The Commodities Con
May 18, 2010
A quick introduction for this week's Outside the Box. This is from my London Partner Niels Jensen, talking about the problems with long only commodity funds. This is something I discuss frequently but have not written about in some time. Quite simply, many of the commodity ETFs do not deliver what they promise and in fact many of the inverse funds can lose you money even when you make the right macro call.
Niels gives us a very good explanation of why this is so. So for those of you who have "diversified" into commodity ETFs (not actively managed funds!) or are thinking about it you might really want to read this.
I have worked closely with Niels for years and have found him to be one of the more savvy observers of the markets I know. You can see more of his work at www.arpllp.com and contact them at .(JavaScript must be enabled to view this email address) if you want to follow up on their ideas.
Your running our the door for dinner in NYC analyst,
Roadmap To Inflation And Sources Of Cheap Insurance
March 24, 2009
What happens when inflation once again returns. As this week's Outside the Box writer, James Montier, writes, we may want to start thinking now about inflation insurance and he mentions a few ways to do so. But this letter is a must read for his bringing to light a speech by Fed chairman Ben Bernanke in 2000 given to the Japanese, where he suggest inflation targeting:
"In the speech, he laid out a menu of policy options that are available to the monetary authorities at the zero bound. First, aggressive currency depreciation, as per Romer's analysis of the end of the Great Depression. Second on Bernanke's list is the introduction of an inflation target to help mould the public's expectations about the central bank's desire for inflation. He mentions the range of 3-4%!"
I think you will find this week's OTB to be exceptionally thought provoking. Montier is one of my favorite economic thinkers (and a good friend). He works for Societe Generale in London in their Cross Asset Research group.
A Daily Snapshot Of Market Moving Developments
December 22, 2008
Have you done your Christmas shopping yet? Research shows that more of us are putting it off in expectations of better prices. In other words deflationary expectations! The prices I have seen while out shopping the past few weeks are simply amazing. I have to admit to have made a few purchases for some items that I was not planning to buy just yet because prices were off by 60% or more. A few days ago a friend came in sporting a new black cashmere sweater top with jeweled embroidery and quite fancy. She said she got it at Saks. But the real story is that when she walked into Saks looking for a present for her kids they handed her a coupon with a 30% off any one item from whatever price it was already marked down. That top? At one point it was almost $500. She bought it for $75. I have to confess that made me worry about retail sales and future unemployment. I like low prices, but I like profitable companies and employment. I went and talked to a Saks salesperson a few weeks ago who had been there 25 years and asked if they had ever discounted like that before Christmas and he said never. It was Saturday in New York and the place looked busy. I asked why? And he said, "The store is empty during the week." And I bought a few sweaters at 60% off. Tiffani just got some presents from J Crew at over 60% off. Before Christmas! How many readers have seen the same sales? And yet shopping is down?
As a side note, this year most of the kids and in-laws are all going to get a Visa gift cards so they can take advantage of what I think are going to be even better sales after Christmas. It is not that Dad put off his shopping to the last minute (which I did) but the kids are really looking forward to finding their special items on sale. I wonder how many more are doing that?
This week we look at David Rosenberg's latest missive. While listing a number of negative data points, the thing to watch for is all the deflationary news. I have been pounding the table for YEARS that deflation is going to be the problem, and there would be massive stimulus from the Fed to fight it. We are now coming to that inflection point. Rosenberg is one of my favorite main stream economists and the North American Economist for Merrill Lynch. I would say enjoy this week's Outside the Box, but it is not enjoyable reading, but you should read it anyway.
Have a Merry Christmas. And enjoy the after Christmas sales! All the best,
Get Ready - Here Come the Gold Stocks!
February 25, 2008
I get more questions about gold than other single topic. The fascination for the "barbarous relic" among my readers is clear. This week in Outside the Box we take a look at the gold stocks and the potential future investment opportunity. David Galland of Casey Research provides an intriguing analysis of the gold market today. In particular, why have gold stocks lagged the rise in gold? This is the opposite of what orthodox gold investing strategy says should happen. And I happen to agree with David's rationale for the paradox and his contention that gold stocks are poised (finally!) for the same rise that their base metal brethren have seen.
I have known Doug Casey and David Galland a very long time. Doug got me into my first natural resource stock almost 25 years ago (which ran up 8 times before we sold). They take their research on gold stocks very seriously, and have been quite successful over the past years. While they are more bearish on the economy than I am, their analysis of the natural resource markets and gold stocks in particular has been spot on. In the mid-80's I wrote my first newsletter which focused on gold stocks. I sold it after about a few years as I became bearish on gold, but kept up the interest in the stocks.
But one thing I learned. If you are not on the ground talking to the men who are doing the work, getting into the behind the scenes facts, you are going to have a hard time making money even in a gold bull market. Doug is one of the few guys that truly know what is going on in the market. He knows the difference between those who are serious about mining and those who are simply promoters.
If you are interested in specific gold stocks and gold stock investing, I strongly suggest you subscribe to Doug Casey's letter The International Speculator. Going it on your own or taking tips off a few web sites is dangerous to your portfolio. If you subscribe, they will send you their recent update which covers in-depth all the stocks he likes and a few he says to avoid. I got them to give my readers a risk free trial for three months. For more information on how to subscribe, please click below:
A Trip Back in Time to Profit from the Unfolding Crisis Today
October 8, 2007
I get more questions about gold than other single topic. The fascination for the "barbarous relic" among my readers is clear. This week in Outside the Box we take a look at the gold market, its growth-to-date, and potential future investment opportunity. Doug Casey and David Galland of Casey Research provide an intriguing analysis of the gold market today.
I have known Doug and David a very long time. They take their research on gold stocks very seriously, and have been quite successful over the past years. While they are more bearish on the economy than I am, their analysis of the natural resource markets and gold stocks in particular has been spot on. In the mid-80's I wrote my first newsletter which focused on gold stocks. I sold it after about a few years as I became bearish on gold, but kept up the interest in the stocks.
But one thing I learned. If you are not on the ground talking to the men who are doing the work, getting into the behind the scenes facts, you are going to have a hard time making money even in a gold bull market. Doug is one of the few guys that truly knows what is going on in the market. He knows the difference between those who are serious about mining and those who are simply promoters.
If you are interested in specific gold stocks and gold stock investing, I really suggest you subscribe to Doug Casey's letter The International Speculator. They will send you his recent update which covers in-depth all the stocks he likes and a few he says to avoid. For more information on how to subscribe, please click here.
MACRO-MARKETS: Gold Trading Boot Camp
March 26, 2007
I probably get as many questions about gold as I do any subject. The fascination with the yellow metal permeates all levels of investors, and opinions can be quite strong. But few are more informed than those of good friend and trader extraordinaire, Greg Weldon.
Greg has written a new book called "Gold Trading Boot Camp, how to Master the Basics and Become a Successful Commodities Investor." I highly recommend it for those wanting to get a grasp of how a successful trader's mind works. Greg is one of the best and maybe the most prolific commentators on market trends. Up well before dawn each day, he is a machine. Each day he produces 15-20 pages of in-depth commentary on a huge variety of topics, both fundamental and technical, that informs some of the top trading desks in the world.
I asked him to give us some idea of what his book is about and then give us a top down view of the market for gold as it stands today. For those of you who follow gold, or are merely curious, I think you will find this fascinating.
You can get the book at Amazon.com. It is very readable. Greg has an effortless, unique style that is fun, fast-paced and easy to comprehend with not a lot of technical jargon to make it hard for the beginner yet enough insights that the professionals will be taking lots of notes.
Get the book and enjoy this week's Outside the Box.
Seasons of Gold
April 10, 2006
Today we look at gold. I made my first dollar on gold stocks back in the mid-1980s when Doug Casey personally called me up and told me to by a particular stock. It was quite a home run and I have paid attention to what Doug says on gold stocks ever since. Lately he has been on a roll in his newsletter as well. 32 of the last 35 stocks he has recommended are up as of the latest issue.
I am pleased to be able to send you the introduction from Doug's recent edition of International Speculator. Doug talks about the seasonality of gold and speculates on future price movements. If you are interested in specific gold stocks and gold stock investing, I really suggest you subscribe to Doug's letter. They will send you his recent update which covers in-depth all the stocks he likes and a few he says to avoid. Below is a link to information on subscribing to his letter.
http://www.caseyresearch.com/crpmkt/crpSolo.php?id=30&ppref=JMD031EA0406A
Over the Rainbow
February 27, 2006
Here is a different view on derivates that can help you with a basic understanding of the problem in the market and a look at gold. This comes from the HCM Market Letter by Michael Lewitt of Harch Capital in Florida.
This is a private letter for his clients and Michael is one smart guy with a deep understanding of the markets, especially the credit markets, and how they work. HCM deals in this world on a daily basis, so they can offer a somewhat inside view of derivatives and that is why it was picked for this week's Outside the Box.
Rodney’s Ravings
October 10, 2005
A reader forwarded the following article to me last week and suggested it might make a good Outside the Box. This week's article comes from Rodney Dickens, Head of Research for ASB Bank, New Zealand and I thank him for letting me share his thoughts with my readers. Rodney has been analyzing the fixed income markets for two decades and has some insights into the current trends in global interest rates.
Rodney refers to the US Fed as the "global custodian of inflation" and finds an interesting relationship between the Fed Funds Rate and G7 capacity utilization. He then goes on to look at China's role in inflation and the current trend in commodity prices. These factors all lead to the conclusion that interest rates will continue to go up globally and that is why it was picked for this week's Outside the Box.
Valley of the Dollars: excerpt from Basic Points
December 20, 2004
This week we look at another interesting essay by Donald Coxe, the Global Portfolio Strategist, BMO Financial Group. He is also the Chairman and Chief Strategist of Harris Investment Management in Chicago, and Chairman of Jones Heward Investments in Toronto. Coxe writes a monthly piece called "Basic Points" and his latest is this week's "Outside the Box."
This essay explores the current situation with currencies, gold and commodities. Plus I normally don't include investment recommendations, but felt that they deserved to be included this time. Today's letter is excerpted from the December 14, 2004: "Valley of the Dollars."
Life After Gold
November 16, 2004
This week's letter is part two of a series by my good friend, Andy Kessler, author of Running Money about his days running a hedge fund in the 1990's, a book that I highly recommend, especially to anyone in the "running money" business. (www.amazon.com)
Last week we ran the first part of the two part series on Andy's view of gold. The first part laid the groundwork by looking at the role of gold, currency and inflation in 18th and 19th century England. Kessler argues that, as a side product of using a gold standard coupled with a banking system and a currency printing press, a country that received more gold would increase their currency; this led to inflation which would lead to bank runs and financial crises.
This essay will be a little controversial to many. As I noted last week, I take exception to a few points. But Andy does make me, and I hope you, think through the concept of what that thing we call money really is.
If you want to review last week's letter it is archived here, but now let's read part two.
Gold Bites the Dust
November 8, 2004
Confirmation bias is a very real psychological phenomenon. It especially infects investors. What we mean by confirmation bias is the tendency of people to read material which reinforces their present views. They associate with people who agree with them and who think like them. So their biases are constantly confirmed.
The antidote is to read material, and associate with people, that/who do not agree with your views. It is more important (and profitable) to learn why you are wrong than to hear why you are right.
Because of this, I spend a lot of my research time trying to figure out what is not common knowledge. While running with the herd is safe most of the time, it is not very rewarding. It is one of the reasons I started "Outside the Box," to bring you thought-provoking and challenging ideas.
Today we are going to look at an essay by a guy who definitely does not run with the herd. Indeed, he may be the anti-herd. My good friend Andy Kessler has just written Running Money about his days running what was the fourth most successful hedge fund for its time. He and a partner launched a Silicon Valley technology hedge fund in the mid-90's and began selling and taking profits in 1999. He ran all the way up the market, sold at the top, making his investors six times their money. He subtitles the book "Hedge Fund Honchos, Monster Markets and My Hunt for the Big Score." His book, like Kessler himself, is funny and irreverent. His publisher describes him as a brilliant investor, a born raconteur and an overall smart-ass. The Financial Times says this is going to be one of those books like Liar's Poker or Den of Thieves which is required reading for those in the industry. I agree. If you are in the game of running money, you gotta read this one. This should be required reading for brokers and advisors. Besides, it is a lot of fun. (www.amazon.com)
The next two weeks "Outside the Box" will probably be two of the more controversial of the year. Andy Kessler has a very different take on the one investment that inspires more passion than any other - gold. It is unlike the normal pablum from those who feel along with Keynes that "In truth, the gold standard is already a barbarous relic." But he does ask hard, thought-provoking questions. Gold bugs are warned to drink a few glasses of wine before reading.
I will be upfront that I do not buy all of his arguments. Next week, at the end of his piece I will do a short rebuttal. But he makes some very good points. We had a very pleasant lunch this last weekend in Palo Alto, discussing gold, the meaning of value and other pleasantries. Andy is one bright guy. Now, let's read part one.