Wednesday, May 30, 2007

Investing: index funds vs. ETFs

Today, a little bit of info in the personal finance and investing department.

Ever wonder about the benefits of investing in index funds vs. ETFs, or vice versa? Here's a post from The Financial Philosopher blog that might help you to fine tune your investment strategy.

Parts one and two in The Financial Philosopher's index fund vs. ETF debate.

See also: Altruist Financial Advisor's ETFs vs. index funds breakdown.

Let us know if you have any additional info on the subject.

Remember: all posts on investing made here are for educational purposes only. Responsibility for your investment decisions rests with you alone; do your own research and/or consult a trusted investment adviser.

Tuesday, May 29, 2007

Speaking of bubbles...

The fallout from the U.S. housing bubble continues, as Barry Ritholtz details in his recent post, "Housing Freefall Continues Unabated".

He notes that the S&P/Case-Shiller Home Price indices show negative returns in the National Home Price Index, and many of the other sub-indexes besides.

Ritholtz also points to recent news that suggests the housing and construction bust is far from over, despite constant reiterations to the contrary from the media and its endless parade of talking heads.

Check out Barry's post at the link above.

Mises on Tulip Mania

An interesting essay from the Mises Institute called, "The Truth About Tulip Mania".

Here's the author explaining why this speculative mania, much misunderstood and frequently mischaracterized, is important to understand:

The story of Tulipmania is not only about tulips and their price movements, and certainly studying the "fundamentals of the tulip market" does not explain the occurrence of this speculative bubble. The price of tulips only served as a manifestation of the end result of a government policy that expanded the quantity of money and thus fostered an environment for speculation and malinvestment. This scenario has been played out over and over throughout history.

This is an important view of what may have fueled the speculative bubble in Holland, and the author goes so far as to present evidence of a rising money supply before and during the bubble period. This, the author argues, shows conditions for a bubble were ripe.

Read on for an interesting view of how a bubble takes shape in 1630s Amsterdam.

Monday, May 28, 2007

On gasoline "price-gouging" laws

I wanted to hold back from commenting on the idiocy of this latest gasoline price gouging legislation I'd heard about until I got a little more feedback and information.

My first reaction upon hearing of this ill-conceived exercise in demagoguery was a lack of surprise, combined with a head-shaking disgust regarding the undefined nature of the supposed crime.

Assuming that our wise and omniscient politicians were able to "correct" the alleged flaws in the pricing of this commodity, how would they go about identifying the so-called gougers?

Is there a reasonable and logical definition of price gouging as described in the House of Representatives' legislation? The answer, unsurprisingly, is no, there is not.

Here's a taste of what the politicians have cooked up, in their latest attempt to save us all:

The gouging bill would prohibit the sale of gasoline or other refined petroleum products at ``unconscionably excessive'' prices or prices that take ``unfair advantage'' of consumers during a presidentially declared ``energy emergency.

The Federal Trade Commission would be able to issue civil penalties of up to three times the amount of profits or $3 million for those that violate the law. Companies would face criminal fines of up to $150 million, and individuals could be fined $2 million and face up to 10 years in jail.

``I don't know what 'unconscionably excessive' means,'' Representative Joe Barton, a Texas Republican, said during debate this morning over the measure. ``It's not defined in statute. As far as I can tell it's not been defined in any case law. Apparently it's going to be determined on a case-by-case basis.''

Splendid. I'll leave it to intelligent readers to guess how that will work out.

But since it's Memorial Day, and you might still be harboring some illusions that this latest piece of advocacy legislation will help you out, here's a little dose of reality for you. Please see the Financial Sense Newshour's May 26 segment on energy with guest expert, Richard Loomis of World Energy Monthly Review (right at the 20 minute mark of the broadcast).

See also, The Wall Street Journal's Monday editorial, "Pains at the Pump", and the Mises blog's recent editorial, "The Giant Gas-Gouging Gaffe".

Friday, May 25, 2007

Features of the week

Welcome to this Friday's edition of "Features of the week". Many interesting stories and article links ahead!

1. Wolfowitz has departed his role as the World Bank president, but the media focuses on the search for a new president.

Meanwhile, few bother to ask what the World Bank really does in the first place.

2. At James Simons' Renaissance Technologies hedge fund, only scientists need apply.

3. Bloomberg Markets Magazine on a growing force in the markets: artificial intelligence.

4. Another exchange merger: Nasdaq to buy Sweden's OMX for $3.7 billion.

5. Jim Rogers talks about investing in China, Japan, and commodities.

6. Another hedge fund manager goes public: FT Alphaville on the IPO of Platinum Asset Management and founder Kerr Neilson, the "Warren Buffett of Australia".

7. Reuters on Britian's "surveillance society".

8. Bloomberg discusses a row over Okinawan history during the second World War.

9. Archaeologists struggle to uncover the secrets and treasures of an Aztec emporer's tomb, as Mexico City bustles overhead.

10. Michael Steinhardt discusses the rise, and coming fall, of contemporary art prices.

11. Fintag and Dealbook on the biggest hedge funds. It turns out many are housed in the walls of "bulge-bracket" investment banks.

12. "Paul had a point". Reason Magazine asks, "Non-interventionists have been remarkably prescient. So why are they still shunted to the fringe?". (Ron Paul vs. Rudy Giuliani).

13. FT Alphaville discusses, "Sovereign wealth funds and the $2,500 billion question".

14. An interesting profile of hedge fund manager Bruce Kovner from New York Magazine that I missed the first time around. Thanks to Naked Shorts for the pointer.

15. Hans Sennholz says, "Money is Flooding the World Markets".

16. Niklas Zennstrom, co-founder and CEO of Skype, talks with FT.com's "View from the Top" about Skype's marriage with eBay, entrepreneurship, and new user-generated content. Parts 1 & 2.


Wednesday, May 23, 2007

On agricultural commodity prices

So you've come back from the grocery store, ready to fire up the grill and throw on a few delectable corn cobs with your steak.

The only problem is that you seem to be more hot than your recently turned on grill, and what's got you fired up is rising food prices! Kind of hard to enjoy the bountiful meal you've prepared when you're paying out the nose for it, right?

At times like this, there's only one thing to do: blame the hedge funds!

We've all heard the recent reports of rising food costs across the globe. Media and Wall Street analysts have labeled this trend, "food price inflation", or more recently, "agflation".

But are the higher food and grain prices we're seeing a "driver of inflation" as the news media reports, or a symptom of the higher cost of living we face as true inflation erodes the purchasing power of paper currencies across the globe?

As I wrote in, "Agflation is the new buzzword", the true cause of inflation is being obscured and denied in most media reports, with the blame for "rising prices" being shifted onto the most readily available scapegoats. Supply and demand fundamentals are simply being tossed aside as a primary explanation for rising prices, though their importance in explaining price movements is paramount.

Instead, much of the blame for high prices of food and energy has recently been saddled on speculators and hedge funds. This is not a new phenomenon, and anyone familiar with markets or economic history will attest to that. What is unsettling about this blame game is that it aims to deflect anger over rising prices by dropping the responsibility on someone else's shoulders. This is inaccurate and unfair.

We've certainly heard and seen the reports of traders and speculators gaming the price of energy, metals, and other commodities through the paper futures markets. What remains to be seen is whether these machinations in the trading pits can materially affect prices in the physical commodities over the longer term.

No market participant can direct the long term trend, whether it be up or down; they can only do their best to slow down or accelerate a move. And while powerful traders and speculators may be able to influence or direct price movements in the short term, it's fundamentals that direct long term trends.

So while the experts and media say that supply and demand fundamentals are not a major factor in rising agricultural commodity prices, only to contradict themselves later within the same article, we hope you'll take a moment to consider their arguments and weigh the evidence for yourself.

One last note: higher activity and rising prices in the futures markets could signal more news of shorter food supplies and higher prices to come.

One early bull on commodities in general, and agricultural commodities specifically, is still bullish over the longer term. See Financial News Online US' article, "For Jim Rogers, what goes around comes around", for more.

Tuesday, May 22, 2007

Got platinum/palladium?

Platinum's hot, palladium's hot. So let's take a quick look at what's happening in the platinum group metals (PGMs) space.

We recently covered the news of some newly-launched exchange-traded commodities (ETCs) in the precious metals groups. ETF Securities and Swiss bank ZKB both recently introduced ETCs representing physical platinum and palladium.

No platinum or palladium ETFs currently exist in the U.S. More info on the European PGMs ETCs from Reuters.

Demand for the ETFs has been strong, and additional demand has started to come on for palladium as jewelry use, speculative buying, and auto/industrial use has increased.

Some analysts are starting to see demand for platinum shifting over to palladium, and think that the current gap between platinum and palladium prices could be narrowed.

We talked about the trends that could drive a resurgence in palladium demand last spring; for more on this see, "Metals action and palladium notes".

Marc Faber on Bloomberg

Marc Faber says most financial markets are in the "final stages of a bubble" in this interview with Bloomberg TV.

He points out that in previous periods, the bubble or bubbles tended to be limited to one or two sectors or asset groups .This was the case, for example, with gold and silver during their late 70's-early 80's runup, or for internet and technology stocks in the late 90's to early 2000.

However, the most recent period is characterized by a bubble-like atmosphere across the spectrum of financial markets and collectible assets. As Faber points out, everyone is bullish on something, whether it be stocks, bonds, commodities, art, wine or even worthless collectibles.

The fact that these bubbles are so numerous and widespread will greatly affect the global economy when they are finally reversed.

What we don't know is how or when this bubble period will end; Faber feels some event or set of circumstances will bring about an end to the bubbles in the not too distant future, but he can not guess the date.

In the meantime, he says he is focusing on depressed and reasonably valued markets/assets in the Middle East and Asia, and assets outside the financial markets, such as farmland.

Monday, May 21, 2007

Private equity = backdoor imperialism?

Fintag has an interesting take on the growth of the high-profile private equity business.

The site's proprietor, an anonymous hedge fund manager, has lately aired his view of private equity dealings as a form of back-door imperialism, whereby firms undertake debt-financed deals for the prized assets of other countries.

Now, news of the Chinese taking a $3 billion stake in private equity firm, Blackstone, is prompting Fintag to call an effective beginning to China's "communist imperialist takeover of the West". In other words, two can play at that game...

Is this just a sign of severe animosity between "hedgies" and "pirates", or is there something to this?

Alternative energy Q&A

FT.com hosts an "Ask the expert" Q&A on alternative energy investing with Robin Batchelor and Poppy Allonby of the BlackRock New Energy Fund.

Here's a sample from that Q&A session with FT readers:

Q: What types of electricity generation are likely to be commercially viable while reducing carbon emissions?

Paul Davies, Adelaide, Australia

Robin Batchelor and Poppy Allonby: Some forms of alternative energy are cost competitive today. In many cases producing electricity from wind and geothermal are cost competitive when compared with traditional energy sources such as natural gas.

Furthermore, if one assumes there is a cost associated with emitting green house gasses such as carbon dioxide, the economic positioning of alternative energy increases further.

In certain geographic locations where high domestic prices prevail, or incentive schemes are present, the range of alternative energies that are cost competitive increases, e.g. solar photovoltaic in Japan and Germany.

Remember, however, that some of these of these alternative energy technologies are only "competitive" because of subsidies, as I believe is the case of solar photovoltaic panels in Japan and Germany.

In order to be truly competitive, the energy should be generated at a lower cost per unit without the use of subsidies, something that might actually hinder the development of cost-effective energy platforms.

Sunday, May 20, 2007

Ron Paul 'Net Storm

Free Market News Network is focusing on the spreading internet coverage of attempts to shut Congressman Ron Paul (R-TX) out of upcoming presidential debates.

In fact, much of the social internet and blogosphere has been abuzz lately over perceived attempts by mainstream media and political insiders to stifle Congressman Paul and drown out his message to the American public.

Here's FMNN contributor Anthony Wile's take on "The Ron Paul Problem":

The GOP simply does not know what to do with Ron Paul. He can change the context of the presidential debates with one simple phrase - and indeed he did so by questioning how the "war on terror" got started...

The idea, as Ron Paul expressed during the recent debate, that America was not right in the first place to attack and destabilize the Middle East over the last 100 years or so is something that the monetary and power elite simply cannot stomach. Allow a frame of reference to creep in, allow "libertarian" principles to make themselves known, and the whole phony "right/left" paradigm collapses. Suddenly, the argument becomes one about freedom rather than the U.S. versus Bin Laden, etc.

Read more about the,
"Ron Paul 'Net Storm" at FMNN.

Friday, May 18, 2007

Features of the week

Put on your reading, thinking, and relaxation caps; its' time for our, "Features of the week".

1. "White House to quickly replace Wolfowitz". The AP reports that the White House would like to quickly find someone to replace departing World Bank president Paul Wolfowitz.

Wolfowitz announced that the would resign his post on Thursday following a flap over a compensation package arranged for his girlfriend, Shaha Riza, a bank employee.

2. "Damien Hirst Seeks $99 million for Skull With 8601 Diamonds". The sight of this headline prompted a maniacal, "Ah-Ha-Ha!", moment on the part of your editor that even the Mogambo himself would have been proud of.

3. Meanwhile, in their current May issue, ARTnews is asking, "Are You Looking at Prices or Art?".

4. The Aden Forecast takes a look at, "The Bubbling Metals", and finds their long term uptrend lines intact.

5. Paul Lamont on the, "May 10th Credit Collapse", of 1837. A prelude of things to come?

6. One fund manager is high on platinum and shares of platinum mining companies. See Reuters' article, "Platinum bull run to continue for many years", for more.

7. "When bulls and bears agree". Louis-Vincent Gave and Marc Faber do not see the world in similar terms, but they do seem to agree on one thing: the price of agricultural commodities and food products could rise significantly in the coming years.

8. John at Controlled Greed says don't miss this recent New York Times feature on noted value investor and hedge-fund manager, Seth Klarman.

9. The People's Bank of China has widened the yuan's daily trading band against the US dollar. Daily FX asks, "How close are we to a free float?". Lots of background on the importance of China's currency moves in this article.

10. "Can America's masses get charged on electric cars?". Reuters' coverage features notes on the ZAP Xebra, GM's Chevrolet Volt, and Tesla Motors' electric roadsters.

11. From FT.com, "China changes the dynamics of African loans".

12. Paul at Infectious Greed gives us the heads up on a National Geographic feature about "China's instant cities".

13. Relax with some tunes. MSN "In Concert" presents Chris Cornell, live from the Fenix in Seattle.

Thursday, May 17, 2007

Buffett, Icahn ride the rails

News out on Tuesday revealed that investors Warren Buffett and Carl Icahn were increasing their stake in railroad investments.

SEC filings from earlier in the week showed that Icahn held a 2.7 million share stake in CSX Corp, as well as a 29 percent stake in American Railcar Industries.

Meanwhile, filings from Warren Buffett's Berkshire Hathaway showed that the company had added to its rail holdings, with holdings in Union Pacific and Norfolk Southern rounding out Berkshire's recently announced stake in Burlington Northern.

More on the recently disclosed railroad investments from Bloomberg:

``The rail group has attracted a lot of attention in a year and a half that could've led to a lot of smart people looking into it,'' Tony Hatch, an independent rail analyst based in New York, said yesterday in an interview.

``This group has clearly changed in many ways and has been stronger about talking about how it's changed.''

CSX and companies such as Union Pacific Corp. and Burlington Northern Sante Fe Corp. are benefiting from a tightening in rail capacity starting in 2003 and rising Asian import volume, Hatch said. Buffett, Berkshire Hathaway's chairman, said earlier this month that higher fuel prices and deregulation are making rail carriers attractive investments.

``As oil prices go up, higher diesel fuel raises costs for rails, but it raises costs for its competitors -- truckers -- roughly by a factor of four,'' Buffett, 76, said at the company's May 5 annual meeting in Omaha, Nebraska.

See Berkshire Hathaway's recent 13F filings for latest public holdings info.

Wednesday, May 16, 2007

$2000 gold by 2010?

Can gold breach the four digit mark by 2010? Check out Bloomberg's interview with Rob McEwen of U.S. Gold for a replay of Rob's forecast.

Key points:

1. Investment demand has started to trump jewelry demand in the gold market.

2. Gold is money.

3. Central bank selling of gold was dominant at the beginning of the decade near gold's price bottom; selling has stopped and been replaced with central bank purchases of gold.

4. Mine production has fallen off. McEwen expects production to rise as the gold price increases, but notes that new supply is taking longer to develop and has been more costly to produce.

Check it out.

Fidelity dumps Petrochina holdings

Reuters and FT.com are reporting that Fidelity Investments has cut its holdings in the US-listed ADRs of PetroChina.

Summary from Reuters:

Fidelity Investments, the world's No.1 mutual fund company, has cut its exposure to PetroChina Co. Ltd. (0857.HK: Quote, Profile , Research) following pressure by human rights groups over the Chinese oil firm's links to Sudan.

In a regulatory filing on Tuesday, Fidelity said it had cut its holding of PetroChina (PTR.N: Quote, Profile , Research) American Depositary Receipts (ADRs) by 91 percent in the first quarter of 2007.

Apparently, Fidelity has decided to give in to the pressure from various human rights groups who are worried about PetroChina's business operations in Sudan and feel that China's influence is obscuring the issue of genocide in that country.

Similar pressure tactics and criticisms have been aimed at Berkshire Hathaway and its highly visible chairman, Warren Buffett, for the company's investment stake in PetroChina. Buffett recently brushed off calls for Berkshire to divest its stake in the company, saying that the company had no issues with PetroChina's operations in Sudan and that the actions of Chinese government was a separate issue that neither he nor Berkshire could control.

Berkshire shareholders voted down the proposal to divest at the company's annual meeting.

As for
PetroChina's share price, it's plain to see the drop in early 2007 that would have coincided with Fidelity selling off most of its stake in the company. Would Berkshire have taken the opportunity to buy more during this time frame?

Update: Latest 13F filings reveal no change in the size of Berkshire's PetroChina holdings from quarter ending March 31, 2007 over the previous quarter. We understand that this info may not give the whole picture, as Buffett/Berkshire are known to argue for delays in sending info regarding investments holdings in an attempt to prevent investor copycatting.

More opinion on
the morality surrounding shareholder divestments and PetroChina from fund manager Cody Willard. See also, Bloomberg columnist, William Pesek's contrary stance.

Monday, May 14, 2007

"Agflation" is the new buzzword.

It seems that economists and media have latched onto a new economic buzzword.

"Agflation" is the term being tossed about lately to describe the recent rise in food and grain prices worldwide. The term seems to recall the 1960s-coined phrase "stagflation, while alluding to the supposed inflationary effects of rising prices for staple food items.

But to say that rising food prices produce an inflationary (or, I suppose, an "agflationary") effect is to say that inflation is, itself, an occurrence of rising prices. While modern use of the term "inflation" has been corrupted to reflect this meaning, it is incorrect in light of its classical definition, an increase in the supply of money and credit.

When considering the term's original meaning, an increase in general prices reflecting a decrease in purchasing power is properly seen as an effect of inflation, not the cause of inflation, and not a precise description of the phenomenon itself.

This misuse of terminology is partly responsible for the confusion over rising prices. People are hearing and reading reports that say rising food prices are contributing to inflation. What they are really being told is that rising food prices may contribute to a rise in the level of consumer price goods, as measured by their government office or statistical bureau.

This, as we've seen by our definitions, is confusing the cause of inflation with its effects. Whether or not the ruse is intentional is an ongoing point of debate. What cannot be denied is the inference that a rising price level, or "inflation" (as the authorities would have it), is somehow attributable to rising prices of goods x, y, and z (whether they be food, energy, or automobiles).

If the public then swallows this line of reasoning, it can be shown that any unwanted rise in the consumer price index (or level of "inflation") is the result of rising prices in energy, food, or any measured good or service. Conversely, a "drop in inflation" can be engineered through the inclusion of goods that are falling in price (computers) or the removal of goods that are rising in price.

Unfortunately, in so-called developing countries, food prices tend to make up a higher proportion of personal expenditures and their consumer price indexes are weighted to reflect these levels. So while countries like the U.S. tend to downplay the importance of food prices in the consumer price index, price baskets in places like the Philippines seem to reflect the big hit that food prices have on the national wallet.

So what's really behind the worldwide rise in food and grain prices?

What we are seeing in rising food prices across the globe can probably be attributed back to two main causes: the dynamics of supply and demand and the ill effects of undisciplined money creation worldwide.

We've all heard the many recent reports of rising demand for meats and grains worldwide. We also know that much of our corn, sugar, and wheat is being consumed in the form of ethanol and other "renewable" fuels. An explosion of demand is occurring at a time when severe weather and droughts are hitting agricultural areas and further limiting supply. Still, the basic interplay of supply and demand seems to command less than primary importance in the explanations for rising food and grain prices.

Meanwhile, governments across the globe have been increasing their money supply at a fantastic rate. "Liquidity", in the form of paper/electronic money and credit, has been washing over the globe and sending prices of goods and assets up and down (and back again) in a manner that has rarely been seen.

Prices of financial assets are correlated in a way that they had never been before, and many individual commodities are rocketing higher, having felt the pull of increased consumption and investment/speculative demand.

Nations such as China and India are spending their foreign currency reserves on needed resources and have begun to invest surplus reserves into areas such as precious metals and other other hard assets. Securing control of limited foodstuffs in a time of growing demand is bound to be the next step.

Finally, inflation in some countries has brought about a policy of price controls, which inevitably leads to shortages of goods. Just as ever, politicians and their allies laud such policies, since they appear to put a lid on rising prices.

The unfortunate reality, however, is that the system of wage and price controls is an artificial restraint on the marketplace, pushing trading and economic activity underground and into the black market. When prices are fixed and money loses its purchasing power, farmers and food manufacturers are likely to hold goods back from the market, rather than accept a price that does not allow them a profit. So in fact, these price control policies only exacerbate food and grain shortages.

Given this environment of high demand for commodities, together with the realities of limited resource supplies and the high rate of money and credit growth worldwide, it seems that the reasons behind rising prices for food and grains are no mystery. As long as money and paper financial obligations are created more easily than crops, the trend towards higher prices is likely to persist.

Friday, May 11, 2007

Features of the week

Welcome to our features of the week. Lots of interesting article links and interviews ahead, so enjoy!

1. Who will succeed Warren Buffett as chief investment officer at Berkshire Hathaway? BNN interviews Canadian investor Jeff Hull and finds the model for one potential candidate.

2. CME raises its offer for CBOT. The Chicago Mercantile Exchange has increased its offer for CBOT Holdings by 16 percent in an effort to stave off a rival bid from Intercontinental Ecxhange (ICE).

Will CBOT make a match or choose to go it alone? See FT's analysis for more.

3. Newspapers aren't dead yet. Sam Zell discusses his deal for the Chicago Tribune and the role of newspapers in the internet age, as well as his view of the commercial property market, on FT.com's View from the Top.

4. Newsvine on "The censorship of Ron Paul".

5. The Economist on "How to fight back" against Russia's "inept bullying".

6. Gordon Gekko is back, and this time the popular Wall Street villain is cast as a market operator of the hedge fund era.

Meanwhile, Dealbreaker wants to know which hedgie or pirate will provide Michael Douglas with the model for his 2007 character. Vote their poll and see the results.

7. No way to win hearts and minds. Civilian deaths continue to mount in Afghanistan and Iraq, as the US' military campaigns plod on.

8. Tony Blair to step down as Britian's prime minister on June 27. See also: "Was Blair Bush's Poodle?".

9. Bloomberg discusses the flush times and the hard times felt by Hong Kong on the way to its current state of prosperity.

10. Dow Theory Letters writer, Richard Russell, has surprised a few onlookers with his call for a possible worldwide boom in the period ahead.

Some commentators feel this could be a contrary indicator in which "the last bear turns bullish". But while Russell has opted to stay largely out of stocks for the past few years (aside from attractive resource based shares and dividend paying utilities), his propietary trend indicator has been bullish for much of that time.

See last week's "Features" for more on this.

11. Paul van Eeden appears in this BNN interview to discuss inflation, gold prices, and junior resource stocks.

12. Troubles down south: Financial Times on Venezuela's dying stock market. See also, the piece on Argentina's problems with inflation.

13. From the Mises Institute, "Ten Recurring Economic Fallacies, 1774-2004".

14. "If You Love Nature, Desocialize It". Interesting to see this, as I've been trying lately to reconcile my love of nature with worries over indiscriminate land development and was wondering what the "free-market" take on this issue might sound like.

15. John Mauldin looks at the future of communication in, "A Most Disruptive Technology".

Lots to see and hear. Explore and enjoy.

Wednesday, May 09, 2007

M&A in the metals, mining sectors

Heard the rumors about BHP Billiton's planned takeover bid for rival miner Rio Tinto? Reuters reports that a bid is forthcoming, or at least is expected by market participants.

Here's more from Reuters:

Shares in Rio Tinto (RIO.L:
Quote, Profile, Research (RIO.AX: Quote, Profile, Research rose as much as 21 percent on talk that bigger rival BHP Billiton (BHP.AX: Quote, Profile, Research (BLT.L: Quote, Profile, Research was planning a bid to create the world's fifth biggest firm, but Rio denied it had been approached.

"Markets are betting that an offer is due soon," one London trader said

Talk swept Australian markets that BHP was readying a hostile bid for Rio after it had rebuffed a friendly offer of A$100-A$110 per share, a premium of up to 23 percent to Tuesday's closing price, traders and analysts said on Wednesday.

But Rio later issued a statement denying there had been an offer. "Rio Tinto is not aware of any takeover approach from BHP Billiton," it said in a statement. BHP declined to comment.

The rumored merger would create the world's fifth largest company by market value and a powerhouse in the diversified mining sector. For more on this, see Reuters' rundown of BHP Billiton and Rio Tinto metal production figures.

Word of BHP's planned takeover bid for Rio Tinto comes hot on the heels of another recently proposed deal in the metals sector; Tuesday saw Alcoa launching a
hostile bid for rival Alcan, following failed merger talks between the aluminum producers.

Update: "BHP, Rio rumours run out of oxygen". No public motion was put forward by BHP today in their widely-rumored quest to acquire rival Rio Tinto.

Shares of Rio Tinto fell on Thursday, as traders who bid up the shares on Wednesday were disappointed when a takeover bid failed to materialize. Analysts and fund managers quoted in the article above still feel the deal would make sense.

Tuesday, May 08, 2007

Chinese bubble, Wall St. correction

Couple of stories on the recent action in the stock market. Let's look at what's happening with two of the biggest players on the world stage, the U.S. and China.

"Wall St. falls ending 5-week rally". FT.com noted during the afternoon trading session that a down performance on the day would end "a winning streak that had driven blue-chip stocks on their best run since 1927.".

And that's what happened, as CNNMoney.com reports in, "Dow's record run done". An excerpt from that piece:

The Dow Jones industrial average closed lower Tuesday, ending its bid to claw out the longest up streak in Wall Street's history.

The Dow (down 7.07 to 13,305.90, Charts) ended about 4 points lower, after finishing with record closes for five sessions in a row. The blue-chip barometer has risen in 24 of the last 27 sessions - a feat last achieved almost 80 years ago.

Meanwhile, things are getting very hot again in China. The country's mainland stock exchanges are registering huge gains, with the Shanghai composite index up about 50 percent thus far in 2007.

Despite recent one day market drops of 8 percent or more, China's investor population is shrugging off fears of a bubble and piling into stocks, as FT reports.

China’s stock market brushed off a central bank warning about the danger of an asset bubble on Tuesday and rose to another record high in a sign of the government’s waning ability to control share prices.

At least three state-run newspapers ran prominent stories about the warning from Zhou Xiaochuan, governor of the People’s Bank of China, in Basle on Sunday. When Mr Zhou was asked if he was worried about a bubble forming in the stock market, he said he was.

But his comments, the latest in a series of official public statements expressing alarm about the level of the market, were ignored by investors, who bid up the index by nearly 3 per cent.

Apparently, warnings from government officials do not carry the influence they once did in this red-hot Chinese share market.

See this week's Financial Sense Newshour interview with Puru Saxena for more info on the Asian economies and the current mania in mainland Chinese share markets.

Art flippers in force

Thanks to Finance Trends reader, David, who sent along this article from Bloomberg, "Art `Flippers' May Push Spring Auctions to $1.4 Billion Record".

Here's an excerpt:

A growing breed of art buyer -- the ``flipper'' -- will be out in force along with new and established collectors and dealers today through May 17, when aggressively priced Rothkos, Warhols and Picassos go under the hammer at Christie's and Sotheby's in New York.

The auction houses predict that they will move almost $1.4 billion of Impressionist, modern and contemporary artworks during the high-stakes spring sales, 60 percent more than last May's record $854.9 million.

Not surprisingly, gallerists, collectors, auction-house executives and art advisers say they are hopeful, even confident, that the boom will continue. But almost everyone agrees that the rapid rise in prices -- especially for contemporary art -- has to do less with a love of art than with an influx of art investors.

``People who are buying these things are not collectors,'' said Miami-based art adviser Lisa Austin. ``They are traders, and they are buying and flipping as quickly as they can. It's like day trading.''

Dealers say the trading mentality is increasingly apparent. ``People think they will make money quickly and that it's a sure bet,'' said Andrea Crane, a New York private dealer. ``I know it happens. I've seen it.''

Well, it's not the first mention of art flippers we've seen in a Bloomberg article, but this piece does put the quick-buck artists front and center. Kind of reminds you of the media coverage about residential property flippers in 2004 and 2005, doesn't it?

And in the interesting coincidence department, didn't we just see an episode of Golden Girls with this sort of art-flipping storyline last night? Yes, I know - you're scared.

For more on the red-hot art market see, "That Booming Art Market", or search the blog for more.

Happy Birthday, Friedrich A. Hayek

The Library of Economics and Liberty notes the birthday of classical liberal economist Friedrich A. Hayek in their birthday commemorations section.

F. A. Hayek (1899-1992) is remembered as one of the great 20th century economists and an advocate of liberty and free market economics. He is closely allied with what is known as the Austrian School of economics, and was author of the famous work, The Road to Serfdom.

More on Hayek from this econlib.org biography. If you'd like to learn more about Hayek and Austrian economics, there is a wealth of information on the web and in your local library!

Monday, May 07, 2007

Renewed talk of a metals bubble

There is renewed talk of a possible bubble in the industrial metals market, as Bloomberg.com reports in their May 7 piece, "Metals Bubble Poised to Burst on Increasing Supplies".

Here's an excerpt from that article:

Copper, nickel and lead, the best performing commodities in the past four months, may be the worst by year-end.

On Wall Street, the chorus is getting louder that rising metal supplies are outpacing demand. From Goldman Sachs Group Inc. to JPMorgan Chase & Co. to Societe Generale, there are warnings of a mania that is showing all the signs of a climax.

``This is a real bubble,'' says metals trader David Threlkeld, who first got the world's attention in 1996 when he showed that Sumitomo Corp.'s copper hoarding would lead to a market collapse. Once again, ``we have an enormous amount of unsold copper,'' says Threlkeld, president of Resolved Inc. in Scottsdale, Arizona.

The metals bears are convinced that consumption may drop partly because China, the biggest user, is attempting to reduce investment through interest-rate increases and lending curbs after the economy expanded 11.1 percent in the first quarter.

It seems that, once again, a chorus has gone up among investors and analysts who warn metals prices are overextended and due to fall within "x" number of months.

We heard this refrain around this time last year, but many of the individual commodities have continued to march higher in price.

Copper prices plunged from their highs near $4 a lb. last spring, but have stage an impressive comeback since bottoming out in February. Meanwhile, metals such as nickel, lead, and tin have all gone to set new highs.

Still, many investors, even noted commodity bulls like Jim Rogers, remain wary of the action in the metals markets (while recently admitting that they have missed the recent spectacular gains in metals like Nickel). Will further upwards movement confound the metal bears?

Bloomberg picks up on that note:

To be sure, many of the bears were wrong so far this year. An investor who acted on the advice of JPMorgan, the third- largest U.S. bank, missed gains of 67 percent for nickel, 30 percent for copper and 41 percent for lead, the best-performing commodities in the 26-member UBS Bloomberg CMCI Index.

That compares with a 6.2 percent increase for the Standard & Poor's 500 Index and 2 percent for U.S. Treasuries, according to Merrill Lynch & Co. indexes.

``We're sticking to our guns'' because ``prices are unsustainable,'' said London-based Jon Bergtheil, head of global metals strategy at the bank, on May 2. Nickel may average $35,328 a ton in 2007, down from $51,600, because stainless steelmakers might buy less in the second half, he said.

Bergtheil in February said that nickel would decline 25 percent in 2007. The metal, used to make stainless steel, has since gained 40 percent.

Who can tell for sure when prices for industrial metals will reverse course? In the meantime, check the fundamentals and the technicals, and see Zeal LLC's article series on base metals for more info.

Friday, May 04, 2007

Features of the week

Interesting stories and interview links lie ahead. Read on for the features of the week...

1. Reactions to last night's Republican debate. Ron Paul is doing quite well in MSNBC.com's online rating poll, sharing high positive marks with Mitt Romney.

2. EU regulations to affect the City of London. Apparently, New York is not the only city feeling the pressures of financial regulation; Londoners are a bit agitated over regulations from Brussels that will "attempt to create a harmonised, pan-European market for financial services".

See FT's story for futher details of the Markets in Financial Instruments Directive, or Mifid.

3. Dow Theory flashes a "Buy" signal. The technical confirmation is taken as a bullish indicator by the investment officers quoted in the article, but I'd like to get Richard Russell's (editor of the Dow Theory Letters) take on it.

I know John Mauldin said Richard Russell kind of took him by surprise recently by saying he expected further upward movement in the major averages, but I know that Russell has got to be shaking his head at this market nonetheless.

As he often reminds his readers, Dow Theory is also about value, and valuations in the U.S. stock market are anything but cheap these days.

4. Nassim Taleb talks about Black Swan events in this Econtalk interview.

5. "Dollar decline tracks U.S. fall from grace". Jim Rogers and others are quoted in this Reuters article on "the ebb and flow of global power".

6. "Reuters in Play, and Data Uber Alles". Paul at Infectious Greed says that a just-announced takeover approach for Reuters is evidence of "a rapidly changing business media landscape."

According to Paul and friends, data, not reporting, is what's driving the business.

7. Murdoch goes trophy hunting. The Economist on Rupert Murdoch's aspirations in the business media space and his proposed takeover of the Wall Street Journal.

8. A gold coin as big as a pizza, or, "Finally! A 100-kg gold coin". Thanks to 321gold for the link.

9. From Bloomberg.com, "AMP, Marc Faber Cite 1920s Theory for Commodity-Stock Optimism".

10. Microsoft eyes takeover of Yahoo. An inevitable outgrowth of the "Google threat"?

: It seems that one blogger was right in saying this takeover deal would turn out to be nothing more than PR buzz and an overhyped prelude to a partnership announcement.

11. Berkshire Hathaway's annual meeting is underway and media coverage is, of course, ample.

Reuters has an overview of the proceedings (and news of Buffett's quest to find a future chief investment officer for Berkshire), while Bloomberg weighs in with a brief interview clip with Warren Buffett discussing Berkshire's future growth and business prospects.

Update: Latest news out on Berkshire is that they are ready and willing to do a big business aquisition. This kind of echoes what Buffett said in the Bloomberg interview clip (see link above) about competing with the private equity gang lately for deals.

Read and enjoy - you're up to date!

Thursday, May 03, 2007

Heads up: Republican debate

Why am I posting on a political debate? One reason: this televised debate will provide many Americans with their first glimpse of Ron Paul, 2008 presidential candidate.

Ten Republican candidates will share the stage at the Ronald Reagan Presidential Library, which is set to begin at 8pm ET. The debates are scheduled to air on MSNBC-TV and will stream live on MSNBC.com and Politico.com.

Check it out!

Wednesday, May 02, 2007

Dow Jones mulls Murdoch offer

Well, the big news on Tuesday was News Corp's unsolicited $5 billion bid for Dow Jones & Co., publisher of the Wall St. Journal and leading financial news provider.

News of the takeover proposal prompted more discussion about Rupert Murdoch's plans for competing in the business news space, as well as the appeal for newspaper investments in light of some recent deals made by interested moguls.

MarketWatch covers all these aspects of the story, as well as the consideration Dow Jones' controlling family owners are giving to News Corp's offer, in "Dow Jones mulls Murdoch offer; family to reject".

We'll be focusing more on the newspaper industry and related deals a little later in the week. Are newspapers dead or have the latest offers for prime print & online news outlets confirmed their appeal? Stay tuned.

Tuesday, May 01, 2007

Peak oil and climate change: beliefs

The Oil Drum reader/contributor Nate Hagens has finished a three part series on peak oil and climate change, and how we humans think about and react to these event scenarios.

Here's an excerpt from part one of the series, "Peak Oil - Whom to Believe?".

Peak oil, as will be discussed below, has many definitions... It represents the general time frame when human demand for the energy services derived from oil will permanently diverge from our capacity to provide them.

Modern human culture, capitalism, globalization, food production, and essentially all aspects of life as we know it (unless *we* are Amish, 3rd world, or off-the-gridders), centers around oil, electricity and natural gas. Peak Strawberries or Peak Snapple obviously wouldn't be as big of deal.

Peak Oil is not a theory. It is a fact. Only the timing, magnitude, and implications are open to interpretation. How we interpret them should be a top priority for us individually and collectively. This post addresses why there are so many disparate opinions on this subject - many are concerned - many are unconcerned - many flip/flop from being concerned to unconcerned, etc. Why?

Now that you know where Nate is coming from, have a look at this article series and see if it makes sense. If you are very busy, you can scroll down to the end of parts one, two, and three for a "bottom line" summary.

Lots of information here on human psychology, sociology, and optimistic forecasting. The Oil Drum gang is doing its best to deflect the oft-repeated optimism of the many "bountiful oil" forecasts bandied about by CERA and the like.

Be sure to have a quick look at part one for Nate's "man in the street" interview with an energy broker friend to get a Wall Street point of view on the issue. To quote Gordon Gekko, "It's all about bucks kid...the rest is conversation".