Friday, January 30, 2009

Barron's Roundtable 2009 notes

We offered up some notes on part one of the 2009 Barron's Roundtable earlier this month, and that (as expected) turned out to be a popular feature with readers and new visitors.

Today, as promised, we finish off this year's coverage with the final installments of the 2009 Roundtable. Let's get right to it with a few quick notes on these discussions.

As is my usual custom with the Barron's Roundtable issues, I tried to limit myself to reading only the segments with the investors whose opinions I value. That basically leaves one half to two-thirds of the Roundtable untouched, and that's more than fine with me. I learned long ago that I just don't have the time for other people's nonsense.

If you'd like to evaluate all the panelists' picks, you're more than welcome to. We'll just highlight a few key thoughts from parts two and three here. Let's start off with a few words from Felix Zulauf in part two of the Roundtable issues.

" Zulauf: Last year saw the most severe bear-market decline since 1931. The instant reaction is to be bullish after such a decline, but the situation is more complex. The watershed events of 2007 and '08 lead to a different world in many ways.

The household sector is traumatized by a 20% drop in net worth, as the worst year prior to this saw a loss of just 5%. The corporate sector is traumatized by a slump in earnings, and refinancing problems. Thus, everyone will turn more cautious, not just for 12 months but several years. Deleveraging is a structural process, not a short-term process...

...We are still in a secular bear market that started in 2000 in the industrialized economies. It has several more years to run. This is a transition year after the first slump, and we will see some corrections to the upside."


I doubt this is what most of the panel wanted to hear, but there you go. Zulauf is one of the few Roundtable panelists whose thoughts and investment ideas I've found worthwhile in recent years. Take note of what he has to say.

Now let's jump quickly over to part three, the final installment in this year's Roundtable. You can read the full thing at the link above, but here's an interesting nugget from Marc Faber as a starter.

" Faber: I'm not optimistic about the global economy. The next Madoff case -- the next Ponzi scheme -- is the U.S. government. It will go bust. It is only a question of time. The fascinating thing about asset markets today is that everything is connected -- the dollar, the economy, equity and bond markets, currencies. When one thing moves, so does something else. That makes the market ideal for short-term traders."

Now why do I keep highlighting the bearish outlook? I said I'd try and look more at the bright side of things, but I just can't help thinking there's something to this.

Maybe it's because I've been thinking and reading about these things myself, or maybe it's because I remember the times in the past when Felix Zulauf and Marc Faber were right about things that seemed too crazy for most "serious people" to consider.

Well, a lot of those serious people are having credibility problems these days. Just ask some of the Barron's readers.

Related articles and posts:

1. Overheard at Barron's Roundtable 2009 - Finance Trends Matter.

2. Felix Zulauf - Barron's interview - Finance Trends Matter.

Wednesday, January 28, 2009

Davos: George Soros on pound, bad bank

When you look at the Bloomberg home page and see an image of George Soros sitting on a snow covered hill in a winter coat, you know that the Davos circus is in full swing.

Soros talked to Bloomberg about the US' plans for a "bad bank", which he says won't increase bank lending (but "will bring some relief"), and how the falling price of oil will affect the major oil-producing nations (Venezuela, Russia, and Iran) and their regimes.

Soros also spoke about the British pound at Davos, saying that he had foreseen the fall in the UK's currency, but that he is no longer short the pound at these levels.

Hedge fund manager Peter Thiel, who apparently is also at Davos, disagrees with Soros. He thinks the British pound will continue to decline this year, while the US dollar and the yen appreciate.

Thiel seems to be echoing Jim Rogers' gloomy view on the currency and the UK as a whole, calling the country, "the worst country in the world at this point". Damn Peter, worse than Zimbabwe?

Related articles and posts:

1. Bad Bank of America - Breakingviews.com.

2. Soros stopped betting against pound - Bloomberg.

3. FT video: Davos 2009 - FT.com.

Tuesday, January 27, 2009

Ron Paul on stimulus & the economy

Ron Paul recently penned a series of opinion pieces on the US economy and our current "stimulus mania" (H/T: Bear Mountain Bull).

As usual, Paul's thoughtful essays on government interference in the economy and our lives are right on target. Here's an excerpt on the from his latest piece, "Stimulus for Who?":

"This week the House is expected to pass an $825 billion economic stimulus package. In reality, this bill is just an escalation of a government-created economic mess. As before, a sense of urgency and impending doom is being used to extract mountains of money from Congress with minimal debate. So much for change. This is déjà vu.

We are again being promised that its passage will help employment, help homeowners, help the environment, etc. These promises are worthless. This time around especially, Congress should know better than to pass anything of this magnitude without first reading the fine print. There a many red flags that I have found in this bill..."

Read on for a summary of the toxic pork that stuffs this latest creation of DC government.

And while you're at it, check out Ron Paul's article archives at Safehaven, along with the related items below, for more.

Related items and posts:

1. Ron Paul on MSNBC's "Morning Joe" - Lew Rockwell.

2. Ron Paul visits Google - Finance Trends Matter.

Monday, January 26, 2009

Sovereign risk and UK credit ratings

Last week, investor Jim Rogers made some rather gloomy comments about the UK's economic prospects given its "stupendous debts", adding that he would not hold the pound sterling.

While Rogers' comments provoked some rebuttal from bankers inside the UK, the debate over the state of the nation's economy comes at a time of increased worry over possible credit rating cuts for sovereign debt issuers, like the UK and the US.

The ratings risk for sovereign issuers is foremost in investors' minds, given the recent string of ratings cuts that hit European nations in the past two weeks. Greece, Spain, and Portugal were all party to recent credit rating downgrades by rating agency Standard & Poor's.

And some think Ireland could be next on the chopping block:

"“Portugal is not the first, not the last,” said Marc Chandler, head of currency strategy at Brown Brothers Harriman & Co. in New York, adding that Ireland was the “next obvious candidate” for a downgrade. “The rating agencies are behind the curve. The spreads had already indicated that the market had long concluded the same, and more,” he said."

The mounting worries have also given rise to a new catch-phrase acronym: PIGS, as in Portugal, Ireland, Greece, and Spain. This bloc of countries is currently seen as a kind of "sick man of Europe", with Standard & Poor's noting that the group may have to seek help from the IMF.

At the same time, the article above points out that all of Europe may be in trouble, so it may be rather silly to sit around and debate which countries are worst off.

Still, for those who would like a further insight into these issues, and some thoughts on the differences in assigning ratings to countries versus corporations, check out the related items below.

Related articles and posts:

1. Roubini: the UK is not Iceland - FT Alphaville.

2. The sovereign ratings on the wall - FT Alphaville.

3. Government risk rises - Seeking Alpha.

4. PIGS: Portugal, Ireland, Greece, & Spain - Kyero.com.

Sunday, January 25, 2009

The new blog: Trader Rock

Yes, I've found a new outlet for my rock n' roll madness.

Trader Rock, is my new music focused blog. It's live as of tonight, and I'll be updating it with new links and videos as the week progresses.

Those of you who have come to know and love/fear/despise our occassional jukebox post series will appreciate/run screaming from this latest venture.

There will be no "reality TV" programming, award shows, or clips from an Eagles reunion, so we probably won't attract much venture capital or advertising. That's cool by us; we are just looking for a place to rock out. We'll see you there, if you are too.

Oh, and those gentlemen in the banner above? Until last fall they worked for JP Morgan and Barclays. They have since grown their hair and taken their act to the streets. Ladies, watch out for these guys.

Friday, January 23, 2009

Features of the week

We lead off this week's "Features" post with a new FT.com interview with Jim Chanos, plus a great deal more on the economy and the markets. Enjoy the show!

1. Hedge fund manager Jim Chanos on FT's "View from the Top".

2. "Washington confident it can forge recovery plan" - NY Times.

Given their recent schemes, I'm quite confident about their ability to cook up some ridiculous new spending plan. But what are the long-term effects on the economy? - ED

3. Can fiscal stimulus revive the US economy? - Frank Shostak.

4. Jim Rogers says, "let the incompetent people go bankrupt".

5. UK economy shrinks most since 1980, in recession.

6. Debating the right way to close Guantanamo Bay facility

7. In depth coverage of Obama's first hundred days - FT.com.

8. How the recession is influencing divorces.

9. Difficult to tell if TJ Maxx is hit hard by recession -The Onion.

10. Global credit crunch has cost Arab nations $2.5 trillion.

11. Frank Barbera looks at the economy that Obama is inheriting.

12. Stratfor: the geopolitics of the next 100 years.

Did you know that readers of Finance Trends Matter are commonly cited as the most witty and fascinating members of their peer groups?

It's true! Okay, I inferred it...but why not let your friends be just as fascinating? Send 'em your favorite Finance Trends posts with the help of the "email post" icon below and you'll have lots to chat about.

Spread the word, and enjoy your weekend!

Thursday, January 22, 2009

Singing the Middle Class Blues

In yesterday's post on Gerald Celente's FSN interview, I called attention to Celente's views on the struggling middle class and the ongoing trend towards "squeezing the little guy" via inflation and increased taxation.

This made me think back to a report Pew Research report released last year called, "Inside the Middle Class: Bad Times Hit the Good Life".

In their survey report, Pew found many Americans rather downbeat over their economic progress made in the previous five years. At the same time, a majority of those surveyed felt their standard of living was greater than their parents enjoyed at the same age.

Most survey participants also expressed optimism over the coming five year period, and "most expect their children to do better in life than they themselves have done".

Despite their optimism for the future, 79 percent of the survey respondents felt that it was more difficult for middle class people to maintain their standard of living at the present time, compared with five years earlier. But why?

According to the full Pew report, there is no consensus among respondents on the reasons for the recent decline in middle class living standards:

"There is nothing approaching a consensus about who or what is responsible for the middle class squeeze.

Nearly everyone agrees that it's become harder to maintain a middle class lifestyle, but there's no consensus about who or what is mostly to blame. Among middle class respondents, about a quarter (26%) blame the government, 15% blame the price of oil, 11% blame the people themselves, 8% blame foreign competition, 5% blame private corporations and the rest cite other factors or do not have an answer.

Within the middle class, big differences on this question occur along partisan lines. Democrats are most likely to point the finger at government (35% do so) while Republicans divide blame among the people (17%), the government (16%) and the price of oil (16%).There are also class divisions on this question, with the lower class nearly twice as likely as the upper class to blame the government (39% versus 21%)."

Given that Pew's latest economic report finds that the economy and jobs are the highest priority for President Obama's administration, it seems we can safely assume that these middle class blues are on the table for the coming year or two, at least.

So what accounts for these trends and the squeezing of the middle class? Inflation, excessive taxation, job losses, or years of people living beyond their means through too much personal debt and consumption? Maybe it's some combination of all of the above.

What have your observations and experiences told you?

Wednesday, January 21, 2009

Gerald Celente FSN interview

In Tuesday's notes, I pointed to a recent radio interview with Trends Journal editor, Gerald Celente at the Financial Sense Newshour.

I found the interview so worthwhile that I wanted to highlight it again in its own post. I'm sure those of you who are interested in the shape of things to come, economically and culturally speaking, will find it a worthwhile listen as well.

FSN host Jim Puplava starts off by noting the accuracy of Celente's prediction regarding the "Panic of '08", but it's not his predictions or forecasts that really interest me. It's his no nonsense take on what's happening right now that impressed me most.

Listening to the broadcast, I was struck by Celente's willingness to discuss current realities in a way that most media stand-bys won't. Check out his thoughts on taxation and the "squeezing of the little guy" to hear exactly what I mean. I think you'll find the honesty and clarity refreshing.

Tuesday, January 20, 2009

Tuesday's notes: markets and Obama

It's the start of another US share trading week, and our new president, Barack Obama is being sworn in today.

Let's find out all about it and get the week started with some of the stories we've been watching.

1. Nouriel Roubini says US losses from the credit crisis may reach $3.6 trillion, and that the banking system is "effectively insolvent".

2. Gas flows through Europe as Russia-Ukraine dispute thaws.

3. New York Times has coverage of President Obama's inauguration.

4. Time to sell US treasuries, says South Korea's biggest fund.

5. Jim Rogers says he's worried about the dollar, favors China.

6. Rogers also has some choice words on the UK (w/ video).

7. Gerald Celente and Paul Kasriel FSN broadcast interviews.

Thanks for checking in. We'll have more as the week unfolds.

By the way, if you have yet to see PBS's series, "The Ascent of Money" with Niall Ferguson, I highly recommend it. Click the link to watch to the full program.

Sunday, January 18, 2009

Niall Ferguson: The Ascent of Money (PBS)

 

Niall Ferguson is our guide on a tour of monetary history and financial crises in the recent PBS special, "The Ascent of Money"

Ferguson was a recent guest on Bloomberg Night Talk, where I first heard about this PBS program based on his recent book of the same title. 

Now that the program is up on (edit) Youtube and the PBS website (sharp video quality and additional content there), I'll be interested to see how Niall puts this latest global financial crisis into historical context.

Enjoy the video!

Friday, January 16, 2009

Features of the week

Get set for our, "Features of the week".

1. Consumer prices show smallest gain in 54 years.

2. The bailout endgame: drama of Citi and Bank of America.

3. Audacity defined: David Kotok on Geithner and Obama.

4. Stimulating comments: Bernanke on further bank bailouts.

5. Joseph Dancy's market outlook for 2009.

6. Credit crisis watch: gaining positive traction.

7. There's unemployment, and then there's unemployment.

8. John Paulson: "the man who made too much" (Portfolio).

9. Long ring finger may point to wealth in traders, study finds.

10. Gary Shilling says banks may need more federal bailouts (video).

11. Wilbur Ross considers buying large banks (video).

12. Security net wraps capital for inaugaral.

13. Pension pandemic: part one, part two.

14. Apple's Steve Jobs takes leave of absence to deal with health.

15. Are too many people going to college?

16. Hyperinflation: Zimbabwe's worthless trillion dollar notes.

17. Mish on the most galling statement of the week.

Thanks for reading Finance Trends Matter. Check us out in your RSS feed reader or bookmark us for future visits. Enjoy your weekend!

Thursday, January 15, 2009

A bear market in crude oil

Crude oil was off as much as 10 percent during Thursday's trading on the NYMEX, before closing the session 5 percent lower at $35.40. Reuters has the story.

"Oil prices fell more than 10 percent on Thursday to a one-month low as thickening economic gloom added to expectations that world energy demand would keep shrinking.

U.S. crude fell $3.74 to $33.54 a barrel by 1:30 p.m. EST, after falling as low as $33.20 -- the lowest since December 19. London Brent fell 90 cents to $44.18 a barrel, maintaining an unusual premium to the U.S. benchmark...

..."We have gotten more dire economic news and the notion is that 2009 will not result in any significant turnaround, with sentiment mounting that may happen in 2010 instead," said Jim Wyckoff, independent energy analyst in Cedar Falls, Iowa.

The gloomy global economic outlook prompted OPEC on Thursday to forecast a fall of 180,000 barrels per day in world oil demand this year, 30,000 bpd steeper than its previous forecast."

Aside from the bearish news of falling oil demand, one thing that jumped out at me from the Reuters article was the wide premium in Brent crude over NYMEX-traded WTI crude. "What accounts for this disparity between the benchmark crude prices?", I wondered.

Bloomberg honed in on the reasons for the price disparity and the fundamentals behind the recent oil price declines in their end of day report.

"Consumption of OPEC supplies will shrink 4.2 percent to 29.5 million barrels a day, according to a monthly report released today. The discount of oil in New York to the Brent grade in London widened to as much as $10.79 a barrel today, a record, because of rising supplies at Cushing, Oklahoma, the delivery point for barrels traded on the U.S. exchange.

“The overriding factor impacting the market is the fact that we are in the midst of a global recession, which is buffeting the U.S., even China,” said Rachel Ziemba, an analyst at RGE Monitor, an economic research company in New York. “That’s going to be a negative for oil demand.”"

The demand destruction in oil has definitely been the big story for this market in recent months.

What a change from 2005-2007, when many observers worried that escalating oil prices would begin to choke off demand and slow the growth of booming economies.

Now everyone worries about a deepening of the global recession, wondering if we'll ever see $50+ oil again. Here's a quote from today's AP report summing up the current attitude:

" "The bull oil era is officially over," said Phil Flynn, an analyst at Alaron Trading Corp...".

I think that says it all, don't you? Still, it might be a little bit premature to write off a future rise in the price of crude oil.

Just as Matthew Simmons was a little early/wrong in his warnings last summer of $9 and $10 gasoline and possible oil shortages, I think the same might be said (in retrospect) about this latest call from Flynn.

It makes me wonder if this quote might be nearer to heralding a bottom in oil prices than anything else.

For starters, what is the "bull oil era", and how far into the future are we talking about here when calling for an end to higher oil prices? These are the specifics we need to define before taking such a call seriously.

To be fair, the AP report does contain more of Flynn's analysis than just this quotable quote, but it seems rather focused on the near-term supply and demand picture for oil. Not exactly a lot here to convince me that oil prices can't head back up to $45-$50+ in one or two year's time. That's certainly a small enough time frame to fit inside an "era" isn't it?

While most commodities (save gold) have suffered a severe correction this past year, and could easily be said to be in the midst of a bear market (cyclical for now), I think the long-term case for higher oil prices (steadily growing global demand meets shrinking supply) is still intact and could reassert itself in the not too distant future.

Oil's plunge to the downside was surprisingly quick and severe (as it was for many assets in 2008), but we may see demand for crude oil pick up if China and other developing nations start to come out of recession ahead of US and other developed nations.

What to do you think? Will crude oil prices be lower or higher over the next 1-2 years?

Wednesday, January 14, 2009

Overheard at Barron's Roundtable 2009

For those who haven't seen it, part 1 of Barron's Roundtable 2009 is out on newstands this week and online at Barron's web site.

Since most Barron's readers have probably already bought this week's issue, I see no harm in reviewing the online version of this year's Roundtable.

Although, given the performance of last year's Roundtable picks, I can see why the assembled crew might not want to dwell on 2008! Felix Zulauf seemed to fare best, replicating his strong performance in last year's Roundtable.

For 2009, the gang seems pretty downbeat, acknowledging the problems associated with this bear market and the recent period of delevaraging.

In fact, most of the participants (Bill Gross, Oscar Schafer, Mario Gabelli, Felix Zulauf, et al) spoke of things like rising unemployment, lower corporate profits, and the perceived need for government stimulus programs. Not exactly the stuff that economic dreams are made of.

Still, I think most were hesitant to come off as bearish as Fred Hickey and Marc Faber, who seemed very sympatico in their view of the US stock market (both see potential for further gains on this rally, with reality setting in soon afterwards), the economy, and the risk of high future inflation.

We'll see who's right in the end, but personally I wouldn't bet against Hickey or Faber too strongly, especially as they are usually (together with Zulauf) alone in seeing things as they are, rather than as they'd like them to be.

Stay tuned for our follow up post on the 2009 Barron's Roundtable, which will be added here after the final installment is available on Barron's website. Look for that in the next couple of weeks.

Related articles and posts:

1. 2008 Barron's Roundtable Review - Finance Trends Matter.

2. Felix Zulauf - Barron's Interview - Finance Trends Matter.

3. Marc Faber on Investments, Economy - Finance Trends Matter.

Monday, January 12, 2009

Atlas Shrugged: from fiction to fact?

Came across an interesting editorial from Stephen Moore in the Wall Street Journal (hat tip - Safehaven).

In this January 9 piece entitled, "Atlas Shrugged: From Fiction to Fact in 52 Years", Moore suggests that the fictional scenarios laid out in Ayn Rand's classic novel have largely been realized today, thanks to ever-increasing bailouts and government intervention into the economy.

Here's a summary excerpt from Moore's column:

"...Many of us who know Rand's work have noticed that with each passing week, and with each successive bailout plan and economic-stimulus scheme out of Washington, our current politicians are committing the very acts of economic lunacy that "Atlas Shrugged" parodied in 1957, when this 1,000-page novel was first published and became an instant hit.

Rand, who had come to America from Soviet Russia with striking insights into totalitarianism and the destructiveness of socialism, was already a celebrity. The left, naturally, hated her. But as recently as 1991, a survey by the Library of Congress and the Book of the Month Club found that readers rated "Atlas" as the second-most influential book in their lives, behind only the Bible.

For the uninitiated, the moral of the story is simply this: Politicians invariably respond to crises -- that in most cases they themselves created -- by spawning new government programs, laws and regulations. These, in turn, generate more havoc and poverty, which inspires the politicians to create more programs . . . and the downward spiral repeats itself until the productive sectors of the economy collapse under the collective weight of taxes and other burdens imposed in the name of fairness, equality and do-goodism..."

Interested to hear your thoughts on this. Do you see similar parallels between Rand's fiction and current economic/political reality?

As a fellow "Atlas Shrugged virgin" (I have read and enjoyed Rand's relatively brief novel, Anthem, but haven't gotten around to reading Shrugged), I'd love to hear from those who have read the book and have an opinion.

Sunday, January 11, 2009

Wes Anderson interviews Peter Bogdanovich



Wes Anderson interviews Peter Bogdanovich.

One of the many cool interviews that I've come across lately on YouTube, here's director Wes Anderson interviewing fellow filmmaker (and likely mentor), Peter Bogdanovich.

I always find it interesting to see or read an interview conducted by someone who happens to share the interviewee's profession and outlook on things.

If you're a fan of either director's work, I hope you'll enjoy this engaging little chat between two filmmaking stars, recorded for the 25th anniversary release of Bogdanovich's film, They All Laughed.

Quick interview note: I was interested to hear Bogdanovich's comments on the benefits of the Hollywood studio system, and the aspects of that talent contract framework which helped improve the writing quality of certain film scripts.

His comments seem to echo a similar point made by TCM's Robert Osborne on the relative ease of assembling all-star ensemble casts under the contract system in place at that time.

Friday, January 09, 2009

Features of the week

Good news, bad news, you know I've had my share...and we're bringing you all the latest in our, "Features of the week".

1. Worst year for US jobs since 1945.

2. Congressional panel steps up criticism of Treasury over TARP.

3. Satyam fraud case sparks corporate ethics debate in India.

4. UK cuts rates to 315-year low to boost lending.

5. What would Sir John Templeton say about the financial panic?

6. Investment Postcards recaps the markets of 2008 and looks ahead to 2009.

7. Where (and how) to invest in 2009 - Financial Philosopher.

8. Leave the past in the past and welcome 2009 - Kirk Report.

9. FT Short View: Bears in the money.

10. Are we witnessing the ultimate bull trap?

11. You will not be missed: list of Macy's store closings.

12. Supertanker freed after ransom was paid, pirates say.

13. Jim Chanos says hedge funds face regulation.

14. Nouriel Roubini feels the worst is still ahead of us.

15. US debt is losing its appeal in China.

16. Mike Hewitt on the fate of paper money.

17. Checklist for life and trading - Daily Speculations & Zen Trader.

Enjoyed this week's posts? Subscribe to our site feed or bookmark Finance Trends Matter to your favorites and keep up with all our latest posts.

Thanks for reading, and enjoy your weekend!

Thursday, January 08, 2009

Rakesh Jhunjhunwala on FT.com

Famed Indian stock investor and trader Rakesh Jhunjhunwala recently sat down for an interview with FT.com's "View From the Markets" video series.

I'm sure many of our Indian and Asian readers are familiar with Jhunjhunwala's career, but for those outside the region who may not know him, check the Wikipedia link above for a brief introduction to the man currently tagged as the "Warren Buffett of India".

Those who are familiar with Rakesh's reputation as one of India's most prominent stock bulls (he has also played the short side with success) may be unsurprised to hear his view that the "mother of all bull markets" in Indian shares lies not too far ahead.

Click on the interview link to find out why he feels Indian shares will be an attractive opportunity in the years to come. You can also find out more about Jhunjhunwala's investing and trading background in the following related articles and links below.

I find it fascinating to learn more about traders and investors from other countries, and I hope you'll enjoy this information as well.

In the case of Rakesh, I am especially interested to find a sterling example of a value investor who has a knowledge of trading (he cites Victor Sperandeo's Methods of a Wall Street Master as an early source of knowledge) and an appreciation of the differences inherent in trading and investing.

Note to our readers: If you have articles to share on successful traders and investors who may fly under the radar, we are always interested to hear about them; email me or drop us a note in the comments section. Thanks!

Related articles and posts:

1. "Trading is against human nature": Jhunjhunwala - MoneyControl.

2. Rakesh Jhunjhunwala interview: Wizards of Dalal St. - Finance Trends.

Marc Faber on base metals, shares, economy

Marc Faber joined Bloomberg in the studio to discuss his outlook for 2009, and to offer his views on favorable areas for investment in the year ahead.

Here's a quick summary of points made in this studio interview:

· Marc's dour economic view for 2009 is maintained, though he notes that we may have some positive news over the next few months, providing a temporary break in the gloom.

· Faber chuckles at the mention of the "Obama plan" to stimulate the economy. He points out that government intervention in the economy will prove disastrous in the long run.

While everyone clamors for the government to "do something" to avoid the economic pain, Marc feels that the best policy is to do nothing and let the needed corrections take place. "If people can not accept the downside of capitalism, they should become socialists".

· Industrial commodities and metal mining shares imploded last year, while gold held up in price. As of today, Marc would rather buy a basket of oversold industrial commodities and related shares (Xstrata, BHP, Rio Tinto, and small mining companies) to play a rebound in the sector.

· Faber is long term bullish on oil, noting that the longer term demand for oil is still in place while supplies are limited and declining. On a related note, Marc points out that geopolitical tensions are a looming issue and will likely rise in the future.

Much more to hear in this Bloomberg interview. Enjoy the discussion.

Wednesday, January 07, 2009

Hedge funds fight to survive shakeout

This week's issue of Barron's takes on the great hedge fund industry shakeout of 2008-2009, in a story called, "Hedge Funds Meet Their Match".

Here's an excerpt from that piece:

"Hedge fund managers, the stars of the investing world for most of this decade, were brought to their knees in the turmoil of 2008. The average fund fell far short of its goal of "absolute returns," posting an 18% loss through November.

Old standby strategies, such as buying some stocks and selling others short, suddenly stopped working. Customers bolted in record numbers. Then, at year's end, the industry got a black eye for putting money in Bernard Madoff's black box.

"The hedge fund is being questioned, and it's in danger," says Timothy Brog of Locksmith Capital Management, an activist New York hedge fund.

Indeed, the industry is moving into survival mode for 2009 -- and many funds won't make it. The number of hedge funds, which surged in recent years to an estimated 10,000, could eventually fall to about half that, as small, marginal players are sold or go out of business..."

The article goes on to note that 2008 was the worst year on record (Hedge Fund Research data) in terms of fund performance and investor redemptions. One source estimates that the industry's assets will have shrunk from $2 trillion to $1.25 trillion by the time the shakeout is done.

But hey, we've been here before, right? Previous bear market cycles narrowed the field in the past, with the shakeout that followed the late 1960s hedge fund boom being one notable example.

Nevertheless, hedge funds continued to thrive and grow in size over time. Just ask Barton Biggs, managing partner at Traxis Partners, and one-time employee of the original hedge fund, A.W. Jones & Co.

Related articles and posts:

1. Hedge funds: regulations and redemptions - Finance Trends.

2. GLG's Roman, Roubini predict hedge fund failures - Bloomberg.

3. John Paulson in Bloomberg Markets magazine - Finance Trends.

4. Change ahead for hedge funds - Breakingviews.com via NY Times.

Monday, January 05, 2009

Bloomberg's 2008 art market review

Have we just seen the end of the 2000s art-market bubble?

Bloomberg recently published a two-part article series on the state of the art market in 2008. As their coverage of the year just ended shows, the tenor in the market changed as the spreading financial crisis hit rich art buyers, leading auction sales and prices for contemporary art to stall out.

Long-time readers of this blog know that we occassionally delve into the subject of art here, so let's turn to Bloomberg's coverage to learn more about the recent slump in this once-booming market.

Excerpt from part one of Bloomberg's series, "How Monet, Freud, Hirst records led art-market bubble to burst":

"Art prices extended a seven-year surge for much of 2008, with a Claude Monet painting of water lilies, Lucian Freud’s portrait of a civil servant called Sue and a Francis Bacon triptych setting records.

A 111.5 million pound ($162 million at current rates) sale of Damien Hirst works in September featured pickled unicorns, flying pigs and a golden calf with 18-carat hooves and horns.

From 2003 to 2007, worldwide auction sales of contemporary art grew more than eightfold, said the French-based database Artprice. The Hirst sale coincided with the collapse of Lehman Brothers Holdings Inc and the rise in auction prices then came to halt, said dealers.

“The mood has changed,” Anders Petterson, founder and managing director of the London-based art market research company ArtTactic, told Bloomberg in October. “The magnitude of the economic crisis is such that even the ultra-rich will have second thoughts about buying things.” "

A review of key dates and art market events in 2008 follows.

See also, part two of Bloomberg's article series, "Warhol, Hirst works languish as prices plummet at end of 2008".

Related articles and posts:

1. That booming art market (2006) - Finance Trends Matter.

2. Grantham and Faber on bubbles (2007) - Finance Trends Matter.

3. Marc Faber talks to Bloomberg (2007) - Finance Trends Matter.

4. Art market rout (November 2008) - FT.com

5. Art market rout persists (November 2008) - Bloomberg.

Sunday, January 04, 2009

Skaters ride the California foreclosure wave

It seems California skateboarders are once again taking advantage of a rare window of opportunity.

Thanks to the recent wave of house foreclosures, many California homes have been abandoned, leaving backyard pools neglected and open for (pool-riding) business.

Area skateboarders have been quick to scour their neighborhoods for empty backyard pools, just as their predecessors did during the mid-1970s drought. Only this time, they're locating pools with a little help from realty tracking websites like realtor.com.

Excerpt from, "Skaters jump in as foreclosures drain the pool":

"...On a recent morning, a 27-year-old skateboarder who goes by the name Josh Peacock peered into a swimming pool in Fresno, Calif., emptied by his own hands — and the foreclosure crisis — and flashed a smile as wide as a half-pipe.

“We have more pools than we know what to do with,” said Mr. Peacock, who lives in Fresno, the Central Valley city where thousands of homes, many with pools behind them, are in foreclosure. “I can’t even keep track of them all anymore.”
Across the nation, the ultimate symbol of suburban success has become one more reminder of the economic meltdown, with builders going under, pools going to seed and skaters finding a surplus of deserted pools in which to perfect their acrobatic aerials."

Cali-style pool-riding is back, and this time it's an international phenomenon. According to the New York Times article, skaters are dropping in from as far away as Germany and Australia to ride the empty pools.

Which makes sense, given the thrills of pool-riding and the legends that have since grown up around the style's early practioners. Maybe today's skaters hope to share in the excitement of a movement chronicled in old skateboarder magazines and in documentaries such as Dogtown and Z-Boys.

Plus, at least some skaters seem to have an understanding of the easy money policies that helped fuel the real estate bubble and its eventual collapse. You gotta love this line taken from the Times article: “God bless Greenspan, patron saint of pool skatin’.”

Related articles and posts:

1. Skateboard Kings (1978 documentary) - Finance Trends Matter.

2. Dogtown and Z-Boys (2001 documentary) - DailyMotion.

Friday, January 02, 2009

Onwards to the future!

"And remember my friends, future events such as these will affect you...in the future!" - The Amazing Criswell.

There isn't much we can say yet about 2009. The year is too new, and the memory of last year's financial calamities are still fresh in our minds.

Will the new year bring forth an extension of the trends that unfolded during 2008? How will the current US recession affect the struggling middle class and the younger generations who have never really experienced "hard times" on a national scale? Will global stock markets surprise everyone and rally?

These are just some of the questions floating around in my mind (and in the minds of many others, I'm sure).

Yet at the same time, I wonder if we can really begin to answer any of these questions with any level of certainty. I also wonder: "does it really matter"? Which is a strange thing to think about, especially if you're like me and you happen to write a blog about current and future financial trends!

Still, I'm confronted by the fact that we in the blogosphere are already poring over last year's (worst) financial preditictions, and in many cases, having a cynical laugh over them.

Kind of reminds you of the folly of prediction and forecasting. As my blogging friend Kent, The Financial Philosopher, likes to remind us: "The worst prediction is any prediction made in the first place".



And yet the prediction-making ritual remains with us. For as Criswell eloquently points out in the clip above, "we are all interested in the future, for that is where you and I will spend the rest of our lives."

I believe that there is value in forecasting, just as there is great value to be found in a careful review of the past. However, as with the study of history, you may need to be careful about vetting your sources. When following a favorite analyst or commentator, try to remind yourself (or keep a record) of their hits and misses. It tends to keep both parties honest!

Back to the subject of 2009. No matter what the year holds in store for us, I resolve to keep an eye on the positive outcomes that we, as individuals, may bring about for ourselves and the people around us.

I hope, as readers and active commenters of this blog, you'll do your best to keep me honest and focused on these tasks.