMS said given the general favourable backdrop and the still low level of participation form institutional and private inventors in most countries, there remains considerable upside potential for gold even as the current rally enters its seventh year.

The GFMS survey highlights the role of investment demand in keeping gold prices high. Jewelry demand for gold is said to be down 30 percent from its peak levels back in 1997, but judging by the entries in a recent jewelry design competition in Asia, gold and gaudy are in. Noone's skimping on the metal in these designs.

Also, we see continued emphasis on the role that a weak dollar is playing in gold's price rise, but scant mention of the fact that gold is rising in terms of all fiat currencies. This has been true for over a year now, and in some cases the trend started even earlier.

Thankfully, FT's report on the GFMS survey makes note of these facts:

Gold also appreciated in other currencies too, with a 34 per cent gain in South African Rand prices, a 21 per cent rise in the yen gold price and a 8.7 per cent advance in the Euro gold price.

The trend is clear. Look at worldwide money supply growth figures and you will see that they are rising across the board. The US dollar is not the only currency base being inflated. Gold is rising against most currencies to reflect these trends. Savvy investors and savers in every nation should be cognizant of this reality.

Monday, April 02, 2007

Ready for a retirement surprise?

A Bloomberg.com article by Kevin Haas asks the question, "are you saving enough"?

In, "Ready for a Big Retirement Surprise? Save Now", Haas lays out the case for examining retirement needs more closely and working towards saving the appropriate amounts.

This is a familiar refrain, but what's helpful about Haas' article is that its advice is based on two underlying, and important, real-world trends.

Put simply, many Americans underestimate the amounts they'll need for retirement. Add to this the knowledge that a large percentage of retirees wish they had saved more, and you will see that Americans are not saving enough.

An excerpt from "Retirement Surprise?":

The evidence suggests that many people aren't saving nearly that much. One study cited by Skinner found that fully a third of Americans see a drop in their consumption of at least 33 percent when they retire. Some 73 percent of retirees report that they wish they had saved more as they planned for retirement.

What's especially useful about this article, is that it points to the reality of ever increasing costs for services in areas (such as health care) where government regulation and intervention are high. This at least hints at the rising costs of living that have been papered over in the official government statistics on inflation.

And as we've seen from our recent post on inflation, this ongoing phenomenon distorts economic decision-making and leaves pensioners and retirees with an unknown variable in their retirement planning: the rate at which their money and savings are declining in value.

When more retirement planning articles make a point of addressing this issue, retirees (and other perceptive observers) will be better informed and better served. In the meantime, see Haas' article for ideas on how you can better plan your saving needs.

Sunday, April 01, 2007

Jukebox

Enjoy the tunes.

Talk Talk - "It's My Life".

Duran Duran - "Hungry Like The Wolf".

Eurythmics - "Who's That Girl?".

Kate Bush - "Running Up That Hill".

Fleetwood Mac - "Big Love".

The Police - "Wrapped Around Your Finger".