Friday, February 27, 2009

On Faith Based Investing - So Long GE !

We have long viewed the fervent love of GE as something akin to belief in Santa Claus or the Big Foot.

This not our last post, nor shall it be our last in this Vangaurd of "widows and orphans" stocks.

Now that GE has slashed the dividend, it is back to 1993 prices. The fund managers and asset allocators have been chasing this one into the ground since the bursting of the tech/large cap growth bubble.

And we comment, we know of no buy and hold investor that has made any money in this stock since the late 1990s.

http://bloomberg.com/apps/news?pid=20601087&sid=a6kGa8cYzlbc&refer=home

Yet hope persists! Proving:

1) When every single bank and trust company in the U.S. and the majority of large cap mutual funds own a stock - there is no one left to push the price up.

2) Investors need to learn to think for themselves.

3) If you believe the ratings agencies and the AAA rating, you deserve to lose your money.

We have never owned this stock, as we view it as a black box that has continually managed earnings expectations. Addtionally, it has long been dependent on its financing and capital arms for profits.

Yet the faithful still bow their heads at the alter!

Thursday, February 26, 2009

Unwinding of the Unwinding of the Carry Trade

We believe that this maybe an opportune time to sell the yen. The question is against what?

To those that were living under a rock the last 5 years, Japanese investors hold a minimal amount of their investment assets in equities. The bulk is kept in money market accounts. The Japanese housewive (generically known as Mrs. Watanabe) found that when Japanese money market funds yielded close to nothing, it made sense to speculate in all matters of high yielding currencies from the SA rand, Kiwi and Australian dollars to the Brazilian Real. Use the yen for cheap funding into higher yielding assets.

All of this unwound very rapidly and spectacularly last year. Ms. Watanabe was burned. We doubt there is much of the carry trade left to be unwound. Please look to the one and two year graphs.

http://finance.yahoo.com/echarts?s=USDJPY=X#chart2:symbol=usdjpy=x;range=1y;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined

With exports to the U.S. and China plunging, the Japanese economy is contracting at its fastest pace since 1974.

We note that big support for the yen has been a strong demand for Japanese exports.

With plunging US and Chinese demand, there is little political support in Japan for a strong yen, especially amongst executives of the country's large exports such as Toyota, Honda, etc. Addtionally, the export contraction is creating widening trade deficits in Japan.

Therefore we suggest that rather than buying more yen, a better trade for yen holders maybe to buy precious metals. Do we know if the yen has topped? No we don't, but neither does anyone else.

over the next several years, we suggest that gold in yen terms could surprise to the upside.

http://www.the-privateer.com/chart/g-multi.html

CTAs Work When Equities Don't

CTAs or commodity trading advisors should be well know to everyone. Unfortunately they are lacking from most asset allocation models due to volatility. This is a mistake.

They are essentially quantitative models that trade a variety of commodity and financial futures contracts. Generically, they are algorithms and trend following systems. They have very low correlation to equities and have proven to make money in up and down markets, as long as there are trends in futures that they can ride.

Of course leave it to investors to have been out of this asset class. They are too volatile . . . yet they put up double digit gains in 2008 as the S&P lost 38%. Obviously stocks are not volatile!

Again another example as to how investors must learn to think for themselves and retrain themselves from the 1982-2000 period that the golden key to everlasting wealth is simply buying more and more US equities.

Most finance professionals under 50, especially in equities learned that we buy the dips. If stocks are up buy more, if they are down buy more. Buy more all of the time. Clearly the results of this group think have been disastrous.

http://bloomberg.com/apps/news?pid=20601087&sid=a1dLkcqAJVbc&refer=home

Tuesday, February 24, 2009

More on the Dangers of Hot ETFs

Look at the price of uranium which had gone parabolic and 10x after a long basing period.

We have included links to the two and fifteen year price charts of uranium below:

http://www.uxc.com/review/uxc_g_2yr-price.html

http://www.uxc.com/review/uxc_g_price.html


Then look at the Van Eck Nuclear ETF. We are not picking on Van Eck, merely showing the facts. As often seen, the ETF began on 8/13/2007, which coincidentally coincides with the peak of a massive blow-off top in uranium prices.

http://www.vaneck.com/index.cfm?cat=3192&cGroup=ETF&tkr=NLR&LN=3_02

Why We are Skeptical of "Hot" ETFs

We actually love ETFs and believe that investors and speculators should learn to use them.

What we dislike is when we see a proliferation of "hot" new etfs. Usually the idea is demand driven, as investors pile aboard the latest mania. No one was offering coal etfs when coal stocks were at mulit-year lows.

http://finance.yahoo.com/echarts?s=FRN#chart2:symbol=frn;range=my;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined


2007 and 2008 saw a rash of ag, coal (any commodity really), and then worst of all frontier markets funds. Middle East, North Africa etc. . .

The point investors should remember is that by the time that hot new 'frontier markets" etf comes out the party is nearly over.

We will use the Ukraine PFTS Index as an example. If one goes back to a 5 year chart or older, one can easily see that the market had already gone up 12 fold! Yet, investors found the need to buy frontier market funds at the peak!

Please, learn to spot trends early, and don't think for one second that you can buy and hold any market after it has already gone up 12 fold.

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

Brother Can You Spare $10 billion ?

We suspect it is better than going to the IMF!

Dubai goes cap in hand to Abu Dhabi and late comers to the game are taught a lesson. By the time a country, investment idea or theme become global darlings, it is too late!

The easy money has long been made. The early buyers have already sold out to the reckless.

http://www.iht.com/articles/2009/02/24/business/dubai.4-436881.php

Sunday, February 22, 2009

The Death of Value Investing!

The cactchy title aside, we jest . . . to an extent.

We will let the pure data speak for itself.

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

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

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

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

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

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


We don't really mean that value is dead, but to rather prove what we have repeated many times. We paraphrase from Marc Faber. THERE IS NO SINGLE INVESTMENT STRATEGY THAT CAN CONTINUALLY OUTPERFORM YEAR IN AND YEAR OUT IN ALL MARKET CONDITIONS.

To which we add, John Paulson, George Soros, and Paul Tudor Jones are exceptions!

As Eastern Europe Exhausts Currency Reserves, Western Europe's Children Will Cover it

Currency reserves are being depleted in order to maintain currency pegs.

So what will happen ? Western Europe will have to pay for it. There will be resentment and EU enlargement fatigue.

As we predicted the U.S. banks will be nationalized. Mass nationalizations are inevitable.

As mush as a mess as it is, we believe that politically and financially, Russia has a perfect opportunity to retake much of its "near abroad."

http://www.bloomberg.com/apps/news?pid=20601109&sid=aW7Voe3QaHX8&refer=home

Latvia's Government on the Brink

http://www.iht.com/articles/2009/02/20/europe/latvia.php

That Central and Eastern Europe are a total mess, should come as a surprise to no one. As the U.S. and Western Europe are mired deep in their own problems, this will strengthen Russian influence in the region.

The War or Terror Expands

http://iht.com/articles/2009/02/23/asia/23terror.php

Not having an exit strategy is a problem in markets and in politics.

As we have previously warned readers, the War on Terror is expanding in Pakistan.

Don't expect the troops to come home anytime soon. This one will be a long one, and last for many many more years, as we have predicted.

Thursday, February 19, 2009

Russia begins LNG Shipments to Asia

The Kremlin is attempting to extend its sphere of influence or at least good will. Interestingly we note that perhaps in the not far-off future, Japan and China will have to compete for scarce energy needs.

seems like a win win all around . . . at this time.

With the market so hated, we have a favorable view of Gazprom and Rosneft at what are firesale prices.

http://www.iht.com/articles/2009/02/18/business/gas.php

A Must See Video with Taleb

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ae9cpET.f8W8

Click video at upper left.

Wednesday, February 18, 2009

Gold, Stocks, and the Fed

1) Twice since 1930 one ounce of gold has been equal to one Dow Jones. This occured briefly in 1932 and 1980. It will again in our life times. At what price, we have no idea.

2) Every paper currency has always reverted to its intrinsic value. Zero.

3) The first two central banks of the US failed. The Fed will collapse one day.

You may view our predictions as rash, but they are not. They are based on the extensive study of history and of financial markets. They are near certainties. As death follows life, they too will come to pass!

Tuesday, February 17, 2009

Don Hugo Can Now be President for Life

The Venezuelan people have voted. There are no term limits.

Don Hugo is free to continue the Bolivarian Revolution . . . at least until the money runs out!

http://www.iht.com/articles/2009/02/17/america/venez.php

Eastern Europe in Peril

Too much borrowed money, budget deficits, monster current account deficits.

What goes up . . .

http://www.iht.com/articles/2009/02/17/business/eastbank.php

Quantum Fund up 8% in 2008

On top of over 30% in 2007, proving that even piloting a behemoth of a fund, George Soros still has it. That is why he is one of the all time greats. For 2007 and 2008, he was up just over 40% if this article is right.

We doubt few other funds of that size can put up those kinds of numbers.

http://bloomberg.com/apps/news?pid=20601087&sid=ahXzs53vTiXU&refer=home

Sunday, February 15, 2009

China Continues its Commodities Acquisition

China recently did the Rio Tinto deal and now they have purchased Oz Minerals of Australia for a 50% premium to the last traded price.

Makes sense, with 2 trillion overpriced USDs and collapsed commodity prices, sell your overvalued dollars for cheaper real assets that China will desperately need going forward.

Expect to see much more of this going forward.

http://bloomberg.com/apps/news?pid=20601087&sid=ah1qWWxdnvZ0&refer=home

Thursday, February 12, 2009

Banro is the Congo Play

http://www.miningmx.com/juniors/929948.htm

How do we play the Congo?

Banro. It has the deposits, and a steep Congo discount.

There are 61m shares diluted, 52.4m current at about $1.38 USD/ share., so about 70m dollars.

5.6m resources at their Twangiza project, so this is aboubt was recently released.

If the property rights hold and the mine ever goes into production, we can see a 5 bagger, but view it as a call option.


http://www.banro.com/i/pdf/2009-02-02-NM.pdf

Wednesday, February 11, 2009

Monday, February 9, 2009

Latvian GDP Collapses

Over 10% in Q4 versus the prior year.

http://www.iht.com/articles/2009/02/09/business/10latvia-426070.php

Central and Eastern Europe are getting destroyed, but it will also provide opportunities as asset prices become very cheap.

Update on Russian Stocks

http://bloomberg.com/apps/news?pid=20601013&sid=aXPwbuSvce7M&refer=emergingmarkets

On cue is a rise in Russian stocks. We find commodity stocks to be the best instruments to trade and study as analysis encompasses global economics, currency, and of course political analysis.

Friday, February 6, 2009

Nearly 600k Jobs Lost in U.S. - Unemployment at 7.6%

http://bloomberg.com/apps/news?pid=20601087&sid=a7jpCSt.gQoM&refer=home

People are scared for their jobs and have stopped spending. Not good news when 70% of GDP is consumer spending.

Market is up on bad news. Appears, for now, to be discounting the worst.

US Base to be Closed in Kyrgyzstan - Russia Wants Its Near Abroad Back

Russia is taking advantage of the financial crisis to bring Kyrgyzstan a little closer. Russia hs also recently agreed to essentially stabilize Kazakhstan's banking system.

And now, Kyrgyzstan is closing down the U.S. military base. Imagine that. The U.S. won't suceed in Afghanistan without Russia's blessing.

Echoing Marc Faber, World War III has begun indeed.

http://iht.com/articles/2009/02/05/europe/06russia.php

Thursday, February 5, 2009

Ivanhoe (IVN) - Unusually Active

Ivanhoe (IVN) rose by 74 cents today or over 25%. This spike was much higher than the other junior golds.

Additionally, Ivanhoe traded over 2m shares, which is twice the average. So we have an unusual price move up, with higher volume. Both of which are very positive.

One day does not make a trend, but we suggest keeping an eye on IVN. An agreement with the Mongolian Government regarding the monster Oyu Tolgoi was due Feb 2. No word yet, but perhaps the chart is telling us something!

http://finance.yahoo.com/q/ta?s=IVN&t=5d&l=on&z=m&q=l&p=,v&a=&c=

http://www.ivanhoe-mines.com/s/NewsReleases.asp?ReportID=331087&_Type=News-Releases&_Title=Ivanhoe-Mines-welcomes-initiative-by-Mongolias-Parliament-to-finalize-an-Oy...

At What Price do We like Gold and Silver?

We have physical gold and silver positions that we purchased from 2006-2007. We do not need anymore.

We feel that both will go much higher. If we did not own either we would look for gold under 800s and silver under $11 per ounce. If silver can be bought for under $10 it is a steal. Again, if we had no physical position we would start accumulating, especially on dips.

Wednesday, February 4, 2009

Interesting Notes on the Great Depression

By John Kemp of Reuters, especially about the Fed raising reserve requirements from 13% to 26% in the 30s. We also see such policies as very unlikely to occur given modern central banking.

Watch commodity prices and play the trend when the time is right to do so.

http://www.iht.com/articles/2009/02/04/business/col05.1-422531.php

Speculative Long- Russia

Today we are intitiating a Speculative Long position on Russia via the Market Vectors Russia ETF (RSX).

We believe that a compelling investment argument is short, so we will get to the point.

Everyone knows the risks:

1) greater government control,

2)Russian Oligarchs going cap in hand to the Kremlin for loans,

3) debt burdened companies,

4) a stock market that gets closed for days at a time,

5) geopolitical risks,

6) plumetting energy prices,

7) a sinking Ruble

We know this, so we will highlight that the Russian RTS index, which is USD denominated is 80% off its high! If we use this 80% decline as a yard stick, the total market cap of Russian stocks is far below GDP. Historically this has poven to be a very good time to buy a country's equities. Dresdner Kleinwort estimates that the RTS had a market cap of $1.1 trillion USD at the end of 2007. If we estimate a peak 10% gain before the plunge in 2008, we attach a $1.2 trillion USD peak market cap.

An 80% decline leaves equities at $240b in market cap versus an economy of $1.7 trillion (nominal) per the CIA factbook. We cannot ignore a country whose equity market is about 15% of GDP.

To be conservative we will assign zero GDP growth and knock off 1/3 of the CIA Fact Book's GDP estimate for currency depreciation, which still leaves us with a better than $1.1 USD economy. By this rough calcuation, the RTS index is still only 21% of GDP.

Also, we do not think the Kremlin will allow the major Russian firms to go bust, but rather, will support them. We also regard this as a play on emerging markets and commodities.

Further risks include a blowing out of minority shareholders by the gov or an even greater plunge in the Ruble.

We are also initiating a purchase of the T Rowe Price Emerging Europe and Meditteranean fund (TREMX). It is about 60% Russia, with equally destroyed Kazakh and Egyptian equities, along with some Turkey.

Positioning is up to the individual. This is not for the weak of heart, but we believe that potential returns are anywhere from 50% precent plus. We would prefer to see an even weaker Ruble before we buy. This is a risky trade and we may be wrong due to the currency.

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.


http://finance.yahoo.com/echarts?s=RSX#symbol=RSX;range=2y

http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)

http://www.dresdnerkleinwort.com/eng/documents/dresdner-kleinwort-equity-issuance-russia-article.pdf

Tuesday, February 3, 2009

Good Riddance 130/30 Funds

They were all the rage in 2007 and early 2008.

Hmmm, take a bunch of long only guys that have never shorted. Let them learn how to do it on my dime? I don't think so. Their idea is go long the cheapest, short the highest priced. The result is disastrous. Shorting is much more difficult and requires a much much shorter time frame.

This is an idea that should have never taken off.

Allied Capital Versus Einhorn

Hedge funds do play a useful role in keeping corporate American honest.

This is a must read story.

It is corporate America and the regulators that failed us, not the hedgies.

http://www.iht.com/articles/2009/02/01/business/morg02.1-419894.php

Monday, February 2, 2009

A Note on the Lithium Rush

Referencing the prior post, we note that Sumitomo Corp (SSUMY) of Japan is mentioned in the article. We have SSUMY on our recommended list and as far as we can tell Sumitomo has good relations with Bolivia.

In late 2008 Sumitomo acquired the remaining interest that it did not own in the San Cristobal mine from Apex Silver (SLV). San Cristobal is a zinc, and silver mine in Bolivia.

We also note that politically Japan is not the Us, placing them in a somewhat better position.

The Lithium Rush

We have written extensively about Lithium. its application to hybrid cars and portable electronics. It is a play on 1) green technology 2) minerals 3) global growth 4) portable technologies. This is why lithium is so attractive to us, it encompasses several major trends.

We are early onto the trend and believe that we will make a lot of money speculating on SQM of Chile.

The media coverage is just getting started. We could see a frenzy in lithium much like the ags and potash stocks (think Potash and Mosaic Corps) and the steel stocks in in 2008.

The IHT brings us this article on Bolivian lithium reserves.

http://iht.com/articles/2009/02/02/america/lithium.4-421488.php