Wednesday, December 31, 2008

Why We Love Gold

Israel and Hamas are at it again. Israel rejects the peace the 48 hour truce.

http://www.iht.com/articles/2008/12/31/africa/01mideast.php

Who is right? Guess what? We don't care! Governments world wide are corrupt. It is their nature. They are the Elite and are there to serve the Elite. The U.S. is managed by Corporate Statists per Marc Faber.

Now that the good times are gone we can picture panic, government coercion, higher taxes, fear tactics etc...

Besides we like gold. It is cheap and precious metals, as stated earlier are our favorite play for 2009. BUT, we mean as of now. Any speculation becomes attractive to us as the right price and with the odds in our favor.

Many more attractive speculations will develop throughout the year. We will make it know to all when we find them.

2009- The Year of the Geopolitical Mess Says Faber

Fund managers best bone up on History and Geography 101, as these forces will exert large pressures on markets in the coming years. Marc Faber of the Gloom Boom Doom report expects 2009 to be quite interesting geopolitically in a note released today.

Lets see, Georgia, Afghanistan, Iraq, Gaza, Iran, Pakistan, India, Venezuela, the DRC, and numerous other possible flash points across the world. This is why we are long defense as a core of our portfolio. We use an etf (ITA) and Fidelity's Defense and Aerospace fund (FSDAX).

Won't be as easy as picking GE, WMT, MSFT, and KO in the 90s or Vale, Petrobras, and Satayam in the mid 2000s!

Top Billionaire blow Ups in the US

http://www.forbes.com/2008/12/16/billionaires-adelson-casino-biz-billies-cz_dg_1216biggestlosers.html?partner=popstories

Take a bow Sheldon Adelson! We have to go back to ... lets see 2000 or 2001 and Michael Saylor at Microstrategy to see such a massive destruction of wealth.

Boone Pickens should be here, given his hedge fund performance and redemptions. We like Boone though.

Biggest Billionaire Blow Ups

Who lost the most? Forbes tell us.

Frankly we think the list is all Russian oligarchs, emerging market impresarios, and plenty of hedge fund and private equity operators.

http://www.forbes.com/home/2008/12/22/billionaires-mitttal-ross-biz-billies-cz_lk_1222billieblowups.html

What Ails Gazprom?

Hubris, Soviet Era management, crushing debt load.

Nonetheless, we have a small speculative long position, as it is the Kremlin's foreign policy weapon of choice.

http://www.iht.com/articles/2008/12/30/business/gazprom.php

here is hoping that the Kremlin doesn't dilute all of our holdings!

Sunday, December 28, 2008

Wednesday, December 24, 2008

Happy Holidays

To all of our readers worldwide.

We wish you health, peace, and a prosperous 2009.

Predictions for 2009

We don't like to make predictions. We feel it is a fool's game. We buy that which is going up, and step aside of sell short that which is going down.

What we are stating is obvious and should serve as a simple reminder to our readers.

1) We have been extremely negative on housing for years. Our basic premise is unchanged. Housing will continue to collapse. Hold outs such as DC (especially far out exurbs) and NYC in the U.S. will come under great pressure.

2) London and Moscow are tremendously overvalued. If we owned there, we would be selling as quick as possible.

3) We like gold and silver. We believe that both will be much higher in the coming years. We continue to accumulate both. We are wildy bullish on 1921 an earlir Morgan Silver dollars. Either raw BU/UNC or graded NGC or PCGS Mint State 64s.

4) Palladium which is given to boom and bust cycles, is looking attractive to us in the high 170s per ounce, after rallying to over $560 in the year. We will gently dip a toe in this market at reasonable prices. We are unwilling to pay $100 over spot for the bullion at this time, so we shall be selective.

5) Platinum - We are not yet buying, but watching for a basing pattern and then an uptrend. We will purchase more platinum in the next year or two. At what price ? We don't know.

Ukraine Faces the Russian Bear

A major problem with Ukraine and with much of Western Europe is the dependency on Russian natural gas. This is the reason we have a small long position in Gazprom.

Ukraine owes Russia over $2 billion. It is a cold winter and it could get much colder.

It should be know by all investors that Gazprom is the choice weapon of Russian foreign diplomacy.

http://www.iht.com/articles/ap/2008/12/24/business/EU-Russia-Ukraine-Gas.php

A look Inside a Swiss Private Bank

When discretion is necessary, Geneva and Zurich are the spots.

http://www.iht.com/articles/2008/12/24/business/24ubp.php

Monday, December 22, 2008

In Praise of Common Sense

Bill Fleckenstein offers some common sense on the current housing and financial mess.

He has been spot on for quite some time.

http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/the-meddlers-cant-tame-the-market.aspx

Sunday, December 21, 2008

Madoff Fund Returns Were So Good that . . .

Farfield partners had very little of their own money in them!

Due diligence, what a racket.

http://iht.com/articles/2008/12/22/business/22fairfield.php?page=1

Friday, December 19, 2008

SEC Had Been Warned of Madoff For Years

So what did they do? Nothing, proving that malfunctioning government agencies are useless. Like the government in general.

So what do they do? Lull investors into a false sense of security. hey the SEC says this fund is Kosher, lets invest. The government as we have seen, cannot do anything right, at all. yet investors gladly believe what their regulatory agencies say. The Fed, SEC all of these agencies have simply created enormous amounts of moral hazard in the economy.

Lesson, there is absolutely zero substitute for doing ones one homework.

http://www.msnbc.msn.com/id/28310980/

So Whom Do We Blame for the Financials?

Their payment of 250k I banking bonuses last year for 2nd year associates and pay packages that went to the moon?

We don't blame the banks or the employees. If A-Rod can make tens of millions a year hitting a baseball, why should people not get paid as much as they want?

No, the blame falls on the mutual fund industry, investment consultants, and high net worth firms.

Were not shops like T Rowe Price, Dodge & Cox, Pzena, Fidelity , Vangaurd, and Legg Mason the largest investors in shares of Citi, Morgan Stanley, Fannie, Bear, Countrywide, Indymac and assorted banking stocks?

If they didn't like the pay the banks were giving out, SELL the SHARES! Don't vote for the same board members. Obviously plenty of people shorted the financials. Chanos, Paulson, et al.

Jim Rogers, Marc Faber and Bill Fleckenstein have been publicly dubious of financials' earnings, pay and stock prices for years -long before the stock plummeted and LEH and BSC slipped into eternity.

The blame falls squarely on the legions of bottom-up fundamental analyst with their CFAs that bought the story the banks peddled. The mutual funds were buying Bear and Fannie right up to the collapse! The trend had already reversed, the world knew these companies were doomed.

Then it falls on the investment consultants and their pseudo "due diligence." Who in their right mind would recommend a value fund that was over 40% in financials at the end of 2007 and into 2008?!

Yet they did, by the legions. Why? Because the Russell 1000 Value index was 40% financials and that was their benchmark.

And you see, the largest mutual funds are closet indexers anyway (they get paid on fees). And as investment consultants were are not smart enough to pick the stocks, but we'll pick the funds. So if the R1000 Value index is down 50%, but our "recommended funds are only down 45% we are geniuses! No one ill fire us. Oh and we don't have an original thought in the entire fiber of our beings! We worship American Century, T Rowe, Legg Mason! How could our idols - the fund managers ever be wrong? They are deities! Lets not question them being 45% in financials as the entire sector is collapsing!

If you are an aggrieved investors be mad at your consulting firm, your mutual fund and yourself. You bought a story that was obviously unsustainable.

Where Do I Sign Up? Combined They form Voltron!

Legg Mason is taking several managers down more than 50% ytd and combining them to one fund team for the All Cap product.

Is this like forming Voltron?

Thanks, but no, we will stay away.

http://bloomberg.com/apps/news?pid=20601087&sid=avZFF5X_Edlc&refer=home

Housing Bubble and Taxes

This article in the IHT postulates that preferential tax treatment helped inflate the U.S. housing bubble.

Well, the true solution is for the U.S. to follow Singapore and Hong Kong and simply eliminate capital gains taxes on all assets. Lol, the U.S. gov though, can't keep their dirty hands of peoples' money.

http://www.iht.com/articles/2008/12/19/business/19tax.php

Thursday, December 18, 2008

S&P Says GE May Lose AAA Rating... Really?

And we are supposed to believe the same firms that rated all of these toxic assets.

GE is not AAA. More than $100 billion of its bonds are insured by the U.S. gov.

The AAA rating is total bs and a sham. The only people holding on are shadow indexer and the stock departments of bank and trust companies.

http://finance.yahoo.com/news/SampP-says-chance-GE-could-rb-13870620.html

Wednesday, December 17, 2008

Victims Don't Own 5 Mansions!

We for one, find it hard to believe that Noel was a victim."

Sickening that due diligence obviously does not exist in the fund of funds world.

http://www.iht.com/articles/2008/12/17/business/middle.php

Where Tax Payer Money Goes to Die

Here, in my core, you are all equally worthless.

Proof that you can get rich... doing nothing.

http://iht.com/articles/2008/12/18/business/18pay.php?page=1

Hard to believe the Street went bust. Guess what? They deserved it.

Opec Cuts - Who Cares?

This is Speculation 101. A market that does not go up on bullish news, is not bullish.

OPEC never really cuts production ex when they used it as a weapon during the Arab Israeli War.

Besides, who will cut production when they have the world's gaudiest skyscrapers going up?

http://bloomberg.com/apps/news?pid=20601087&sid=ah2rPCVsI1zY&refer=home

Tuesday, December 16, 2008

Our Readers Are Very Happy

Having taken advantage of the greatly depressed Japanese and mining assets that we have recommended in October.

Miners such as Allied Nevada Gold (ANV), Silver Standard Resources (SSRI), Exeter Resources (XRA) Tenaris (TS) Japanese small caps (JSC) and, 2x Nikkei 225 fund (RYJHX) have all made our readers very handsome returns in less than 2 months. Some are up more than 30% from our recommendations.

Sure, the market has bounced up, but it pays to be in the right assets as opposed to waiting for the Dow or S&P to turn up.

We Are Now Japan , Money is Free

As yes as we have all seen the Fed cut rates to between zero and 0.25%. They smacked 75 bps off the fed funds rate.

So we are officially Japan.

http://bloomberg.com/apps/news?pid=20601087&sid=aafQgexzAGXk&refer=home

Still Pathetic

The performance of Dodge & Cox International, Davis Venture et al. These guardians of widow and orphan money.

http://quicktake.morningstar.com/FundNet/Snapshot.aspx?Country=USA&pgid=hetopquote&Symbol=DODFX

Type in LMVTX, JCVIX, DODGX, NYVTX, and TAVFX for great amusement.

Monday, December 15, 2008

Major Madoff Victims - Fairfield Greenwich and Tremont

Both firms had over 50% of their capital allocated to Madoff. Some $3.1 billion of $5.8b at Tremont Capital and $7.5 of $14.1 billion at Fairfield Greenwich.

The reputations of the firms' has been destroyed. No high net worth advisory firm, fund of funds, or institution can have that type of risk.

http://bloomberg.com/apps/news?pid=20601087&sid=aCT_aoIRYqRg&refer=home

Sunday, December 14, 2008

Why Home Prices May Take Decades to Recover

This comes from the USA Today.

It is worth the few minutes it takes to read.

We like to say it is because housing is overvalued and over levered.

http://www.usatoday.com/money/economy/housing/2008-12-12-homeprices_N.htm

Friday, December 12, 2008

Baltic Dry Index


As most of you know has collapased.

from over 11,000 into the 700s. It is indicating that world trade has come to a stand still and may not recover.

We know that trade will recover, but we don't know when or to what level the BDI will rise.

Therefore, we are looking at Dryships (DRYS) the Greek based shipper. We have not finished our analysis and make no formal recommendation yet.

Investors may wish to do their own analysis.

A Fraud for All Times - Bernie Madoff

Too good to be fiction.

We suspect there will be many more of these going forward.

The best part is all of the well known "fund of funds" that were invested. Proving once again, that due diligence is a fraud!

http://finance.yahoo.com/tech-ticker/article/145115/I-Knew-Bernie-Madoff-Was-Cheating--That%27s-Why-I-Invested-with-Him?tickers=%5Edji,&gspc,%5Eixic

Thursday, December 11, 2008

Not Everyone Cuts Cap Ex

Japan still runs a trade surplus with the U.S. even though the yen has appreciated over 300% versus the USD since the early 1970s.

It is possible to have a strong manufacturing sector along with a strong currency.


http://iht.com/articles/2008/12/11/business/yen.php

Wednesday, December 10, 2008

The Bubble In Treasuries

Bill Gross, the "bond king" tells us what we know. Treasuries, especially the T Bill, are wildly overvalued.

We will look for attractive values elsewhere, thank you much!


http://bloomberg.com/apps/news?pid=20601087&sid=asgkk4AucjU8&refer=home

Other Miners that We are Accumulating

As medium term speculations in mining friendly jurisdictions are Exeter Resources (XRA), their Caspiche mine in Chile looks like it maybe a monster.

Andina Minerals (ADMNF) and Fortuna Silver (FVITF).

Remember we want:

1) quality management

2) quality projects

3) a friendly political climate

4) cashed up companies. We fear the credit crunch.

We have been buying in small slugs over the past few days.

We are for the bulk of our investments avoiding leverage to sub-Saharan Africa and Central Asia (the stans). We find ample opportunities and better property rights in Latin America.

Accumulate Silver Standard (SSRI)

Part of our play on bludgeoned junior miners. La Pitarilla in Mexico is a monster. Las Pirquitas, looks set for Q1 2009 production.

The company is cashed up with $145m cash.

We will not pretend to have caught the bottom, but have bought a slug in the 8s and 9s per share.

As always we are not making recommendations for anyone, but outlining our personal investment decisions. We are not registered investments advisors and do not give investment advice.

Accumulate Rare Earth Elements at 26 Cents a Share

The bulk of rare earth elements are mined in China. They are no longer mined in the U.S. in any real amount. The Chinese have export quotas.

They include Yttrium, Europium, Cerium, and Lanthanum.

The REOs have held up better than nearly all commodity prices. REOs are used in magnets, lithium batteries, car catalysts, compact energy efficient light bulbs and technology.

They are expected to see double digit CAGR in the next 5-8 years.

The short fall of supply due to export quotas will be made up by Lynas Corp of Australia with their Mt. Weld project in western Australia. They have their "refinery" in eastern Malaysia, complete with an educated work force, infrastructure and local tax breaks.

We have begun accumulation of Lynas Corp, LYSCF today at 26 cents. It is beaten up and makes an attractive speculation to us.

http://www.lynascorp.com/

http://www.lynascorp.com/content/upload/files/Reports/(RS)_4th_Intl_RE_Conference_HK.pdf

Tuesday, December 9, 2008

Clash of The Titans!

Worth a read. If I were a bondholder, I would not go for this at all!

http://bloomberg.com/apps/news?pid=20601109&sid=aH4kh3DGgOuE&refer=home

Jim Chanos - The Short Selling King

This one appeared on dealbreaker.com today.

We admire anyone that didn't buy into credit and finance bubble.

All hail the New King of the Street!

http://nymag.com/news/business/52754/

Monday, December 8, 2008

Sionara Apex Silver

The fabulous San Cristobal zinc and silver mine was purchased by Sumitomo Corp of Japan - one of our favorite stocks.

Sumitomo assumes full control of the mine, having owned 35% of it already for about $22 m.

Now it is on them to contend with investor's bogeyman - real or imagined - Evo Morales.

http://www.reuters.com/article/marketsNews/idINT29422220081117?rpc=44

Wall Street Bonus Structure is Altered

Morgan Stanley can now hold back a portion of employee bonuses for three years, and deduct any for conduct that is "detrimental to the firm."

What took you guys so long?

http://www.iht.com/articles/2008/12/09/business/09pay.php

We imagine all of what is left of the large banks will follow the same model. After all:

1) the bnaks are there to make money

2) contrary to losing their top talent, where are all of thse professionals going to go? Hiring is slim these days.

At Big Sister in Prague, the Sex is Free

Though it is not immune to the economic down turn. Were we an unattractive love starved man, we might book our tickets ASAP!

http://www.ticketmaster.com/artist/1178384?tm_link=edp_Artist_Name

Friday, December 5, 2008

Job Losses

in September and October were revised higher by a total of 200k.

The Donald Personally Owes $40 M

On his Chicago real estate project.

Read it here:

http://www.iht.com/articles/2008/12/04/business/norris05.php

We will only add that the real estate collapse is global. To think that any city in the US is immune is the height of fallacy. Some markets will hold up better than others.

Obviously each market will fall on its own time, but they will all fall. Phoenix, Miami, NYC, DC. The trend is down, it is only the magnitude and timing of each market that will differ.

Recommended Reading - Trader Vic - Methods of A Wall Street Master

For those new to, or simply wishing to brush up, on how to speculate we recommend the classic:

Trader Vic - Methods of a Wall Street Master by Victor Sperandeo.

We won't spoil it for you, but you will learn how to limit risk, look for good return vs. risk plays, and understand that the trend is in fact your friend.

http://www.amazon.com/Trader-Vic-Methods-Wall-Street-Master/dp/0471304972/ref=pd_bbs_sr_1?ie=UTF8&s=books&qid=1228506725&sr=8-1

What Exactly is a Speculation?

Our friends at Casey Research (excellent for metals and macro trends) define an investor as someone that risks 100% of capital for a 10% gain, while a speculator risks 10% of capital for a 100% gain.

We also like Victor Sperandeo's (Trader Vic), the all world trading guru's idea that speculation is a medium term process. As the future is unknowable, it is taking a position anywhere from a few weeks to months, whereby the probability of at least a 3:1 reward to risk proposition is available.

That makes a great deal of sense. Look for something whereby you have a high likely hood of a big gain versus a small risk. Only use a small % of capital per trade or idea.

Chinese A Shares looking Better

These shares have been performing better as of late.

We like the idea of a long-term under performer, that is showing recent strength. We would also like to see a longer base, which would lead us to think that sellers have been flushed out.

Still it is worth looking at the Chinese A shares. keep this market in mind. Go long once a good base has been established in the chart.

http://bloomberg.com/apps/cbuilder?ticker1=SHSZ300%3AIND

Chinese H Shares no Longer Acting Badly

We would keep an eye on this market. It has been decimated. It also appears to be establishing a base.

We are not Long yet, but may become so in that not too far future.

We want to see the uptrend. The market is already hated, and it appears to no longer be going down on bad news.

We also note that in comparison with other emerging markets, the currency is not a risk.

http://bloomberg.com/apps/cbuilder?ticker1=HSCEI%3AIND

533k jobs lost

The worst in 34 years. Lay offs will get worse.

Interestingly enough, the stock market is not reacting poorly, which is a good sign.

We have noted several times that when the bottom (either short or long term is in), stocks will no longer go down, but up on bad news.

http://bloomberg.com/apps/news?pid=20601087&sid=aLgwfpZSD.R0&refer=home

One in Ten

Are behind on their mortgage or delinquent. We assure people that it will get much worse.

http://bloomberg.com/apps/news?pid=20601087&sid=acuPdrV_UdoQ&refer=home

Thursday, December 4, 2008

More Wall Street BS

Sure the economy sucks, but the rich will keep spending! How many times did we hear that bunk in 2008. Buy Tiffany's, Hermes, Bulgari etc...

You can still short them and make a pile.

http://iht.com/articles/2008/12/04/style/04shopping.php

Quick , Spot the Bubble, Really !

http://www.finalternatives.com/node/2503

We won't say anything else.

$25 Crude?

Crude is in the low 40s? What is our prediction as to how far it goes?

http://finance.yahoo.com/news/Oil-tumbles-below-44-a-barrel-apf-13749673.html

The same as any asset that is going down (including commodities) which we have written about - until it stops going down.

Clever as we are, we are no Wall Street Strategists, those gurus of old that predicted last year in Barons that the S&P would be around 1600 at the end of this year!

They can even tell you the day and the price that Google, GE, the S&P, crude , gold, and anything else will be. They will go on CNBC, Bloomberg, Forbes, the WSJ. And they will almost certainly be wrong!

What we emphasize is that prices go up until they stop. They go down until there are more buyers than sellers. It has always been this way. Target prices and dates sound intelligent, but they are useless.

Why Real Estate is Nowhere Near A Bottom

Why? Because if a December 2, 2008 piece in the WSJ is to be believed, it is because most Americans expect prices to rebound shortly.

Once again, secular bottoms are characterized by a total lack of interest, only after the massive distressed selling has occured. We aren't anywhere near there yet.

http://online.wsj.com/article/SB122764977315457619.html

Sionara Trophy Wife!

Is it really that hard to tell a gold-digger when you first meet one?

Lol, if you aren't handsome and funny, or at least an interesting person, assume if you are rich and throwing the coin around that she doesn't love you. It will be on the mark!

Yet Susie Ambrose thinks such women ''are like businessmen – utterly ruthless". The rich man is the career path, the meal ticket, and it doesn't matter how fat, old, balding or unattractive he is – it's solely about money.

http://www.telegraph.co.uk/finance/financetopics/recession/3527803/Recession-When-the-money-goes-so-does-the-toxic-wife.html

Middle East Real Estate Bubble Goes Pop!

Which should be a surprise to no one, especially our readers.

Gee too much money chasing tacky trophies (sounds like modern art). Oh wait our biggest export has fallen by 2/3 in value and now no one can either afford, nor wants these awful things.

Shocking!

http://bloomberg.com/apps/news?pid=20601109&sid=a2jrSPqYhVzY&refer=home

No Chrysler Bailout!

It is an offense against the entire American public to provide one dime of taxpayer money for Chrysler. Why?

Because it was bought for $7.4b by NYC based Cerberus, a Private equity fund. They knew the risks. let their stake go to zero.

New Housing Bailout Proposal and Why it Won't Work

According to stories in Yahoo and the WSJ, the gov will attempt to push rates for new qualified buyers on new home purchases to 4.5%. We are early to say it won't work.

Why? Several reasons :

1) People fear layoffs or getting their hours cut back, so there is no need to take out such large debt.

2) Too many homeowners already. Housing was pushed to a level whereby everyone, including just out of college students and illegal immigrants that wanted a house, bought a house.

3) Psychology has changed. It was the grandest bubble of all time. People bought simply because prices were going up. Not because they needed to own, or because there was value. When a bubble bursts, the mind shift changes. It won't end until people are totally indifferent to owning versus renting. Why take out a huge loan now, even if one can afford it, when prices are only going down?

4) The Japanese experience shows that you can push mortgages rates to less than 2% and housing can still be down 60%+ from its all-time high 17 years later. The money is free in Japan, but guess what? No one wants to own. They believe that housing is a bad investment, and it has been in Japan since 1991. Prices have only begun rebounding in the last few years.

Housing will bottom, as we have said before, at lower prices and when people believe that one only ever loses money in real estate. That is how all bubbles have, and always will, reach a bottom.


http://finance.yahoo.com/tech-ticker/article/138829/Mortgage-Rates-to-4.5-Percent-Homebuilders-Win-Crisis-Continues?tickers=TOL,HOV,CTX,DHI,LEN,XHB,CTX

Tuesday, December 2, 2008

Hot Off the Presses - Recession . . . Really?

The NBER has officially confirmed that a recession began in December of 2007.

Really? Considering that all the bulk of post 9-11 growth was real estate related and 40% of all jobs created were related to housing and HELOCs, the only ones that didn't know we were in a recession were Wall Street strategists and the clowns at the Fed!

http://biz.yahoo.com/ap/081202/meltdown_recession_analysis.html

The Latest Bubble

Clearly the 30 year bond which is yielding in the 3.18% range. Add in the 10 year at 2.69%.

Yes, we know about the economic carnage, falling commodity prices, assets of all types, but would anyone with good sense lend the U.S. government money that far out? The U.S. gov is bankrupt everyone knows it. Add it Social Security, Medicare and the 50% of GDP that has already been allocated to bailouts and the only option left is to debase the currency.

We don't know if the dollar will drop vis a vis the yen, Euro, or Pound. We do know that you can guarantee it will lose value over the next 10 through 30 years in terms of groceries, gold, college tuition and health care.

There is currently asset deflation, but for most Americans the cost of health care, tuition, groceries, utilities, fees to renew a driver's license, register a car, myriad of sales and incomes taxes is not dropping one bit.

Don't be fooled. We are not experiencing real deflation, but deflating asset prices. Daily costs are not falling.

We look at treasuries as the "last bubble standing." Trade it if you have the skill, don't buy and hold.


http://bloomberg.com/apps/news?pid=20601087&sid=aujABg8jkhqg&refer=home

Monday, November 24, 2008

I'm In Love With a Hooker

Q:
What is a smokingly hot Manhattan strumpet to do nowadays? The boys are broke (their bonuses either disappearing or crashing - as they were often partly in company stock the vests over three years)?

A:
Go to Vegas and take it off for strangers. Be proud of what you are. A two dollar ho!

http://www.nypost.com/pagesixmag/issues/20081123/Desperately+Seeking+Sugar+Daddies


As for us, in the words of the immortal Dean Martin when describing his time prior to fame and fortune, "I never needed any money, I was good looking."

World's Most Overvalued Speculations

Well perhaps we have exaggerated, as that is reserved for modern and contemporary art.

Until prices collapse, we don't' view any of these as good speculations:

http://www.iht.com/articles/2008/11/24/business/24Forbes-homes.php


Remember the post 2003 bull market touched modern art, waterfront homes, collections of wine, rare musical instruments, rare furniture and American Muscle cars (another extremely over valued asset).

Shocker of the Century : Citi Bailed out!

Surprise, Citi is getting bailed out.

Even bigger news for those that lack a brain. The entire US financial system is defunct and only kept alive by the gov. The trillions in mortages, commercial real estate loans, credit cards, and derivatives, all of these big boys are bankrupt. . . save some back office gov deals to keep them afloat and prevent bank runs.

Hint . . . buy yourself at least some physical gold and put it in a very safe place.

http://bloomberg.com/apps/news?pid=20601087&sid=aoAIRJWrcnO4&refer=home

I Banking to Back Office Monkeys

Goldman Sachs, per clusterstock.com, is moving its first year I banking analysts into Back Office positions, which are the lowest of the low on Wall Street.

We have often wondered why low level I Bnakers make so much? Other than their hours, their jobs are back office anyway. Pitchbooks and Excel sheets. The higher ups, we get. They manage relationships and bring in deals. We have no problem with thme earning a good living.

http://clusterstock.alleyinsider.com/2008/11/goldman-sachs-gs-moving-the-youngsters-back

Two Differing Approaches to Latin America

The Russian and Chinese approaches to this very resource rich region are contrasted:

http://www.iht.com/articles/2008/11/21/america/russia.php

http://www.iht.com/articles/2008/11/20/opinion/edshambaugh.php

Thursday, November 20, 2008

Short on the Next Bounce

We would advise a short on TROW and BEN (Franklin Resources) on the next rally, as these are two asset managers that have not yet collapsed.

We believe the long-term trend is away from mutual funds, as they have proven to not be able to preserve capital in this down market. Many are in fact under performing the indexes which are heavy with financials or commodity related (energy, materials, industrials) exposure.

We believe that the long-term trend is CLEARLY away from active management - save the very best and the value added in small cap selection, towards passive indexing. There has been a proliferation of etf indexes.

As we have often stated, the fund managers are paid on fees, not by having the bulk of their own net worth in their funds. Lets call them out for what they are!

Friday, November 14, 2008

Thomas Jefferson On Banking

"I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs." -Thomas Jefferson

Stocks for The Long Run, Redux

Henry Blodget does a nice job analyzing "real" or inflation adjusted stock prices. Clearly from the chart we can see that the 1990s returns were a complete historical aberration.

Unfortunately too many fund managers and investors are hoping against hope. They never studied history.

A lot of the returns over the very long-run come from dividends being reinvested, so returns would be higher than we see. . . too bad dividends (until the crash) had been pitifully low.

Stock prices seem like they need a long basing period before any true secular bull market appears.

http://clusterstock.alleyinsider.com/2008/11/stocks-for-the-long-run-part-3

What Does A Market Bottom Look Like?

We are often asked, is this the bottom? When is the bottom? To which we reply, we don't know. We let the market go where it wants to go.

A secular bottom in most asset classes - the kind that long-term investors should be most interested in buying - does not look like a V. It does not occur over days, weeks or even months. It often takes years or decades.

A true secular bottom occurs not only when prices have collapsed, but when there is zero interest in the asset. Investors won't be asking where the bottom is, because they won't care. They will have long moved forward.

That is not say that there isn't money to be made in sharp V bottoms. There is, but these are usually trading bottoms. Investors should be nimble, and prepared to sell when the market shows them a good profit.

For secular bottoms, we have yet to find a piece that sums it up as well as this one. And the author was right. Investors piling into Miami real estate in the fall of 2007 have been carried out. Prices continued to collapse. Not to mention the condo fees and taxes on buildings that sit 25% occupied.

http://www.dailywealth.com/archive/2007/oct/2007_oct_22.asp

Thursday, November 13, 2008

Coming Collapse in London Real Estate

London . . . cultured, hip, extravagant. There is no more overpriced city on the planet.

The City is bleeding finance jobs, Russian oligarchs are seeing vast tracts of their fortunes evaporate, and steel stocks (steel barons love London) are plunging.

We will shout it from the roof tops, there will not just be a slow-down, but a Biblical collapse of London housing prices. Homes bought in 2007 will prove to be one of the worst investments of all-time. We sense Tokyo in the early 90s (the housing mkt crashed after the Nikkei which peaked at Christmas time 1989).

http://www.iht.com/articles/2008/11/12/business/city.php

R.I.P. Modern Art

As easy it was to see this collapse coming, we will still say told you so.

We watched the market breathless over the past several years, especially this past spring. Francis Bacon is not bring the bucks expected.

Ex -Lehman honcho Dick Fuld and his wife didn't get nearly what was expected for their recent art sale. The auction house though has guaranteed $20 million, so it has to eat the difference. Easy to see why Sotheby's stock has tanked.

http://www.telegraph.co.uk/news/worldnews/northamerica/usa/3453613/Francis-Bacon-portrait-pulled-from-sale-after-failing-to-attract-bids.html

UVA Endowment Gets Carried Out

We will let clusterstock.com do the narrating. The UVA endowment fund appears to be in huge trouble.

http://www.clusterstock.com/2008/11/uva-sorry-alumni-we-gambled-our-endowment-and-lost

Death of a Legend

Long time value Guru David Dreman has turned in an abysmal performance. Proving sometimes that stocks are cheap for a reason.

Right now he and Bill Miller remind us of Willie Mays in a Mets uniform.

Once great, but the game has "passed them by."

http://quicktake.morningstar.com/FundNet/Snapshot.aspx?Country=USA&pgid=hetopquote&Symbol=DRLVX

http://quicktake.morningstar.com/fundnet/Snapshot.aspx?Country=USA&Symbol=LOPEX

Wednesday, November 12, 2008

A Wasted $3.5 trillion

So the bailouts have now reached $3.5 trillion, approximately 25% of GDP. Guess what? It ain't working.

The only cure for this is time and for the government to step back and let the free market determine asset prices. The U.S. government doesn't have enough money to prevent the melt-down in home prices and various toic assets and derivatives. It is not there, so don't expect it to work.

http://finance.yahoo.com/tech-ticker/article/126117/Bailout-Price-Tag-3.5T-So-Far-But-'Real'-Cost-May-Be-Much-Higher?tickers=AIG,FNM,FRE,XLF,%5EDJI,%5EGSPC,C

Oh and yes, buying long-term gov debt at these prices is suicidal. Stick to the short-end or cash if you must.

Tuesday, November 11, 2008

Plus ca Change, Plus C'est La Meme Chose

Comrade Pelosi is ready with more of our tax payer money to bail out the automakers. U.S. automakers are set to receive more in bailout money than the entire market cap of the U.S. auto industry.

Another total waste of money by a fat and worthless government.

http://bloomberg.com/apps/news?pid=20601087&sid=aidowMGl4rUc&refer=home

Another Futile Effort

With Fannie and Freddie working on new plans to keep homeowners put, we call bullshit. Same with plans by Citigroup or any of the other banks for that matter.

The problem is that housing is too expensive. The only way the housing market will bottom is for prices to fall. They must fall to the level were they are attractive relative to incomes. The faster this is allowed to happen, the sooner housing will bottom.

We call this another hair brained government action that will only prolong the inevitable.

We often mention psychology, as it is the key to investing. Home buyer psychology has changed. The mania that preceded the crash was of unbelievable proportion. Every last man, woman, and child that wanted to buy, had bought a home. The psychology has changed. There is no need to buy "now", as prices are headed much lower still.

http://iht.com/articles/2008/11/11/business/mortgage.php

Within every mania there is fraud. There always has been and there always will be, as man's nature does not change. We will paraphrase Bill Bonner and note that the fall is proportionate to the deception that preceded it. The entire nation was complicit in the housing "affair."

Monday, November 10, 2008

Coins We Have Been Buying

We have been accumulating as of late 1948, 1960, and 1961 NGC and PCGS Franklin Half Dollars. These are the non proofs in MS 65 graded condition.

PCGS has these coins priced from $100 (1948) to $150 each (1961). We have been able to stash away a few at $75, though it is getting much tougher as of late. We advise you put away a few for the future at any price under $80 per coin. We are also not purchasing the Full Bell Lines FBL) variety, as we feel there is little "value" left at current high prices.

Additionally, 1959 Proofs graded 67 make an attractive speculation if found for $50 - $65 or so. It will be hard to find these under $50, but a few are out there.

As usual only buy NGC or PCGS certified.

We use the PCGS Price Guide as a rough guideline.

http://www.pcgs.com/prices/

http://www.pcgs.com/prices/PriceGuideDetail.aspx?c=734&title=Franklin+Half+Dollar

What Might Work On Wall Street

The emerging markets have collapsed. This we know, as does everyone. At some point they will rebound. When, we don't know. There are plenty of guest on CNBC and Bloomberg that can give you the exact date.

We are too dumb, or rather too realistc to even guess. The market will do what she wants to do.

We do believe that emerging markets will be the future. W also know that Americans don't travel and don't speak foreign languages. Especially not financiers. Oh sure they are happy to buy Gazprom, Petrobras, L'Oreal, and any number of Japanese stocks. But have them visit the country and force them to leave their room at the Grand Hyatt in Tokyo or Radisson in Moscow and our fund analyst is totally stumped. He doesn't speak or understand a lick of the native language.

So how about actually learning one? if you speak English, you have an advantage as English is the international language of business.

While many of the world's elite politicians and business leaders are U.S. educated and well versed in English (especially in the Middle East and India) we find this to be far less so in Japan, Russia and FSU.

We have all heard the call to learn Mandarin. This makes sense as it is the Chinese Century.

We also advise French, Spanish, Portuguese, Japanese, Russian and Gulf Arabic.

Why French? it is the language of diplomacy and is spoken by elites globally. Besides France, Monaco, Switzerland and Quebec it is spoken in Lebanon, Algeria, Tunisia, Morocco and over a dozen West and Central Africa countries. For those adventuresome analysts looking to do work in Africa, French is essential.

South America has an abundance of natural resources. Indeed, almost all natural resources found in Africa and the Former Soviet Union ex diamonds, platinum and palladium is found in South America. South America also boasts the Guarani Aquifer, one of the world's largest fresh water Aquifers. Brazil has been referred to as the "Saudi Arabia of water."

Portuguese is spoken not only in Portugal, but is an excellent choice for those wanting to do business in or analyze Brazilian stocks. Portuguese is also an official language in resource rich Angola. It is spoken in Mozambique.

Why Japanese? Well, the older Japanese often don't speak English. Better yet, as of the end of October 2008, Japanese small caps are the value investors paradise. The MSCI Small Cap Japan index was trading at 0.7 times book value. And guess what, the financial statements are often only in Japanese? So you have a leg up on your competitors.

We also note the opportunities to use Russian in Russia, Ukraine, Serbia, Kazakhstan, Turkmenistan, even Mongolia, not to mention other smaller FSU states. The resource riches of the area have been told many times.

So go ahead, expand your horizons. Learn a new language. You will acquire a skill for life, be more likely to travel, and make new friends along the way.

What Doesn't Work on Wall Street

How about back testing data, then writing a best selling book about it. Yes, we know that value stocks win out in the end, but if any investor really had the magic formula, we would imagine that logically they would have it more locked down than the Colonel's Secret Recipe or the original formula for Coke.

The title is a play on Jim O'Shaughnessy's What Works on Wall Street. Jim back tested over 50 years of data and determined that investors should buy low price-to-sales value stocks with strong RSI (Relative Strength). Value was also denoted by low price-to-book and low price-to-earnings ratios. We are not picking on Jim. We are merely using him as an example.

http://www.amazon.com/What-Works-Street-James-OShaughnessy/dp/0071452257/ref=sr_1_1?ie=UTF8&qid=1226359089&sr=8-1

Lady Market is a tough Mistress. what she giveth, she taketh away. There is no magic formula that works year in and year out in all markets. The market is a living, breathing, organism. She does not care what past backtests tell us . . . but Jim's investors might.

Ouch . . . we doubt many are looking forward to the October numbers.


http://www.osam.com/pdf/osam_monthly_performance.pdf

Though we will note that his long-term numbers are certainly better than most of his competitors. Additionally, after watching him on Bloomberg, Jim strikes us as a downright decent guy.

Biggest Losers of Your Retirement Funds

Here is a roll call of the biggest and baddest safe and steady investors.

Look as of November 10, 2008. So glad these "star managers" have been entrusted with billions of dollars in retirement funds.

They all are all down more than 40%. Some as much as 55%.

What was their sin? Hubris. Double down on the financials! Give me one more hand and I can make it all back.


http://quicktake.morningstar.com/FundNet/Snapshot.aspx?Country=USA&pgid=hetopquote&Symbol=LMVTX

http://quicktakhttp://quicktake.morningstar.com/FundNet/Snapshot.aspx?Country=USA&pgid=hetopquote&Symbol=DODFX

http://quicktake.morningstar.com/FundNet/Snapshot.aspx?Country=USA&pgid=hetopquote&Symbol=DODGX

http://quicktake.morningstar.com/FundNet/Snapshot.aspx?Country=USA&Symbol=JCVIX

Little wonder that mutual fund managers get rich on their fees and not by putting their own money into their funds.

Joe DiMaggio: The Hero's Life - Recommended Reading

While we don't care much for baseball, in the past we enjoyed reading Joe DiMaggio's: The Hero's Life. Besides being a fine all around player, having great style and grace, Joe D carefully crafted his image.

The book is an exercise in psychology, which is why we recommend it as a must of investment reading. Investing is after a psychological affair. Stock prices are the result of supply and demand of irrational investors (human beings).

Think of any well-known fund manager or Wall Street strategist that is constantly on tv, rather than managing investors' money. Keep said fund manager in mind as you read the book.

You will never view your favorite on-air "financial guru" in the same way. As the book says, we gave Joe everything, as long as he was what we wanted him to be. Hmmm this indeed should be familiar to investors.

http://www.amazon.com/Joe-DiMaggio-Richard-Ben-Cramer/dp/0684853914

Sunday, November 9, 2008

R.I.P. Dodge & Cox

No, we don't believe that Dodge & Cox (DODFX & DODGX) is going out of business, but we are calling them out along with Bill Miller (LMVTX), Richard Pzena (JCVIX). They are all Heroes of the Revolution.

What is the sin of all of these one time star managers? How about violating the simple rule . . . never double down into a losing position. And oh how they doubled down on financials. They did it over and over again. All of the above were idiots. Their hubris got in the way. It was not hard to see that financials were tanking and going to do so.

So what did these "stars" spend your retirement on? Bear, Lehman, Fannie, Freddie, Wachovia, Citigroup, Indymac.

Ahh yes, they have great long-term track records, which as we had stated made them more likely to underperform, as their flagship funds were the size of aircraft carriers. They had necessarily become index funds.

We particularly found Pzena's behavior appalling. We listened to numerous quarterly conference calls and investor calls on financials. How he made those not buying seem foolish. It was just like 1990. The riches to be made. Shame on him.

It is one thing to be wrong, it is another to stay wrong. All of the above stayed wrong, and continued to be wrong. As one of our most admired investors, Dennis Gartman, has often said, if you buy a stock and it goes down, you are wrong. So why would you buy more of it? Gartman notes that such a tactic often results in ruin.

Unfortunately Miller, Pzena, Dreman, Dodge & Cox could not accept that they were wrong. The tragedy of it is that they did it with the retirement money of many Americans.

Oh and let us not forget another one of our rules. Never try to catch a falling knife.

We will put it in print and stick by it. The most over valued commodity is a bottom-up fundamental analyst concentrating on mid and large caps. Not only US, but International and Emerging markets. They add no value and simply bloat the payroll.

We'll stick with the etfs.

Japanese Investors Follow Our Lead

Well, well, well, it seems that as foreign investors have abandoned Japanese equities, local investors have been piling in. Apparently, Japanese investors have been quite successful over the years, buying in when the Nikkei has been destroyed and then selling shares a year or two later. These investors have learned how to navigate markets when buy and Hold (pray), doesn't work. As we have stated before, if one can buy the Nikkei under 9,000 one should do so.

http://www.iht.com/articles/2008/11/07/business/07yen.php

Thursday, October 30, 2008

The Saudi Arabia of Natural Gas- Gazprom

We are believers of buying at distressed prices, but we never try to catch a stock in a free fall.

As such we believe that Gazprom (OGZPY) offers potentially rich rewards. The Russian market which at one point fell 80% from its 2008 peak was in a free fall. For now it appears that this free fall has halted. Many a billionaire oligarch had peldged shares of Russia's largest companies to buy more shares, either in Russia or abroad. Their DB and BNP bankers gave some multi-billion dollar margin calls. So a falling market begot more selling and more margin calls. . . a true death spiral. This seems to be finished.

As Gazprom supplies Europe with more than 25% of its natural gas, we view it as a strategic company, as does the Kremlin. With over $500b in forex reserves, we view the Kremlin as being able to support Gazprom, their crown jewel.


Additionally, we think that $6 is a floor on natural gas given the vicious commodity sell off. We are also expecting a harsh winter. Gazprom has halted its free fal,l and as of today, is in the $19/share level. We view Gazprom as a high return speculation at this price. The risk could be outright nationalization, but the Kremlin already owns 51% of the company, so while possible, we view such scenario as unlikely.

We are opening a small position of Gazprom today.

Traders and investors are reminded to risk small amounts of capital in each position and only add to them as their position shows them a profit. Doubling down on losers has led to more busts in investing and trading than in Vegas.


As always we are not making recommendations for anyone, but outlining our personal investment decisions. We are not registered investments advisors and do not give investment advice.

Tuesday, October 28, 2008

Our Short Take on Commodities and the Super Cycle (hahaha)

So what has happened to all of the talk of the commodities super cycle? Investors loved Crude at $150, Copper at $8,000 and Nickel at $45,000, but they don't like them at less than half of peak prices.

We are believers that China, India and Asia will continue to grow. We are not believers that investors should pay any price for any asset, nor that they should chase hot markets.

Commodities are cheap, there is a shift in long-term demand. That being said 1) there is a credit crunch 2) emerging market growth is going to be much less, maybe even half of what the Wall Street strategists and fund managers tell us 3) commodity futures are highly levered vehicles 4) commodity prices trend.

Contrary to the EMH and fundamental analysts most commodities are traded by trend- following CTAs and traders that use technical analysis. Commodity prices do trend. And while fundamentals set the trend in motion, due to the high leverage when a position in commodities moves against a trader, he is more likely to sell. This contrasts with many long-only equity fund managers that buy more and double down (how is that working for you?!) on lower prices. Given the leverage, a small % move in the opposite direction of the underlying commodity can have a very large dollar effect on a commodity portfolio.

Therefore commodities do trend and are highly levered. We advise to never buy them without looking at the charts first. We urge investors to head the advice of Dennis Gartman, to buy that which is going up and short or be on the sidelines as things are going down.

Current commodity prices, which are falling make the fundamental outlook for them even better going forward. Mines will be shut down. At under $800 an ounce, the entire platinum industry is on the brink of collapse. So let the hedge funds liquidate, late the CTAs liquidate. Let world trade slow and let mines be shut down. This will only set up a better return potential going forward.

Short-term the outlook for commodities is fundamentally bad. Long-term it looks much better. They have been beaten down on a slowdown in global trade, forced liquidation, and extreme U.S. dollar strength as of late. Additionally, after the current deflationary environment subsides we believe that inflation will re-emerge in the U.S. and developed economies. The current U.S. monetary base is expanding beyond comprehension, but slowing velocity of money makes it feel as if there were a contraction in the money supply. This will not last forever. More money will be printed and velocity will explode, we should be very good for hard assets. When will this occur? We have no idea and we could be incorrect. We know better than to predict market turns, put yearly closing estimates on the Dow . . . the market has humbled us too many times. We let the markets go where they want to go.

All we can do for our readers is find what we believe are the most attractive investments to be in (or out of for that matter), at the best prices.

So when should we buy? When the chart tells us to. Commodities may be oversold, but in an environment of forced liquidation and a credit crunch, they could become even more oversold.

Never try to catch a falling knife, especially in commodities.

So What do We Like in Energy?

We like Tenaris SA (TS). It is the Luxembourg based maker of steel tubes and pipes for the oil and natural gas industry. One of the world's largest. It has been sold of on falling stocks, falling commodity prices, and falling Argentine stocks. Yes, Tenaris is listed in the MSCI Argentina index (part of the MSCI Latin America index for those that care about indexes and such nonsense). Soon it will be moved to the MSCI Italy index, relegating Argentina to index obscurity.

Forced selling of emerging market funds have seen massive redemptions has hurt the stock. As usual the public was very late to the emerging markets game and must now pay the price. Not having bought in 2003-2006, the "crowd" climbed aboard in 2007 and 2008. Why would they buy as prices had gone up 35% a year from 2003 through 2006? Because contrary to the Efficient Market Theory (EMH), man is not rational. He has never been and never will be. He is governed by fear and greed and shall be forever.

We are buyers of Tenaris after forced emerging market and commodity liquidations with the belief that the energy industry will require massive infrastructure in Africa, the Caspian, and Brazil. TS trades at 4x 2009 estimated profits and yields 4.5% as of today. Even if EPS estimates are twice too high we would still be paying single digits P/Es and receiving a handsome dividend yield.

We can't guess what the market will do tomorrow or next year, but we do attempt to highlight special situations and distressed assets that are fundamentally sound for our readers.

http://finance.yahoo.com/q/ae?s=TS

As always we are not making recommendations for anyone, but outlining our personal investment decisions. We are not registered investments advisors and do not give investment advice.

Land of the Rising Sun

We note that today's 10% rally in U.S. markets started in Asia with Hong Kong's Hang Seng up more than 14% and Japan up around 6%. Recent articles in Bloomberg have noted that the price-to-book ratio on the Topix in Japan is 0.83. We want to buy this market. If one is a believer in value we should own Japanese stocks at these depressed valuations.

We are unconcerned if the market goes up or down another 10% before we get in. Normally the knock on Japanese stocks is that the P/E ratios are too high and dividends too low. This is no longer the case. We view the market as a value investor's paradise. We recommend EWJ (i Shares japan etf) for large caps and JSC (a small cap etf). Additionally, Sumitomo Corp has been crushed as commodities and Japan have gone down. The ticker is SSUMY. The stock trades at 3x 2009 and 2010 P/E and yields 6% using information from Reuters as of October 28, 2008. It sells fo under book value.

Rather than try and call a bottom on emerging markets, Nasdaq, gold and small caps, current Japanese valuations make us drool. We will buy at less than book value and high single to very low double digit P/Es. Investor's may own them for a trade or long-term, but we like the market.

http://www.reuters.com/finance/stocks/overview?symbol=8053.T

Tuesday, October 21, 2008

Short Modern Art, Go Long Old Masters

We leave it to Souren Malikian to tell the story of the down turn in Modern and Contemporary Art. As for us, we will exclaim it to anyone who will listen short Warhol, short Modern Art, and go long cash or the Old Masters.

http://www.iht.com/articles/2008/10/21/arts/melik21.php

But why would we sell our Modern Art? Are we at Creative Destruction such snobs that we can't appreciate a "Green Car Crash," Blue Square # 69, Pink Blob #53 or any other such inanely named works? Well... no, we can enjoy Warhol, Ramos, Murakami, Hirst, Lichtenstein as much as anyone. Though anyone with sense good taste can admit El Greco and Titian they are not.

For those that haven't followed this market, exponents have been made in the mid and late 2000s. Why? Global liquidity, nouveau riche fund managers looking for a way to spend their ill gotten monies. We will borrow a phrase as best we can from Bill Bonner of the Daily Reckoning, hedge fund managers were the only ones with enough money and bad enough taste to buy this junk. So we say sell. SELL it all. The hedgies are going down. Cute as it maybe, the old money doesn't want this junk. It will collapse much as when the Japanese stopped buying Monet's and Van Gogh's over a decade.

And while prices are still strong, dump your Damien Hirst works too. SAC Capital Guru Stevie Cohen whom we have nothing but respect for as a trader, is the owner of Hirst's famed shark in formaldehyde. While we like his trading, obviously his tastes don't match his pay check. Then again Steve can afford it and would likely turn a good profit on the abomination.

Whither the Oil Sands?

As many investors know Canadian Oil Sands plays, the best known being Suncor and Encana, have received a beating as of late. Long-term we believe that China and India will need more oil. They want motorcycles and cars like the West. Easily accessible supply in stable and friendly countries is increasingly difficult. Yes, crude has lost 50% from its speculative peak, but the Oil Sands stocks are factoring in worse than that. Why?

1) Oil Sands are not the preferred light sweet crude. It is more expensive and harder to refine. Really it is the "junk" of oil.

2) The Globe and Mail estimates that the $170 billion of planned investments in the Oil Sands looks to a WTI price of about $85 a barrel to break even. Well there it is, Suncor can print money at $150 a barrel, but at $85, new projects look less and less sustainable. The forward EPS contracts as estimates are proven too high.

Read the entire article here:


http://www.reportonbusiness.com/servlet/story/RTGAM.20081017.wagendafournier1020/BNStory/robAgenda/home

Friday, October 10, 2008

Support the Bund!



As an advocate of free market forces Creative Destruction views the 2008 Election, to paraphrase Richard Maybury as a choice between "more War and more Socialism or more Socialism and more War." Hope we got it right Richard.

Anyway the campaign is starting to get nasty. Which historical figure or figures does Fraulein Palin remind you of? You be the judge, we are only posting the photo!

Thursday, October 9, 2008

Buy Defense

We recommend the opening of 1/3 to half sized positions in ITA and Fidelity Select Defense and Aerospace (FSDAX).

Both funds have fallen more than the market. Valuations are very reasonable and essentially recession proof. They are dependent on government printing presses, the ability to tax, and the ability to whip a nation's citizens into a frenzy over real or fictious enemies.

We see only increased global tensions and the purchase of many more weapons.

Cash Will Not Always Be King

While cash and 2 year and under gov bills have been the place to be as of late,
they won't always be.

Real returns on cash are strongly negative. The Fed Funds rate at 1.5%
means you lose money every year by putting you cash in savings. In fact,
while global credit has contracted and nearly every asset has plummeted
in value, one thing has not gone down, that is the governments creation
of US dollars.

Inflation is a cheat and the gov has a printing press. The current bail-out
bill solves nothing. The gov has a war in Iraq, Afghanistan, and a likely
one brewing in Pakistan. The Russians have $600 billion in currency reserves
and are asserting themselves once again. The "New" Cold War will ratchet
defense spending up on big ticket bombs, missiles, planes and the like.

The Democrats will not dream of cutting or vetoing defense spending bills.

They don't want to seem "weak" on terror or whichever other new bogeyman
the military-industrial complex invents to line its own pockets. We are
going to see pay outs to regional banks, the auto and airline
industries, extension of unemployment benefits, and more social
programs. In the end we will just print more money.

In the short-term the USD may rise against other paper currencies, but
in the end they will all revert to were they have historically.
That is to say zero. No paper currency has ever stood the test of time.

At some point, we don't know if it is in 3 months, 1 year, or two years,
the gig will be up and the fiat currency era over. All of the bail-outs
and wars will make cash no longer King, but a Joker, as an inflationary
wave crashes upon our current (and temporary) deflationary environment.

We would use this extreme weakness in stocks and physical silver
to slowly add to the highest quality companies. We do not think
this is a market bottom, but many top quality stocks are down 2/3 in value.
Slowly start getting long.

For the speculative portion of our portfolio we like Exeter Resources (XRA), Fronteer Group (FRG), Allied Nevada (ANV), Andina Minerals (ADMNF), and Minera Andes (MNEAF), Silver Wheaton (SLW) and Silver Standard (SSRI) at current prices and on pullbacks.

When the public and mutual fund managers pile into the gold stocks we suspect it will be like the dotcoms all over again. We have no idea as to the timing. An opening of a January 2010, 65 Call on the GDX is recommended at under $2.70.

Stocks for the Long Run?

Where did we learn the myth that stocks always go up? From the Greenspan Put Era and from all of the nefarious marketing from mutual fund companies. Why do mutual fund managers not have most, rather hardly any of their net worth in the funds they manage?

They didn't get rich by being stupid, they got rich collecting the fees from selling
the public their funds. If mutual funds were such a great wealth
builder the fund managers would put their own money into them.

An inflation adjust chart will be added shortly. In order to reach the
March 2000 high, the S&P 500 must hit approximately 1998. This is
using the gov's bogus CPI numbers. In real terms were are down 50%.

So much for markets always going up.

Wednesday, September 24, 2008

Sissy of the Year Award Goes to . . .

"George" our Ivy league analyst from Merrill Lynch.

Upon hearing about Bank of America's acquisition of his firm, our named whiner stated, "I was shocked. I was screaming.

One of my friends at Bank of America texted me, 'Hey, we might be buying you guys.'

I was in denial. You see, Merrill has a much better repuation than a commercial bank like Bank of America. I was shocked I would be joining a lower-tier commercial bank. There's a feeling, 'I didn't go through this whole interview process to work at a commercial bank."

Note to George, during the bear market of the 1970s many of your Ivy breathren drove cabs in Manhattan to make ends meet. Oh and Merrill hasn't had a great reputation in a long time either, pal.

Reality check for America, a supposed captain-of-industry to be can't come to grips with the fact that he will still have a cushy job, likely forecasting EPS growth to the penny, making buy, hold, and sell recommendations that are surely to be wrong, like most of the garbage research that comes out of Wall Street firms.

Thankfully he will never have to work with real men at the old Beth Steel plant in Sparrows Point, or any number of jobs that hard working folks do. Hell, with that whining attitude he'd get beat up and have his lunch money stolen if he ever had to work around real men.

Read more about "George's" angst here at the Ivygate Blog.

http://www.ivygateblog.com/2008/09/i-was-shocked-i-would-be-joining-a-lower-tier-commercial-bank-life-after-buyout

This Bud is for you George, proving that yes, we have raised a nation of spoiled and soft youth.

Oh and don't forget your ballet shoes. . . Sissy!

Monday, September 22, 2008

I Thought I Woke Up in France

Indeed Goya's Third of May 1808 which sits a top of our website is representative of the destruction of free markets by our Comrades at Fed and Treasury et al . . .

Senator Bunning gave us the brilliant quote which is the title of this post.

There is no sense in highlighting all of the moronic socialist nonsense that the government and regulators have burdened us with as of late. Suffice is to say that one day, as opposed to not being able to short sell in order to proctect one's capital, we may wake up unable to sell our stocks. Sorry, the exchanges have been closed and Big Brother has banned all sales of stocks . . . for our own protection of course.

Mark Gilbert of Bloomberg has penned an excellent article exposing the ratings agencies asleep at the wheel again! More banks to be downgraded... surely yes, but he poses a better question. isn't it time to downgrades US sovereign debt?

http://bloomberg.com/apps/news?pid=20601039&sid=arxBaDnXNMxY&refer=home

Logic says of course. Our never ending war on terror, housing bail outs, soon to be automobile industry bailouts, they will all be handled by Mr. Guttenberg's lovely printing press.

All is Well in Iraq? The Powder Keg in Pakistan

Despite reassurances from the administration that the "War on Terror" is going well, there are numerous reports to the contrary. While the situation maybe improving in Iraq, rest assured that there will be no major US troop withdrawls from the Mid East anytime soon.

The Taliban is emboldened in Afghanistan and now Pakistan appears to be on the verge of disintegrating into if not a full civil war at least a much much more dangerous place. The US friendly president was targeted at the Marriott in Islamabad which killed over 50 people.

http://iht.com/articles/2008/09/22/asia/23pstan-bomb.php

We should remember that despite the Bush administration's constant warnings about Iran, Pakistan is already a nuclear armed state.

We do not envy President Zardari one bit. He is caught between his patron, the US government and his own people. US missiles falling into Pakistan are not making us any friends in the region, rest assured.

http://iht.com/articles/2008/09/22/asia/pakistan.php

Most investors including Wall Street's "high priests" are utterly oblivious to history and geopolitics, as such subjects are not taught in MBA school. Therefore we do not expect analysts, fund managers, and other assorted charlatans that last studied said subjects in History of Western Civ 1 or Poly Sci 101 to have any idea about the implications.

We will draw them for you: higher budget deficits, a never ending war, more destruction of capital, and a front which is destined to draw US ground troops into Pakistan. of course expect that such adventures will paid for in only one way, by higher taxes and more money printing.

This is why we own selected energy and precious metal shares.

Speaking of Destruction - What About Junior Mining Stocks?


Even those of us that are experienced in trading junior mining stocks have been amazed at the utter destruction (pun intended) of the sector.

As of yet, Adam Hamilton of Zeal.com has given the best explanation of the sector's events.

Please follow the link to his article.

http://safehaven.com/article-11291.htm

The Most Special of Special Situations

Much of the chatter relating to Brazil's massive subsalt oil reserves has centered around the national energy champion Petrobras. Petrobras counts British Gas and Galp Energia as junior partners in these subsalt projects.

Less know is Galp Energia - the privatized assets of what was once Portgual's energy company. Galp has projects in Brazil and Angola, another emerging oil powerhouse. Galp is thinly traded on the pink sheets under ticker GLPEF.PK. The stock currently trades at $16.85 a share, down from a 52-week high of $28.00. As oil prices appear to have bottomed - at least for the time being - and well of its high we view Galp as an especially enticing speculation.

Jason Kenney an analyst at ING Bank described the company's Brazilian prospects as having a "transformational impact." We do not disagree with his assessment.

While rhetoric surrounding increased government ownership or even the a dilution of Petrobras, Galp, and BG's ownership of these subsalt reserves is certainly worrying, we view the threat of outright nationalisation or outright theft to be rather low. Please read the Bloomberg article below for greater clarity.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aU1eORtnAxmA

We are buyers and indeed willing to speculate on Galp's pink sheet listed shares as offering potentially phenomenal returns going forward.

As always we are not making recommendations for anyone, but outlining our personal investment decisions. We are not registered investments advisors and do not give investment advice.

Silver Stocks Worth Another Look

We are keen on Silver Wheaton (SLW) and SSRI (Silver Standard).

Silver Wheaton which purchases forward existing mine supply or silver that would be used as "credits" is highly leveraged to increased silver prices.

We also favor Silver Standard, which works on a land bank model (essentially having bought excellent silver properties when the meatal was at derpessed prices) , but appears well on its way to production.

Creative Destruction believes that investors with a high risk tolerance should favor these companies on rapid pullbacks resulting from short term sell- offs in silver prices and accumulate them for the future.

As always we are not making recommendations for anyone, but outlining our personal investment decisions. We are not registered investments advisors and do not give investment advice.

Our Favorite Bull Market

From the early 1970s until 1980 gold went from $35 an ounce to over $850 at its speculative peak. Silver from $1.25 to $50 during the Hunt brother's squeeze.

Rare coins at this time offer what we consider to be one of the most attractive value propositions we have seen in a long time. We believe that this is possibly the most ignored bull market in the world.

Steve Sjuggerud's outstanding Daily Wealth makes the arguement. Once this bull market is very much participated in by the 'average" man we would not be surprised to see many multiple times our investment.

http://dailywealth.com/archive/2006/aug/2006_aug_16.asp

We are accumulating MS 61 and 62 Double Eagles ($20 gold) of the St. Gaudens or Liberty Head variety and Morgan Silver dollars in the MS 63 and 64 condition. We like only the highest quality which is graded by NGC or PCGS ... ONLY.

We are particularly keen on MS 62 $20 Liberty Heads and MS 64 Morgan silver dollars. These two particular coins offer us excellent upside leverage, with more downside protection than even more highly rates Mint State (MS) coins. For speculators wanting added leverage MS 63 $20 Double Eagles and MS 65 Morgan silver dollars are worth a look.

Remember we have seen spectacular increases in high end real estate, contemporary art, modern furniture, European and American muscle cars, and rare wines. This is in our mind the most overlooked of all markets.

Open positions if Not Long

While the tide is clearly turning against free markets (namely) due to the fumblings of comrades Bernanke, Paulson and Frank, we do not believe this is the end of the world.

For our own accounts we have been long of gold for some time, we will recommend that investors dedicate no more than 10% of their capital, split between the Tocqueville Gold fund (TGLDX) and to the Market Vectors Gold Miners etf (GDX) , and to physical gold. John Hathaway has been piloting TGLDX since 1998 and we have been pleased with his stewardship.

Why do we like gold? The asset is under-owned and unappreciated. Mine supply is not expanding and as has often been written by luminaries such as Marc Faber and Doug Casey, it is the one currency that cannot be printed by any central bank. Gold is not anyone's liability.

History has shown us that all paper (fiat) currencies eventually return to zero. So we are prepared for the worst, but it is not necessary for us to receive a good return on our investment. Hard assets, especially gold deliver outstanding returns when "real rates" are negative. We expect the "real" rates offered by Fed funds, t bills, and money market funds to remain firmly negative for some time to come.