Creative Destruction

Taiwan and Asia Etfs

2009-04-09T17:18:00.001-07:00

Added to position yesterday. No new fundamental news. market has based and looks like it is going up.

http://finance.yahoo.com/q/bc?s=EWT&t=1y&l=on&z=m&q=l&c=

Technical resistance at 7 and 8$ was broken. $10 looks to be the next stop.

Use the etf EWT if you choose.

We find Taiwan fundamentally interesting given that we feel in the lnog term it will relink with China. Plus Taiwanese companies are the least levered in Asia. The ETF pays nearly 8% dividend. Even if they are cut in half, we can wait.

Singapore and Hong Kong can viewed in similar fashions.

Russia is the Easiest Money Ever!

2009-04-09T17:10:00.000-07:00

http://thecreativedestructionist.blogspot.com/2009/02/speculative-long-russia.html

Right on call. This was the easiest trade ever. $11 a share on Feb, 4th. $17.45.

There you go.

1) Panics create excellent trading opportunities on the long side.

2)Buy a market that is down 80% in a swan dive , but after it has based . . . unless the world is ending.

3) technicals combined with fundamentals worked. Fundamentally Russian equities were only 15% of GDP. Technically they had established a base, and were massively oversold.

The market gives plenty of opportunities, but one must be ready!

The Emerging Markets Rally is Here

2009-03-23T09:23:00.000-07:00

So says Mark Mobius.

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

IS this for real or not, we don't know.

We see strong base building in, but not limited to Japanese small caps, Korean shares, Taiwanese shares, Hong Kong shares, and Russian shares. We don't see these markets dipping to new lows.

Many of these markets crashed in October and early November. Unlike the US, they did not pierce those lows and appear to have successfully retested the bottom.

Our call on Russian equities, was spot on and the RTS has rallied 40% in less than 2 months.

The technicals, simple ones at that, help us line up the probabilities so that they are in our favor. The best advice we can give is to never attempt to catch a falling knife.

Gold and Hard Assets to Gain with Fed Money Destruction

2009-03-19T15:37:00.000-07:00

The Fed is buying treausuries, which is in fact money printing, or monetization of debt, in order to hold the yield curve down.

This will be excellent for gold and hard assets. It is why we were positioned well ahead of the crowd and used the November - February months to acquire the gold miners of our choice at rock bottom prices!

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aOsvwdYztl7Q

Paulson Joins the Gold Rush

2009-03-19T15:34:00.000-07:00

John Paulson, one of the greatest hedge fund investors ever has acquired an 11% stake in Anglogold Ashanti from Anglo American.

Paulson joins Einhorn from Greenlight and Loeb from Third Point in the great gold hunt.

http://www.marketwatch.com/news/story/paulson-acquires-stake-south-african/story.aspx?guid=%7B2CD83706%2DF504%2D487D%2D8665%2DFE2DBD724352%7D&siteid=yhoof

Swiss Money Printing ! The Race to the Bottom

2009-03-16T11:44:00.000-07:00

Global banks around the world are engaged in both quantitative and qualitative easing.

Qualitatively they are lowering the standards for the collateral that they are willing to buy or lend for.

The race to the bottom is here. No one wants a strong currency. This should be apparent to everyone. This money printing will be positive for hard assets, especially precious metals.

http://www.iht.com/articles/ap/2009/03/12/business/EU-Swiss-Franc.php

JP Morgan Says Buy Goldmines

2009-03-16T11:36:00.000-07:00

To which we say, we are already there, and they clearly missed the bottom call as most gold miners have doubled and tripled.

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

Lets make this easy for everyone. The two largest inputs into mining are labor and energy.

Oil has collapsed from $147 into the 40s. Check.

Gold is sold for US dollars, the SA rand, Mexican peso, and Australian dollar have all collapsed. Check. This means that local lobor costs, denominated in those currencies have all fallen by at least a third.

Gold in USD and other currencies is stronfg, therefore the outlook for miners is excellent.

Everyone should well be aware by now, but even with a more than tripling of price of gold, gold supply is lower than in 2001.

There you go.

The Coming Gold Bubble

2009-03-12T12:09:00.000-07:00

http://econompicdata.blogspot.com/2009/03/ready-to-ride-golden-bubble.html

The excellent post is listed above.

To which we say yes, that is why we own gold!

Actually gold performed quite well during the Great Depression and has held up very well during times of deflation vis a vis shares and real estate which collapse. Ditto 2008.

For those that remember Homestake Mining went from a peak of $90 in 1929 and fell to only $70 a share. And then rose to over $500 by the end of the Depression!

It has not performed well during disinflation which is a different matter.

The whole point about investing is to buy early in the trend and wait for the mania, remembering that at some price, every asset should be sold! I want the parabolic blow off, as should everyone that owns gold.

Silver also offers better upside than gold as a current speculation.

http://thecreativedestructionist.blogspot.com/2009/03/silver-from-heaven...

Russian Stocks Rally Over 10%

2009-03-10T16:52:00.001-07:00

The Russian RTS which had been in the 500 to 550 range was a bargain.

http://www.bloomberg.com/apps/quote?ticker=RTSI$:IND

Again please see our prior post on Russian equities. We find the RTS under 600 tio be an excellent speculation.

http://thecreativedestructionist.blogspot.com/2009/02/speculative-long-russia.html

Stocks Stage Massive Global Rally

2009-03-10T16:48:00.000-07:00

Selling pressure had gotten to multi-generational highs.

Citigroup with better news than expected.

http://www.bloomberg.com/apps/news?pid=20601087&sid=a0Ii37swxioo&refer=home

While the exact timing has been unknowable, we are not surprised by this.

Refer to our post from exactly one week ago. The post is below.

http://thecreativedestructionist.blogspot.com/2009/03/massive-selling-pressure-on-s-500.html

Silver from Heaven . . . !

2009-03-05T17:10:00.001-08:00

http://www.kitco.com/scripts/hist_charts/yearly_graphs.plx

The gold to silver ratio has blown out to over 70. In times of distress we have seen the ratio historically approach 15.

Given that it fell from over $20 an ounce last year, we like silver under $13 an ounce. If we did not own it already, we would be very happy to grab some at $10- $12 an ounce.

The Coinage Act of 1792 set gold equal to silver in a 15 to 1 ratio. This is why there is often a historical reference to the price.

http://en.wikipedia.org/wiki/Coinage_Act_of_1792

Gold has eclipsed its prior all-time high from 1980, though in inflation adjusted terms it has a ways to go.

Silver on the other hand is well below the $50 price set in the infamous Hunt Brothers squeeze of 1980. We firmly believe that due to massive amounts of monetary stimulus, in time, silver will reach all time highs, not only in nominal, but inflation adjusted terms!

A low risk speculation is to accumulate old Mercury dimes and Washington quarters with the silver content. The coins have historical signifcance and can still be had for a low price over melt.

Even the Cricket Players Are Not Safe - The Next Front on the War on Terror

2009-03-03T09:25:00.000-08:00

Sad news from Pakistan as the Sri Lankan Cricket team was attacked in a commando style assault.

Six policemen died.

We firmly believe that this is the next major front on the War on Terror.

Given the situation in Afghanistan and Pakistan, any troops pulled from Iraq are very likely to be redeployed.

Keep watching, the geopolitical situation is getting worse.

http://www.iht.com/articles/2009/03/03/asia/03pakistan2.php

Massive Selling Pressure on the S&P 500

2009-03-03T06:46:00.000-08:00

http://finance.yahoo.com/q/ta?s=%5EDJI&t=my

Please use Max.

A scary chart is a long-term one of the S&P 500 with volume. The brutal bear market has seen record volume on the downside, which we feel may represent, even if temporary, a selling climax.

Sometime soon a rally should not be unexpected, as it appears that everyone who wants to get out is now selling.

There are no absolutes or guarantees in investing. One can only determine greater or lesser probabilities based upon the information one has at the time.

On Faith Based Investing - So Long GE !

2009-02-27T12:39:00.000-08:00

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!

Unwinding of the Unwinding of the Carry Trade

2009-02-26T12:02:00.000-08:00

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

2009-02-26T11:52:00.000-08:00

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

More on the Dangers of Hot ETFs

2009-02-24T15:28:00.000-08:00

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

2009-02-24T14:22:00.000-08:00

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 ?

2009-02-24T13:51:00.000-08:00

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

The Death of Value Investing!

2009-02-22T21:41:00.000-08:00

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

2009-02-22T20:25:00.001-08:00

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

2009-02-22T20:19:00.001-08:00

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

2009-02-22T20:12:00.000-08:00

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.

Russia begins LNG Shipments to Asia

2009-02-19T12:38:00.000-08:00

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

2009-02-19T11:04:00.001-08:00

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

Click video at upper left.

Gold, Stocks, and the Fed

2009-02-18T08:17:00.000-08:00

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!

Don Hugo Can Now be President for Life

2009-02-17T21:08:00.000-08:00

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

2009-02-17T20:56:00.001-08:00

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

2009-02-17T14:48:00.000-08:00

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

China Continues its Commodities Acquisition

2009-02-15T22:49:00.000-08:00

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

Banro is the Congo Play

2009-02-12T12:00:00.000-08:00

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

When Dubai Busts The Bimmers Get Left Behind

2009-02-11T22:43:00.000-08:00

Why we don't invest where they are putting up the world's tallest building.

http://iht.com/articles/2009/02/12/africa/12dubai.php

Funding Woes Hit Our Rare Earth Metals Play - Lynas Plummets

2009-02-10T13:39:00.000-08:00

http://www.reuters.com/article/marketsNews/idAFSYD40255020090210?rpc=611

Our position in Lynas (LYSCF) has dropped 40% in one day. this should exemplify why junior resource stock and special situations speculations are not for those ith a low risk tolerance.

Good Video on Range Bound Markets

2009-02-10T13:35:00.000-08:00

http://finance.yahoo.com/tech-ticker/article/172820/Range-Bound-at-Best-The-Long-View-on-Stocks-Isn't-Much-Better-Says-Value-Investor?tickers=%5Edji,%5Egspc,QQQQ,SPY,DIA,CAT,NOK

Well worth the few minutes to watch.

Latvian GDP Collapses

2009-02-09T10:07:00.000-08:00

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

2009-02-09T10:02:00.000-08:00

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.

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

2009-02-06T08:27:00.000-08:00

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

2009-02-06T07:56:00.000-08:00

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

Ivanhoe (IVN) - Unusually Active

2009-02-05T14:01:00.000-08:00

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?

2009-02-05T11:29:00.000-08:00

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.

Interesting Notes on the Great Depression

2009-02-04T15:41:00.000-08:00

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

2009-02-04T10:59:00.000-08:00

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

Good Riddance 130/30 Funds

2009-02-03T08:39:00.000-08:00

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

2009-02-03T08:32:00.000-08:00

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

A Note on the Lithium Rush

2009-02-02T14:02:00.000-08:00

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

2009-02-02T13:54:00.000-08:00

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

Fed Says it Will Keep Rates Low

2009-01-28T17:37:00.000-08:00

And give the public more of what got us into this mess, too much cheap money.

Since when is "too little inflation" a problem. Last we checked tuition, health care, insurance, none of these things were falling in price.

http://www.bloomberg.com/apps/news?pid=20601087&refer=home&sid=aek1s.x4XxLs

Greenlight is Buying Gold

2009-01-28T17:35:00.001-08:00

For the first time David Einhorn is taking his grandpa Ben's advice.

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

Hampton's Real Estate Slipping - Still Priced in La La Land

2009-01-27T18:13:00.000-08:00

of course it is the most levered real estate in the country to hedge funds and the financial system.

Guess what? Prices are still much much too high. Get out if you can.

The same down trend will occur in all of the most levered enclaves. Aspen, Park City, Cape Cod. Of course this real estate will always be desirable. It is rare, in a beautiful area, that is supply limited. Nonetheless, trees do not grow to the sky and they are all multiples over priced.

http://bloomberg.com/apps/news?pid=20601213&sid=a8PWXxTZCdIU&refer=home

Must Watch Video

2009-01-27T11:58:00.000-08:00

Marc faber speaks too much common sense here. Must watch!

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=abpxeqb0eTd4

Disturbing but Not Shocking - Top Excuses by Fund Managers!

2009-01-27T10:35:00.000-08:00

In our years of having met portfolio managers and analyst, we always viewed international fund managers in the U.S. with great skepticism. Not all, there are some very good ones, but most.

Why? We have heard every excuse in the book. We invest in Russia, Brazil etc, but these answers have horrified us:

1) We don't have foreign language speakers, as all necessary financial statements are translated into English.

2) We don't travel, as managements all come to New York!

3) We have no view on currencies. We are bottom-up stock pickers.

4) We don't have a macro economic view, we are bottom up stock pickers.

5) We don't have a view on commodity prices. We have no view on oil, we are picking the best stocks in Russia on a bottom-up basis.

It should be obvious to all investors that a PM must know about currencies, commodities, economics, and politics to successfully invest internationally.

Most emerging markets are commodity driven. They are also extremely sensitive to interest rates, and current account, budge deficits. We would never hand over a dime to a manager that didn't understand commodities and currencies, yet claimed they could make us rich in their international fund.

If the stock market collapse and the currency experiences a run, even the best stock will do poorly.

If commodity prices collapse, Middle Eastern and Russian markets collapse.

Lesson Learned!

The Russian RTS index is in USD. Don't you wish the PM had an understanding of currency, political, and commodity risks before you handed over your money? Even being late, It was easy to avoid this swan dive. It would have been better to take a small loss than to give years of gains back...on hope!

http://bloomberg.com/apps/cbuilder?ticker1=RTSI%24%3AIND

Kuwait and the ME are petro economies. One best understand oil and politics before committing ones capital!

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

So What System Works for Investing

2009-01-27T10:32:00.000-08:00

There is no system that works all of the time in every market condition. If there were one, every person would be rich, and all fund managers would crush their benchmark every year.

That is why we tell speculators and investors alike that the market is always changing. Certain market conditions require certain asset classes.

We like to combine fundamentals, technicals, a global macro view, politics, and knowledge of commodities and currencies into an integrated approach.

It is not easy. We never said it would be.

More to follow . . .

Why Politics Matter

2009-01-27T10:27:00.000-08:00

We find is disturbing that most "fundamentalists" will spend hours creating DCF models or try to forecast EPS growth to the cent three to five years out, but know nothing, and we mean absolutely nothing about politics.

Politics matter a great deal. Governments control war, taxation, and the flow of money. Excellent government policies such as low to no taxes, a business friendly environment, high freedom, and little bureaucracy can led to incredible growth going forward in a country.

What could possibly, be more "fundamental" than the government?

So learn about the world. Combine politics, with fundamentals, and technicals. You shall be rewarded.

Reread our this Bloomberg story on Ukraine if you have any doubts.

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

Technicals Versus Fundamentals

2009-01-27T10:22:00.000-08:00

Our answer, to the dismay of technicians and fundamentalists alike, is Both.

Fundamentals do matter, and we should not ignore them.

At the same time, technicals pick up "all information" in the market including unreleased insider buying, and price movements that individuals in the market do not understand.

This is why stocks collapse when the current fundamentals look the best, and often turn up when the current fundamentals look their worst.

Our advice is simple. Use fundamentals to generate your ideas, but go long or short once the trend is in your favor. The probabilities of a successful trade are far better.

The Folly of Stock Buybacks

2009-01-27T10:16:00.000-08:00

It has been a poster child for the buy side community and we frankly don't like them? Why?

As all investors, we don't like to see shareholders diluted by rounds and rounds of new issues. This has been a MAIN reason why we shorted financials and still don't own them. The banks need more money, lots more. They can't issue cheap debt, so they must "blow out" current shareholders with massive stock issuance.

But we don't care much for buy backs? Why ?

Because it takes a scarce resource, cash, and mis allocates it. Companies grow by capital investment, new products, and new technologies. In the long-run they do not grow by buying back shares.

This money that could be used for dividends or cap ex was WASTED BY ACQUIRING HIGHLY OVERVALUED SHARES IN THE MARKET. So rather than invest and grow, companies find themselves short of cash, having spent it on grossly overvalued shares. Not a winning long-term strategy.

Ukraine Stock Market Free Fall

2009-01-27T09:51:00.001-08:00

Pity the fellow that climbed aboard after the market had done a moonshot up 12x.

Throw in a 40% currency depreciation and well ...

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

Note this index is not in USD terms. For US investors performance is far worse.

Ukraine - On the Brink

2009-01-27T09:45:00.000-08:00

An exercise in how to create a failed state.

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

Things are cheap now, Kiev should be an interesting place to visit.

Russia is strengthened. The bursting of the global economy has shown the short-coming of Russia's "near abroad" neighbors.

Citi Grounds Jet

2009-01-27T09:11:00.000-08:00

Little wonder the U.S. financial system is insolvent. Waste all around. On remodeling offices, on Excel monkeys that do nothing, and fund managers that can't beat an index.

http://finance.yahoo.com/news/Chastised-Citigroup-grounds-rb-14165409.html

Selling TBT

2009-01-23T12:13:00.000-08:00

We have closed out today our short long bond position TBT. Our purchase date was on 12/17/08. The gains were slight given the time frame, about 18%.

But we will take it. Over the long run we think this trade will be worth jumping back into. Perhaps we were premature in selling, perhaps not.

Boston Power and Lithium

2009-01-20T14:05:00.001-08:00

Boston Power, a maker of environmentally friendly lithium based batteries, has just knocked down $55 million in funding.

Just goes to show the expanding uses of certain metals and elements given the "portables revolution."

http://venturebeat.com/2009/01/19/boston-power-juices-up-with-55m-for-lithium-ion-batteries/

Chrysler Gets Another Waste of Tax Payer Money

2009-01-16T12:49:00.000-08:00

A main source of the problems in the U.S. is the elevated level of consumer debt.

Do U.S. consumers need new cars? We think not, look around the bulk of all cars in the U.S. are probably three years old.

Yet, the government has handed out yet another multi-billion dollar tranche to stimulate what? More consumer debt.

Consumers don't need new cars. They don't need more debt. Right now the consumer is scared of layoffs and must repair their balance sheet.

This is why we have said the U.S. taxpayer will not make a single cent, despite government rhetoric to the contrary, on these trillions in bailouts.

Another bad idea that is Made in the U.S.A.

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

New Lithium Applications

2009-01-16T09:46:00.000-08:00

From Apogee Power in CA, new cordless battery packs using lithium.

http://www.prweb.com/releases/2009/01/prweb1832014.htm

Moly Corp

2009-01-14T13:08:00.000-08:00

Goldman Sachs which has a significant interest in Lynas Corp has another rare earths investment. Molycorp which is a Goldman venture along with several private equity firms including Pegasus Partners IV and Trxys.

Thanks to Jack Lifton - perhaps the best known of the rare earth elements consultants for his coverage of the space.

http://www.molycorp.com/molycorp_cares/news/molycorp_acquires.asp

Update on Rare Earth Metals

2009-01-14T12:58:00.000-08:00

in December Toyota acquired Wako Bussan - a Japanese trading firm - in order to secure supplies of rare earth metals used in electronics, energy efficient light bulbs, catalytic converters, and hybrids.

Our proxy is Lynas Corp (LYSCF) of Australia.

Read more about the Toyota purchase here.

http://www.toyota-tsusho.com/data/current/detailobj-635-datafile.pdf

What are Core Positions?

2009-01-14T11:34:00.001-08:00

Again we have been asked by certain readers. Our core positions tend to be longer term in nature, more conservative, and larger in terms of positioning. Still, we do not mean that we allocate 20% of our portfolio to Chinese H shares. We may go to 5%, perhaps a bit more, but stepping in slowly.

We currently have our core in defense stocks, Singapore (EWS), Japan small caps (JSC), Nikkei Indexes and various Chinese H Share proxies including FXI.

Please remember to be diversified and not invest more than you could comfortably lose.

U.S. Banks are Broke- Send More Tax Payer Money ASAP!

2009-01-14T11:28:00.000-08:00

We all know that Congress sold us out to the financial services. these banks with huge prop desks, mortgage and derivatives enterprises were levered last year as high as 35 to 1.

So what does Congress do? Bail them out with our money. Guess what? The banks need more.

Well, first of all they could cut dividends and stop paying bonuses. Even this year the average first full year I Banking Associates at Morgan Stanley got paid a base of 125k, plus 150k in bonus. Some of the bonus in stock. True last year they got a 275k bonus, but the large banks have been effectively nationalized.

So will Congress force dividend cuts and an end to bonuses before dispersing you money? Don't count on it.

http://www.iht.com/articles/2009/01/14/business/fed.php

Wise Words for Speculators

2009-01-12T09:58:00.000-08:00

Here we quote Dennis Gartman, "A market that does not go up on bullish news is not bullish, a market that does not go down on bearish news is not bearish."

In other words be careful of markets not acting the way we expect them to act on new fundamental news.

This is a main reason why we combine technical analysis along with our fundamental analysis. We would rather not chase markets that are not behaving.

Additionally, technical analysis allows us to follow numerous equity markets, commodities, and individual stocks globally. When we find an asset behaving well, we will do the fundamental research and look for confirmation.

GM to Build Lithium Battery Plant for the Volt

2009-01-12T09:38:00.000-08:00

Which we view as fundamental good news for our Lithium play (SQM) from Chile.

http://bloomberg.com/apps/news?pid=20601087&sid=a9sBVni7O67o&refer=home

We Are Not Bulls or Bears

2009-01-12T09:24:00.000-08:00

Reminiscences of a Stock Operator is a remarkable book that has stood the test of time.

We are reminded that it is not the bull side or the bear side that we speculate on, but rather the right side.

let the market show you were the opportunities are, and when a trade should be entered or exited. Do not hope against all evidence proving to us that we are wrong.

Why the Market is Not Healthy Yet

2009-01-12T09:19:00.000-08:00

When a new bull market starts or an intermediate bull move (secondary reaction) in a bear market occurs, the market will have discounted all the "bad news."

Despite worsening economic figures, geopolitical events, and general societal malaise, the markets will go up. This will often confuse investors. Why is the market going up? Because there is more buying than selling we respond.

Given the market's sell off on Friday's employment numbers, we do not yet believe that the market is yet fully discounting all of the bad news.

Had the market been able to rally given the job loses, we would be much more sanguine.

Right now we are still in a primary bear market until proven otherwise.

Closing Out Dryships and Teck Cominco

2009-01-12T09:16:00.001-08:00

Today we have sold all positions in Dryships (DRYS) and Teck Cominco (TCK). We believe these are traders markets and we decided to sell while we still had profits of over 40% in both, in less than 1 month's time.

The market giveth and it taketh away. We would rather not lose all of our profits, so we try to use a 20% to 25% trailing stop loss from the high. Sometimes our emotions get in the way and our profit evaporates, or a small loss turns into a big loss.

Still the trailing stop gives us discipline.

Can't Bully Bill Gross

2009-01-09T13:15:00.000-08:00

Good luck with that one. In all of our years in the industry, we have yet to see it done!

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

Worst Year for Job Losses Since 1945

2009-01-09T12:44:00.000-08:00

http://iht.com/articles/2009/01/09/business/10jobsA.php?page=1

2.6 million jobs lost in 2008. More than 500k in December.

Unemployment rate jumps to 7.2%. let us remember that this number has been ADJUSTED, making historical comparisons difficult. Workers that have given up looking for work are categorized as DISCOURAGED and not included in the labor statistics, as in the past.

The true unemployment rate is much much worse than the 7.2% and we imagine that over 10% of the U.S. population that is able to work is unemployed.

Hedge Fund Assets Tumble from $1.9 to $1.1 Trillion

2009-01-08T12:49:00.000-08:00

In this latest report on Bloomberg.

Not surprising as there are way too many of them. Good fund managers though, are worth every cent they earn.

http://bloomberg.com/apps/news?pid=20601087&sid=afbtgd8XCPYw&refer=home

Rebirth in Pittsburgh

2009-01-08T09:05:00.001-08:00

Rome it is not. Pittsburgh though, is rich in history, people are friendly, there are enough cultural attractions and reasonable nightlife. Crime is also fairly low. Real estate prices are very low.

While it may not be NYC, Miami or any number of cool cities, we feel that real estate investors should give consideration to residential properties there. With mortgage rates so low, the outer suburbs, such as Penn Hills, may offer substantial cash flow yields. This is not a play on capital gains, but rather cash flows.

Worth a look anyway.

http://www.iht.com/articles/2009/01/07/business/08collapse.php

Taking a Look at High Yield Debt

2009-01-08T09:01:00.000-08:00

With tax loss season over and write downs a plenty we are giving a serious thought to high-yield debt. Treasuries are a farce at this price. Munis scare us due to the fact that state budgets are all in the red, and unlike the Feds, the state can't print endless amounts of fiat currency.

Besides, if companies start missing debt payments the equity will become nearly worthless.

We will likely build our way up to 10% of total capital in various high yield mutual funds or ETFs if we find ones that are appropriate.

Why Your Fund Manager's Track Record is Meaningless!!!

2009-01-08T07:41:00.000-08:00

In our travels we have done a fair amount of Manager Due Diligence. Small cap funds, hedge funds, emerging market funds, mutual funds, separately managed accounts. We have reviewed the pitch books, had dinner with the portfolio managers, meet the analysts, and been schmoozed by the IR and client services teams.

We have noticed that great track records are damned lies and statistics.

The track records were built between 10m-200m $. Then after they have some funds and a good record the managers populate the mutual or hedge fund databases. The fund appears "top of peer group all of a sudden." The early years are friends and family money, with maybe a couple of deep pocketed investors. Often the fund is not available to the public. The manager doesn't have the pressure of withdrawals or media scrutiny.

It lures in the Investment Consultants. They can offer their HNW clients a new fund "with top 2%" 10-year track record. Then it gets bloated and great ideas that came from one or two portfolio managers, are diluted by a team of sector analysts often with MBAs from excellent schools, but offering little investment acumen themselves. This works though, as the consultants are made to feel better. Who wouldn't like a 26 year old from Denver (insert any city you like) doing analysis on small cap Russian stocks! Then the funds are crammed into 401ks, manager platforms, peddled by exclusive bank and trust companies . . . and the fund manager shadows the index and gets rich from fees.

So while I have seen 25 year 16% annualized track records, it was in a way meaningless. 95% of all PMs I met became "average" at 100- 200m of AUM in 1 fund.

Tudor Jones, Soros, Buffett, Louis Bacon and definitely John Paulson could still excel. I am sure I have left out some of the greats, but few others can outperform for long managing a $1b fund.

Don't believe me? Check the GIPS compliant track record of your favorite fund. Look at AUM and composite numbers. The bulk of the outperformance was two guys sitting in grandma's basement.

That is not to disparage small funds. Not at all. We find smaller funds to be the best of all and have the highest of professional respect for the lone fund manager that says, "I can't truly handle $1b in my fund."

A Cold Winter In Europe

2009-01-06T15:38:00.000-08:00

The tension between Russia and Ukraine elevates.

Gazprom's supplies to Europe were almost completely halted.

It will be a cold few weeks in Berlin.

http://iht.com/articles/2009/01/06/europe/gazprom.php?page=1

Taking Some Profits - Radius Gold (RDUFF)

2009-01-06T13:01:00.000-08:00

We have sold at market close, about a quarter of a tiny position in Radius Gold (RDUFF) at Limit .135$ a share. This stock was bought for pennies in the last month, brought to our attention by Casey Research in December.

We were able to buy only a small stake (in the tens of thousands) with less than 0.5% of capital at .057 $ a share.

This trade is more to demonstrate what we have been doing. Risking small amounts of capital in each idea and picking from the most beaten down stocks.

We like to take 1/3 to 1/2 off at around a 100% short-term gain and let the rest ride. We do this because a stock that has doubled very very quickly has shown us a quick profit, so we will take it. At the same time we like to let winners run, so we leave the rest on the table . . . for the time being.

We are reminded of resource stock guru Rick Rule's quote, "Make the money, take the money."

A stock moves most violently up from a V bottom, but we never claim to catch the very bottom. We are fine with catching part of the bounce, then moving on.

Junior Miners Soaring - Canadian Tax-Loss Selling is Over

2009-01-06T12:34:00.001-08:00

Coming off of a horrible 2008 and greatly oversold position junior mining stocks including gold have been soaring.

In addition to following broader markets upwards, readers should by know be aware that most juniors are listed in Canada.

Why does this matter? because the Canadian tax-loss selling is stronger than in the U.S. Canadian citizens can apply losses back three years (last we knew) and they actually get a check from the government, rather than a lowering of their taxes such as in the U.S. Talk about an incentive to sell!

Given abysmal performance of almost every single asset class in 2008, it does not take much of a leap to realize that Canadian tax-loss sales exerted an even stronger downward pressure on these small and often speculative stocks.

Now that the selling pressure is over, the stocks are ripping along. They will go up until they don't.

Just to use an example, we show Canadian based, base metals miner, Lundin.

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

Our Play in Lithium with Technicals

2009-01-06T11:40:00.000-08:00

We purchased a stake in SQM using about 1.5% of capital on December 19th, just under $25 a share. We did not catch the bottom, nor did we attempt to. It is a core long.

SQM is based in Chile and is the world's largest producer of lithium. Lithium is used in electronics, especially the proliferating portable devices. It is also an input into lithium batteries, which maybe used in hybrids. The Chevy Volt for example. SQM's lithium is produced by evaporation process of the firm's massive Andean brine lakes.

http://finance.yahoo.com/q?s=SQM

Technically, We note that the stock, based upon a two year chart, has broken out of a down trend.

Additionally, the chart pattern is forming an ascending triangle, based on SQM's October 9th low. This is a favorable chart pattern which portends an upside breakout.

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

Note, we would like to see volume follow the price up, but remind readers that volume is a secondary technical indicator. The price is always paramount.

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.

New Positions - Specing Molybdenum

2009-01-06T10:19:00.001-08:00

Molybdenum is a copper by product. It is used as an alloy to make steel less corrosive. It is a major component of steel tubes for the oil and natural gas industry.

Today we have initiated speculative longs in two positions. Thompson Creek (TC) and General Moly (GMO). Both stocks had collapsed, but they seem to have found a bit of a bottom and are bouncing. We will make our play now, as we hate to try and catch a falling knife.

This is a triple play really. beat up small caps, beat up commodities, and a play on energy.

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

See the chart. We are playing the trading bounce after the collapse.

Closing Out Allied Nevada Gold (ANV)

2009-01-06T10:17:00.000-08:00

As of today. We are out, the stock had been beaten up, and then nearly quadrupled from its bottom. Moreover, it is showing recent weakness at a time when other mining and gold stocks are showing strength.

New Long - CVRD

2009-01-06T09:34:00.001-08:00

CVRD (RIO), on a bounce on metals price, after the stock got obliterated. We are buying this stock for a trade, for the next few months. We will take profits when the market gives them to us.

This is a play on base metals and on Brazil.

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.

Byron Wien's 10 Surprises for 2009

2009-01-06T09:24:00.000-08:00

This one seems a little less creative than prior ones. Still it is worth reading as long as it challenges our readers preconceived ideas.

Byron Wien Announces Ten Surprises for 2009

Pequot Capital Chief Investment Strategist Compiles 24th Annual List

WESTPORT, Conn.--(BUSINESS WIRE)--Byron R. Wien, Chief Investment Strategist of Pequot Capital Management, Inc., today issued his list of Ten Surprises for 2009. Mr. Wien has issued his economic, financial market and political surprises annually since 1986. The 2009 list follows:

1. The Standard and Poor’s 500 rises to 1200. In anticipation of a second-half recovery in the U.S. economy, the market improves from a base of investor despondency and hedge fund and mutual fund withdrawals. The mantra changes from “fortunes have been lost” to “fortunes can still be made.” Higher quality corporate bonds, leveraged loans and mortgages lead the way.

2. Gold rises to $1,200 per ounce. Heavy buying by Middle Eastern investors and a worldwide disenchantment with paper currencies drive the price of precious metals higher. In a time of uncertainty, investors want something they can count on as real.

3. The price of oil returns to $80 per barrel. Production disappointments and rising Asian demand create an unfavorable supply/demand balance. Other commodities also rise, some doubling from their 2008 lows. Natural gas goes to $9 per mcf.

4. Low Treasury interest rates coupled with huge borrowing by the Treasury send the dollar into a serious downward slide. Overseas investors become concerned that the currency printing presses will never stop. The yen goes to 75 and the euro to 1.65.

5. The ten-year U.S. Treasury yield climbs to 4%. Later in the year, as the economy shows signs of recovery, economists and investors shift their mood from concern about deflation to worries about inflation. A weak dollar, rapid growth in money supply and record-setting deficits (over $1 trillion) are behind the change.

6. China’s growth exceeds 7% and its stock market revives. World leaders credit China’s authoritarian government for its thoughtful stimulus policies and effective execution during a challenging period. The Chinese consumer begins to spend more and save less and this shift is behind the unexpected strength in the economy.

7. Falling tax revenues from the financial sector cause New York State to threaten bankruptcy and other states and municipalities follow. The Federal government is forced to step in and provide substantial assistance. The New York Post screams “When will the bailouts stop?”

8. Housing starts reach bottom ahead of schedule in the fall, and house prices stabilize after dropping 15% from year-end 2008 levels. The Obama stimulus program proves effective and a slow growth recovery begins before year-end. Third and fourth quarter real gross domestic product numbers are positive.

9. The savings rate in the United States fails to improve beyond 3%, as most economists expect. The concept of thrift seems to have vanished from American culture. Peak job insecurity and negative growth drive increased savings early in the year, but spending resumes as the economic growth turns positive in the second half, making Christmas 2009 the best ever.

10. Citing concerns about Iraq’s fragile democratically elected government and the danger of a Taliban-controlled Afghanistan, Barack Obama slows his plan for troop withdrawal in the former and meaningfully increases U.S. military presence in the latter. In a hawkish speech he states that the threat of terrorism forces the United States to maintain a strong military force in this strategic area.

Mr. Wien believes these surprises, which the consensus would assign only a one-in-three chance of happening, have at least a 50% probability of occurring at some point during the year. In previous years, more than half of the elements of the list have proven correct.

Pequot Capital Management is a private investment firm.

Contacts

Sard Verbinnen & Co
Jonathan Gasthalter/Chris Kittredge
212-687-8080
Permalink: http://www.businesswire.com/news/home/20090105005763/en

Initiate Longs Gafisa (GFA) and Anglo American (AAUK)

2009-01-06T07:22:00.000-08:00

Gafisa (GFA) the Brazilian home builder and Anglo American (AAUK). Anglo American is a diversified mining company with a controlling stake in De beers. It is also the world's largest platinum producer.

Of the large diversified miners, Anglo did not make silly acquisitions and overburden itself with debt la Xsrata with Falconbridge, Vale with Inco, Rio Tinto with Alcan.

Besides the charts for both stocks are looking better.

The Easiest Way to Short the Last Bubble Left

2009-01-05T21:48:00.001-08:00

http://finance.yahoo.com/q?s=TBT

The Lehman Brothers Ultra Short. If you don't know about the treasuries bubble, you should be reading another blog.

More on the Commuter Marriage - Where was the Sailor?

2009-01-05T14:01:00.001-08:00

This is a follow up to our post earlier today.

We found the following so comical that we had to give it its own post.

"A couple of hundred years ago a sailor went to sea and you didn't know if he were dead or alive for a few years," says Tina Tessina, whose latest book, "The Commuter Marriage: Keep Your Relationship Close While You're Far Apart," gives couples tips on how to stay connected, which include making use of the latest technology.

Hahahaha, we know exactly where the sailor was, as does anyone with common sense. The whorehouse. What a sham.

http://www.iht.com/articles/2009/01/05/business/commuter.php?page=2

What is the Point of Creative Destruction?

2009-01-05T13:27:00.000-08:00

Firstly, what is it not? It is not to be your personal portfolio manager and to give you the exact percentage and timing to the day of our own portfolio moves.

Though we do try to be transparent when we find new ideas. Each person must be responsible for the risk that they take and the size of their positions.

The point of Creative Destruction is primarily to make our readers think. We emphasize that there is risk in every investment, even those of the deepest blue chips. We know that the market is all fear and greed. it has been and always ill be. It is man's nature, and human nature does not change.

Therefore, we strive to find less crowded unique opportunities, that have favorable upside to downside potential. We look for at least 3 to 1. Then we invest small amounts is speculative longs, or special situation longs. We emphasize commodity stocks that are beaten up, less owned than large cap stocks, and that often have a kicker such as pending legislation on a mine, or a potentially large new discovery. We understand supply and demand. We can't predict how many Ipods will be sold next year, but we understand that if there is not enough silver, it goes up.

We prefer ETFs such as Ishares for our core holdings (non speculative) rather than forking over fees to bloated mutual funds. learn how to use them.

We employ a combination of technical analysis to keep us from trying to catch falling knives ( ie the comedy that was value managers and financials stocks in 2008!). We combine technical analysis with a top-down macro view of the world, and use a basket approach to buying stocks, never risking too much in one theme or individual holding. Then we will use common sense fundamental analysis on individual shares. Does management create shareholder value, does the firm hold ample cash for Cap ex, is it low on debt, given the higher cost of funding?

We also try to impress upon readers that they must should be skeptical of both government and the financial services industry. Trillions of dollars are forked over annually to managers that are great at taking fees.

Finally, we want our readers to enjoy their lives. Food, wine, drink, a fine shirt, good book, even an occasional smoke, and to spend time with their families and friends.

More of Life's Best Investments

2009-01-05T13:16:00.000-08:00

Can there be joy in smoking? Well yes, if done occasionally and in moderation.

Oh we know that in the end it could kill us, if Islamic Militants don't get us first.

More likely though, we'll die a death by government. Bureaucracy and more stupid foreign adventures. Taxes will go up, and as college costs spiral we won't even be able to educate our children!

While we still can we will light up a cigar or goof cigarette when amongst friends, enjoying a good drink.

These are all highly recommended:

1) Hoyo de Monterrey Excalibur - With the maduro wrapper.

http://www.tinderbox.com/Hoyo-de-Monterrey-Excaliber-1-Maduro-Cigars;jsessionid=0a0108421f43de9ec8e5bb67470cbf11db8713bed735.e3eTaxePaNqNe34Pa38Ta38NaNr0?sc=2&category=2641

2) Ashton Pyramids or Belicosos

http://www.ashtoncigar.com/Ashton-Packs.jsp

3) Nat Sherman Classic Cigarettes - From NYC's Fifth Avenue. Full bodied cigarettes without aditives from the "Tobacconists to the world." Enjoy it after a meal. We are going to go and pour ourselves a scotch right now.

http://www.natsherman.com/cigaretteList.cfm?CFID=2580727&CFTOKEN=bf8ca3ed9a18ba3c-A8AD68CC-19B9-F18B-22577B1FBADF48DE&root=45

What is A Crime and What is Justice?

2009-01-05T12:32:00.000-08:00

Is it a youth in the inner city stealing a car stereo, or a college student getting busted one too many times for smoking the ole reef?

Surely many Americans have and still do enjoy a little mother nature.

So what do we do as a nation? We incarcerate the above. We label them criminals and menaces to society. And while perhaps they are no angels, they will likely end up in jail, or doing community service.

But what if they had ruined countless lives and stolen $50 billion dollars throughout the years? Well then, surely they would be confined to a posh Fifth Avenue apartment!!!

http://bloomberg.com/apps/news?pid=20601087&sid=aSeYZyxlifQ0&refer=home

Poor them, poor Bernie Madoff. Jail would be too good for him.

The only thing better would have been to invade a backwater of a country in the Middle East and made a war criminal of oneself. At least then one would have been rewarded with the Presidency!

Life is always stranger than fiction. We could not make up the idiocy that goes on in modern society. And if we had crafted such plot lines, no one would believe us anyway!

War is the Health of the State!

2009-01-05T12:24:00.001-08:00

And we do not believe for one minute that Obama will cut defense spending or pull out of Iraq.

Even if there was a downturn in troops in Iraq we would expect to see them in Afghanistan or sent over to Pakistan.

Gaza is burning, Russia has reasserted itself. No, we don't see one less missile being sold this year.

Stay long defense via ITA and FSDAX. We are personally in for 5% per fund as a core holding.

http://articles.moneycentral.msn.com/Investing/MutualFunds/FlyHighWithAerospaceDefenseStocks.aspx

More of the Best

2009-01-05T11:47:00.000-08:00

So if we are to part with our hard earned ducats, what should we buy? Besides travel and language lessons we have come up with some of our favorites. All will help one live more richly. Good living is after all a lifestyle.

These are not meant to be in any order.

1) Wolaver's Oatmeal Stout - Try it and you will agree.

http://www.ottercreekbrewing.com/wolavers/beers.html

2) Rogue Dead Guy Ale - Oregon's best. Whatever it costs, it is too little. Pick up a six pack. Oregon's best.

http://www.rogue.com/beers/dead-guy-ale.php

3) Dogfish Head 60 Minute IPA - Another favorite. Goes with everything!

http://www.dogfish.com/brewings/Year_Round_Beers/60_Minute_IPA/8/index.htm

4) George Orwell's 1984 - The classic book. So relevant in today's age. Successful speculation is built upon the knowledge of probabilities and investor psychology. Want to know why so many idiots trust the government? Why does the gov seem to get bigger and more controlling? Read the book. Over and over again.

We recommend this version with Thomas Pynchon's foreword.

http://www.amazon.com/Nineteen-Eighty-Four-George-Orwell/dp/0452284236/ref=pd_bbs_sr_3?ie=UTF8&s=books&qid=1231185210&sr=8-3

5) Basque Blue Cheese- Out of this world is right. It must be tried,and it is worth every cent. Look around and buy yourself a half pound.

http://www.basquemarket.com/newcat_i814608.html?catId=33532

6) Missoni Shirts for Men- Now that Thomas Pink and Charles Thyrwitt's NYC locales have completely debased their brands we look elsewhere. Why are they debased? because only a fool would pay a $120 for a shirt made in India!

Again not enough taste. The fool and his money must part.

We love the fit of Missoni's men's dress shirts. They have an athletic cut, excellent weave, and fantastic fabric. The cotton shirts almost feel like silk. Plus we like the barrel cuffs, and guess what? They are still made in Italy.

http://www.missoni.com/ing.html

7) 1997 Newton Claret - We are not wine experts, that being said, we enjoy wine. Probably more than most people. We have always found this one to be an excellent choice.

http://www.wine.com/V6/Newton-Claret-1997/wine/14515/detail.aspx

8) Tattinger Champagne - One of the world's best. Much less expensive than many of its over-hyped peers.

http://www.taittinger.com/accueil.html?lg=fr

9) Leasingham Classic Clare Shiraz- A bold, less common shiraz. Last we had it, she was deep pruple in color. An excellent bottle to hare amongst friends.

http://www.leasingham-wines.com.au/wines/wines_us/wines_classicclare/wines_classicclare_shiraz.html

More later . . .

So What are the Best Investments?

2009-01-05T10:32:00.000-08:00

We specialize in speculation. We see risk in every financial asset.

Our caution has served us well. Citigroup, GE, Fannie Mae, Wachovia, Dodge & Cox International and Stock Funds, Bill Miller's Value Trust, and Fidelity Magellan were all deemed to be low risk investments! Oh how flawed that reasoning was. . .

When pressed on investing, we do believe that Singapore and Japan have attractively valued equity markets. When will they go up? We don't know. We simply have found value and believe that the odds are in our favor for good returns in the future. They are also conservative investments.

But even these markets are not the best investments. The best investments are those little things that enhance our lives, far beyond their financial outlay.

We view the following as a small sampling of what we view as the best investments:

1) Travel- Go see some place new. Some where that you have always wanted to go.

2) Language - Learn French, Spanish, or Italian. Learn a language that you have always wanted to learn, then go and visit the country. You will make new friends and you will expand your cultural understanding of the world.

3) Music- We personally love Who's Next, Exile on Main Street, Pet Sounds, Axis as Bold as Love to name a few. It doesn't matter. Buy a CD that you enjoy. Pour yourself a drink and lay on the couch. Do nothing but relax for that hour.

4) A Good Drink - Especially with friends. An unhurried beer, a scotch, a martini. Some good conversation in a location one likes. What could be better?

Money is simply a means to living well. Living well does not mean having to be rich.

We know many rich that don't live well. They simply have neither the time, nor taste to enjoy the fruits of their labor.

More to follow . . .

What is Quality of Life?

2009-01-05T10:24:00.001-08:00

We are often asked what makes a good investment?

To which we often say, a glass of scotch and some quiet time to listen to Led Zeppelin III.

Other times we may say some Basque blue cheese and a nice ale or wine.

Our point is that it is not simply money that denotes a quality investment, but the enhancement to one's life.

What is not quality of life?

We have often answered a monster commute to the exurbs in a major city. Sitting in hours of grid locked traffic is not for us. The 3 or 4 hours of commuting is time that could be spent with a wife or loved one, children, friends, working out or reading a book.

So what are other good investments? We will let you know later today.

I Hate My Husband, Where is the Pool Boy

2009-01-05T10:19:00.000-08:00

This article in the International Herald Tribune brought to our attention couples living in different continents for financial reasons, but still being HAPPILY? married.

Nonsense we say! This is simply a way for failed marriages to not end in divorce. The man takes a young mistress, the wife, a lover. A total farce if you ask us!

It must be read to be believed. Yet again showing us that the mind works based on fear and greed. There is no reason why a man will give up his wife and children, unless he is unhappy.

http://www.iht.com/articles/2009/01/05/business/commuter.php

Options on Options in Mongolia

2009-01-05T10:11:00.000-08:00

Due to its rapid rise and our ability to only get in a small position prior to New Years, we are buying Jan 2010 $10 Calls (LPYAB) on our Mongolia proxy, Ivanhoe (IVN). We were filled at .40 cents per share today.

We few this as an attractive speculation, as 8 call options cost as much as 1 share. Given the 25% stock price increase in just a few days we felt this was prudent.

http://finance.yahoo.com/q?s=LPYAB.X

Talking Half of Our Teck Position (TCK)

2009-01-05T09:25:00.000-08:00

We have right now sold half of our Teck Cominco (TCK) shares. We are up nearly 100% since our December 8, 2008 purchase date.

We are using the proceeds to buy more of Fronteer Group (FRG).

Soros Down Less than 5% in 2008

2009-01-04T13:22:00.000-08:00

After a monstrous 31% return in 2007, George Soros - our favorite speculator and clearly one of the greatest ever - shows he can still put in a good show.

The Financial Times, shows him down just under 5% in 2008, which is excellent. Most had left the Old Man for dead, but his 2007 and 2008 show that the Master still has some skills to teach.

Nicely done.

http://funds.ft.com/funds/quantum/Group/QMQMN/perf

Citadel's Global Select for comparison was down 40% in 2008 per the FT. Previous numbers not gloroius either.

Aurora Energy Resources

2009-01-04T13:08:00.000-08:00

For those unaware of the moratorium on uranium mining and milling in Labrador we offer the following.

http://www.aurora-energy.ca/?p=news_archive&news_id=79

Remember we are long Fronteer Group (FRG) and not Aurora Resources. Fronteer already owns 42.2% of Aurora, so there is no need to own both.