Archive for the ‘Markets’ Category
Oil Breaks $35: Commodities Snapshot
Friday, December 19th, 2008
It wasn’t that long ago, June 19, 2008, we had a conversation with Stephen Briese, author of the Committments of Traders Bible about the imminent bursting of the oil and commodities bubble (200 Days of Oil Supply Held Long by Speculators). That was just weeks before the price of oil (and other commodities) peaked at 147. In that conversation, Briese made the firm statement that oil could drop as low as $30, which is why we are bringing it back to your attention. It was very very hard to believe that it could come true, but here we are. Here is that conversation again:
To Listen, Press Play ,
9 min. 18 sec.
Oil is trading around $34.71 down $1.51 from yesterday’s close, as of the writing of this article.
Here we display Bespoke Investment Groups handy commodities at a glance roundup. They do an excellent job of creating graphs like these that make it relatively easy to see where prices are in relation to their 50-day moving averages. The green shading represents two standard deviations above and below the commodity’s 50-day moving average, and moves above this shading are considered overbought or oversold.
Gold, Silver have recently broken out from their oversold positions very nicely into overbought territory. In the food segment, Corn and Wheat have also had a break out off their oversold bottoms and nearing overbought territory. The rest however have continued to see weakness.
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Tags: Bottoms, Briese, Committments, Commodities, Commodity, Creating Graphs, Gold Silver, Investment Groups, Moving Average, Moving Averages, Oil Supply, Press Play, Price Of Oil, Roundup, Segment, Shading, Snapshot, Speculators, Standard Deviations, Wheat
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Greenback slumped on the canvas
Friday, December 19th, 2008
Bernanke & Co. on Tuesday signaled to the financial markets that they were hell-bent on pursuing an “inflate or die” approach to rescuing the ailing US economy and fending off the forces of deflation. The Fed is now inflating at a level possibly not seen before by a developed nation since Weimar Germany.
Since the credit crisis started intensifying in July, the dollar benefited from a global flight to safety in US Treasuries and a scramble for dollars to repay USD-denominated debt. The deleveraging process effectively created a short position in the greenback.
But more recently, US-specific worries concerned with public debt expansion and the potential inflationary implications of quantitative easing dawned upon battle-weary investors, causing the dollar to reverse the uptrend that had commenced in July.
The US Dollar Index (i.e. a trade-weighted basket) has not only breached its 50-day moving average convincingly, but seems to be forming a top of at least medium-term significance (see chart below). The fall from grace was brutal with the Index recording its largest six-day decline (from December 10 to 17) ever, setting up an assault on the key 200-day line (often seen as a crude indicator of the primary trend).
The US currency also suffered its biggest one-day slide against the euro on Tuesday, and plunged to a 13-year low against the Japanese yen. (Also see my weekly “Words from the Wise” review for comments on currency movements.)
The table below shows the performance of the US Dollar Index, as well as a number of major and emerging-market currencies against the US currency. Gains against the US dollar (green) / losses (red) are given for (1) the period since the dollar’s high of November 20, (2) the period from the dollar’s July 21 low until the November high, and (3) the year to date.
Click on the image for a larger table.
The devaluation of the US dollar de facto exports deflation and depression, raising the question of how long it will take before other countries retaliate and embark on “beggar thy neighbor” currency debasement. China is already in the process of “managing” the renminbi lower, Russia’s central bank has signaled it would step up devaluation, and the Bank of Japan and others might also consider intervention.
“Either we are going to pay for our policy sins via higher interest rates or a weaker dollar. And for an economy that is as levered as the one in the US is, the former choice is not an option,” said Stephanie Pomboy (MacroMavens). “So a weaker dollar is the natural valve.”
US creditors - such as China - with large hoards of dollars are growing increasingly nervous, and the dollar is likely to come under additional pressure if foreigners stop finding dollar assets an attractive proposition. The only way the US can attract foreign capital is by offering a higher interest rate or making its assets cheaper through a weaker currency.
Jim Rogers commented as follows in a Bloomberg interview: “… the dollar is a terribly flawed currency. I hate to say it, but my goodness, they’ve messed up the dollar badly. So, I don’t like to do it, but I’m going to sell all the rest of my dollars sometime in the next few days, weeks, or months … Again, I don’t like saying it, but I’m afraid the dollar is going to go the way the pound sterling went.”
The speed of the dollar’s decline has been such that it is quite likely to see a relief rally before the downtrend resumes. Arguing for a temporary hiatus from a fundamental viewpoint, Stephanie Pomboy said: “… right now, we are enjoying some real competition in the ugly contest from the currencies of the European Union and the United Kingdom, and that will probably persist for a while because they are in pretty bad shape, and they are a little bit behind the curve relative to us.”
Lastly, a sustained break in the uptrends of the US dollar and the Japanese yen – low-yielding currencies previously used for funding risky investments – should indicate that forced selling due to deleveraging is starting to subside. As this situation plays itself out, we should see a return of confidence and a calmer period for stock markets in general, and also some support for precious metals and commodities. The dollar may be down for the count, but could herald a sense of normalcy in broader markets.
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Tags: Canvas, Credit Crisis, Currency Movements, Devaluation, Emerging Market, Fall From Grace, Financial Markets, Global Flight, Greenback, Japanese Yen, Moving Average, November High, Public Debt, Short Position, Treasuries, Uptrend, Us Currency, Us Dollar Index, Weimar Germany, Worries
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Rio Tinto/BHP Billiton at parity
Friday, December 19th, 2008
Yep, the share prices of the two mining giants have crossed. After suffering another sickening fall on Thursday, Rio shares (down 10 per cent) are now trading at £10.40, about 4p lower than BHP’s.
This is seriously embarrassing for Rio. After all, BHP’s abandoned bid was pitched at a ratio of 3.4:1.
Of course, the reason Rio is being dragged lower is debt. And Rio has a lot of it - $40bn to be precise, against a market value of $27bn.
The company says it will be able to meet its debt repayments ($8.9bn is due next September) and does not need a rights issue.
But the market doesn’t believe Rio, and the result is a sinking share price.
Since BHP walked away last week, Rio shares have fallen 58 per cent.
Related links:
No respite for Rio - FT Alphaville
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Tags: Alphaville, Bhp Billiton, Bid, Debt Repayments, Ft Alphaville, Giants, Lot, Parity, Reason, Respite, Rio 10, Rio Tinto, Share Price, Share Prices, Shares
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Paul Krugman: The Madoff Economy
Friday, December 19th, 2008
The costs of “America’s Ponzi Era”:
The Madoff Economy, by Paul Krugman, Commentary, NY Times: The revelation that Bernard Madoff - brilliant investor (or so almost everyone thought), philanthropist, pillar of the community - was a phony has shocked the world, and understandably so. The scale of his alleged $50 billion Ponzi scheme is hard to comprehend.
Yet surely I’m not the only person to ask the obvious question: How different, really, is Mr. Madoff’s tale from the story of; the investment industry as a whole?
The financial services industry has claimed an ever-growing share of the nation’s income over the past generation, making the people who run the industry incredibly rich. Yet, at this point, it looks as if much of the industry has been destroying value, not creating it. And it’s … had a corrupting effect on our society as a whole.
Let’s start with those paychecks. … The incomes of the richest Americans have exploded over the past generation, even as wages of ordinary workers have stagnated; high pay on Wall Street was a major cause of that divergence.
But surely those financial superstars must have been earning their millions, right? No, not necessarily. The pay system on Wall Street lavishly rewards the appearance of profit, even if that appearance later turns out to have been an illusion.
Consider the hypothetical example of a money manager who leverages up his clients’ money…, then invests the bulked-up total in high-yielding but risky assets… For a while - say, as long as a housing bubble continues to inflate - he (it’s almost always a he) will make big profits and receive big bonuses. Then, when the bubble bursts and his investments turn into toxic waste, his investors will lose big - but he’ll keep those bonuses.
O.K., maybe my example wasn’t hypothetical after all.
So, how different is what Wall Street in general did from the Madoff affair? Well, Mr. Madoff allegedly skipped a few steps, simply stealing his clients’ money rather than collecting big fees while exposing investors to risks they didn’t understand. … Still, the end result was the same (except for the house arrest): the money managers got rich; the investors saw their money disappear.
We’re talking about a lot of money here. In recent years the finance sector accounted for 8 percent of America’s G.D.P., up from less than 5 percent a generation earlier. If that extra 3 percent was money for nothing - and it probably was - we’re talking about $400 billion a year in waste, fraud and abuse.
But the costs of America’s Ponzi era surely went beyond the direct waste of dollars and cents.
At the crudest level, Wall Street’s ill-gotten gains corrupted and continue to corrupt politics… Meanwhile, how much has our nation’s future been damaged by the magnetic pull of quick personal wealth, which for years has drawn many of our best and brightest young people into investment banking, at the expense of science, public service and just about everything else?
Most of all, the vast riches … undermined our sense of reality and degraded our judgment. Think of the way almost everyone important missed the warning signs of an impending crisis. How was that possible? … The answer, I believe, is that there’s an innate tendency on the part of even the elite to idolize men who are making a lot of money, and assume that they know what they’re doing.
After all, that’s why so many people trusted Mr. Madoff.
Now, as we survey the wreckage and try to understand how things can have gone so wrong, so fast, the answer is actually quite simple: What we’re looking at now are the consequences of a world gone Madoff.
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Tags: Bernard Madoff, Bubble Bursts, Divergence, Financial Superstars, Housing Bubble, Hypothetical Example, Incomes, Investment Industry, Money Manager, Ny Times, Paul Krugman, Paychecks, Philanthropist, Phony, Pillar, Ponzi, Richest Americans, Risky Assets, Toxic Waste, Wages
Posted in Markets | 1 Comment »
Healthy Diversion Brings Smiles
Thursday, December 18th, 2008
First Round Capital, a VC firm has created something really special here that proves that life’s simple pleasures are the best cure. Dancing, Laughter and Busting Loose are contagious. Check it out, click play to see for yourself. Its brilliant.
Merry Christmas!
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Tags: Christmas, Diversion, Laughter, Merry Christmas, Simple Pleasures, Smiles, Vc Firm
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Tom Stanley’s Investment Philosophy
Thursday, December 18th, 2008
Tom Stanley, founder of Resolute Funds, has earned a stellar reputation as one of North America’s greatest investors. This year has not been kind to investors in Canada and as of the end of November, it certainly was not kind to Tom Stanley either. But then, its been no one’s equity market, except if you’ve been short. For value investors and contrarians, the problem has been that stocks that were deemed to be cheap during last summer, have become cheaper, and much quicker too than anticipated, as equity market liquidation continued and as economic fundamentals deteriorated both in Canada and globally. It is discipline, however, that sets the best asset managers apart from the crowd, and Tom Stanley is perhaps one of the best there is.
We would like to share his investment philosophy with you. We have gratuitously taken the following information from the Resolute Funds website.
About Tom Stanley: After earning his undergraduate degree in Psychology at the University of Western Ontario, Tom Stanley completed his Master of Business Administration at York University. Tom entered the investment industry in 1980 and served as an Investment Advisor for “regular people”. He put a strong emphasis on educating the public on good investing practices. To this end, he taught investing at Ryerson University, Seneca College and at neighborhood YMCAs. He was also producer, host and moderator of the TV show “Your Business”.
In 1989, Tom became a Portfolio Manager and subsequently founded the Resolute Growth Fund in 1993. He continued serving as an Investment Advisor until 2004 when he retired from this position to focus solely on fund management. His twelve and a half years of managing the Resolute Growth Fund came to an end in 2006, when Tom made the difficult decision to terminate the Fund. At its last month end, Resolute Growth Fund enjoyed the best ten-year performance track record in North America for all funds tracked by Globefund & Morningstar. Tom currently oversees the Resolute Performance Fund, a private mutual fund sold by offering memorandum founded in 2005.
Here as published by Tom Stanley, are Tom Stanley’s ideals about investing:
There are many ways to be a successful investor. I have no claim that what has worked for me in the past will continue to work in the future, but I would like to share with you some of the principles I have learned over the past 25 years that have helped me become a better investor.
1. Be a Long Term Investor
Too much emphasis is placed on short-term fluctuations. It is easier to anticipate long-term trends.2. Have a Flexible Approach
Change is the only certainty and as markets change, one should change as well.3. Actively Look for Ideas
I find many of my best ideas; they don’t find me.4. Be Skeptical
Check facts directly. Strive to understand the bias and potential conflicts of interest among the sources that provide them.5. I Eat my Own Cooking
My only stock market investment is the Resolute Performance Fund. This aligns my interests with the rest of the unitholders.6. I Buy my Best Ideas
I prefer to buy only my best ideas.7. Filter out the Noise
One of the greatest challenges is to filter out the noise and use only what is relevant.8. Be Thrifty
Moderate costs facilitate moderate fees. Moderate fees facilitate performance.9. Outperform by Being Different
To have a chance of outperforming the market, invest differently than the market.10. Know Your Limits
It is just as important for me to know what I don’t know as it is to know what I know.11. Stay Humble
Stay humble or the market will make you humble.12. Being Small is an Advantage
It is easier to outperform being small.13. Apply Spiritual Principles
An important measure of one’s success is how much he benefited his fellow man.14. Investing is Not a Team Sport
The best decisions are rarely made by committee.
15. A Good Card Player Does Not Show His Hand
Confidentiality is essential for successful small cap investing.16. Too Much Emphasis is Placed on Precision
I don’t need exact numbers to make decisions.17. Be a Contrarian
Being a contrarian is harder in practice than in theory.18. Strive for Effective Rationality
Do the homework; know the facts; and make decisions based on the facts.
Here are some more of Tom Stanley’s thoughts on investment management:
Patience and Investing:
“Short term price fluctuations are generally unpredictable therefore, I cannot emphasize enough the importance of patience and investing for the long term.”Finding Ideas:
“Most of my best ideas don’t find me, I find them.”Stay Humble:
“If you don’t stay humble the market will make you humble.”Know What You Don’t Know:
“When investing; it is just as important to know what you don’t know as it is to know what you know.”Widely Held Beliefs:
“Some of my best successes have been betting against widely held incorrect beliefs.”Humility and Learning:
“Humility also means that one should seek out anyone you can learn from.”Only Buy the Best:
“Our most controversial investment practice that has received the most criticism is that we like to buy only our best ideas.”Flexible Investing:
“It is so important to have a flexible approach to investing. Markets change and by limiting yourself you take away many opportunities.”Regarding Performance Fees:
“If someone is paying us a reasonable management fee, I don’t think it is fair to take 20 or 25 percent of all of their profits just to show up everyday and do my job.”Soft Dollar Deals:
“I am dead-set against soft dollar deals. This reprehensible practice of receiving kickbacks on commissions spent should be banned.”Market Indices:
“We deliberately positioned the Fund to be different than the market indices, for to have a chance at outperforming the market you have to try to do something different than the market.”
Source: Resolute Funds
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Tags: Asset Managers, Degree In Psychology, Difficult Decision, Economic Fundamentals, Flexible Approach, Investment Advisor, Investment Industry, Investment Philosophy, Master Of Business, Master Of Business Administration, Morningstar, Offering Memorandum, Performance Track, Portfolio Manager, Resolute Funds, Resolute Growth Fund, Resolute Performance Fund, Ryerson University, Seneca College, Stellar Reputation, Term Fluctuations, Term Investor, Tom Stanley, University Of Western Ontario, Value Investors, Value Stocks
Posted in Markets, Oil and Gas | 1 Comment »
The Yield Curve is Flattening?
Wednesday, December 17th, 2008
Long-term government bond yields are dropping everywhere. Is anybody going this way?
Here is what some of the folks in the bond market are saying:
Eric Lascelles, Chief Economic and Rates Strategist, TD Securities Inc.: “It is remarkable, the speed at which this is happening,” said Eric Lascelles, chief economics and rates strategist for TD Securities Inc.
Stewart Hall, currency and fixed-income strategist with HSBC Securities (Canada) Inc.: “I think one of the overarching themes today is global recession.” On a positive note, “You have the Fed and other government agencies operating in an imaginative and innovative fashion to throw as much as necessary [at the problem] to get the economy back in track.”
Mark Chandler, fixed-income strategist with RBC Dominion Securities Inc.: “Long-term rates are playing catch-up in terms of the decline in yields we have seen in short-term bonds. There is limited downside in short-term yields.”The relatively greater drop in yields on long-term bonds compared with short-term bonds is a theme that could continue into the first half of 2009, Mr. Chandler said. In the parlance of bond traders, this is known as a yield curve flattener, as the difference in yield between short-term and long-term bonds narrows.
The decision by the Fed last week to buy $500-billion (U.S.) of agency guaranteed mortgage-backed securities, along with $100-billion of other agency (government-sponsored enterprises) debt, is a force acting to push yields down.
On an increasing basis, the Fed has been taking steps to manage through the U.S. housing crisis. The plan injects liquidity into the system, and frees up cash available for mortgage lending, as well as serving to lower U.S. mortgage rates. The rate of 30-year mortgages has fallen to 6 per cent last week from 6.5 per cent.
Less than two weeks ago, Federal Reserve Board chairman Ben Bernanke indicated that the Fed could also decide to buy longer-term U.S. Treasuries, which would reduce bond supplies, resulting in higher prices and a decline in yields.
From Bloomberg:
The 10-year note’s yield fell as much as 14 basis points, or 0.14 percentage point, to 3.37 percent. It traded at 3.40 percent at 3:04 p.m. in Toronto. The price of the 4.25 percent security maturing in June 2018 advanced 84 cents to C$106.86.
The yield on the two-year government bond dropped six basis points to 1.77 percent. The price of the 2.75 percent security due in December 2010 rose 12 cents to C$101.95.
The 10-year bond yielded 163 basis points more than the two- year security, down from 168 basis points yesterday. The so- called yield curve reached 184 basis points on Nov. 6, the steepest since May 2004.
Our thoughts are that Government of Canada bond yields which are still higher than those of comparable US treasuries will also come down over the next year, as investors seek the refuge of government securities (and Canada’s higher yields), on the Canadian as well as global recession trend. The current blows to the Canadian economy come as the Auto industry copes with the difficulties of the Big Three automakers, and in the commodities sector, with the decline in commodities prices that has led producers to consider shutting in mining and exploration projects, and laying off employees. On this basis, it seems far more likely that Canada’s yield curve could continue to flatten along with the US treasury yield curve, leading to higher bond prices and lower yields.
Levente Mady, a fixed-income strategist at MF Global Canada Co.: “Inflation doesn’t matter any more. It’s deflationary concern that’s underpinning the bid in the long end of the market. Yields are literally gravitating towards zero. It’s almost like it doesn’t matter if the news is good, bad or indifferent.”
Sources: Globe and Mail, Bloomberg
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Tags: Array, Ben Bernanke, Bond Traders, Bond Yields, Canada Inc, Federal Reserve Board, Federal Reserve Board Chairman, Global Recession, Government Bond, Government Sponsored Enterprises, Hsbc Securities, Lascelles, Mark Chandler, Mortgage Backed Securities, Other Government Agencies, Rbc Dominion Securities, Rbc Dominion Securities Inc, Td Securities Inc, Term Bonds, Term Yields, Yield Curve
Posted in Markets, inflation | No Comments »
Stock Markets: Is This It?
Wednesday, December 17th, 2008
The US Federal Reserve yesterday pulled out all the stops in a frantic effort to save the US economy from collapse and stem the deflationary forces. The Fed funds rate was slashed from 1% to a target range between 0 and 0.25% – the lowest the central bank’s key rate has been since records began in 1954.
In reality, the Fed is simply aligning its target rate with the effective rate and thereby pushing monetary policy into an era of Zirp, i.e. a zero-interest-rate policy.
The Federal Open Market Committee’s (FOMC) statement said the “outlook for economic activity has weakened further” from its previous meeting in late October, indicating that the “Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability”. The statement also discussed specific actions that would move the Fed further toward quantitative easing.
In my opinion, the Fed’s communiqué in reality signalled the large-scale monetizing of the US debt markets.
Hat tip: Mish, Global Economic Analysis
Sharing my sentiments, Bill King (The King Report) commented: “Ben Bernanke and the Fed just screwed everyone in the US, and some abroad, that played by the rules, was prudent and live on fixed incomes. Ben, just like Easy Al, is once again redistributing wealth from the prudent, the savers and retirees to the reckless and the boobs that created this mess. But the Fed, via its communiqué, is admitting that it is petrified of what is occurring in the economy and financial system so it is now in all-out money/credit dump mode.”
An e-mail just received from Bennet Sedacca (Atlantic Advisors Asset Management) said: The “Fed has declared war on prudence and savers and rekindled the ‘Moral Hazard Card’ – except this time, I believe they have created the largest moral hazard ever seen. Of note is that this intervention has occurred in the third week of the month (options expiry for the greatest impact – playing games with an already dysfunctional system that they created) and may force prudent, risk-avoidance types, to take risk, at precisely the wrong time.
“I respect markets, and will not sell short against this force that seems invincible, but as always, will remain cognizant of the Big Picture, one that Bernanke and Co. cannot see, it seems. In fact, it feels like they are making a mockery of our system, that they are desperate and will print enough dollars that will force other central bankers to do the same.
“With stated short-term interest rates at 0 (and likely to stay there for the foreseeable future), 30-year Treasuries at 2.7% and stocks at gargantuan price/earnings ratios, we will look to continue to protect our investor’s capital as we have done to date. I do not like being forced into a game of ‘Liar’s Poker’.”
With Treasuries and agency debt potentially subject to a great deal of price risk at these levels, and the US dollar appearing to be topping out, where does the Fed’s “betting the ranch” policy leave the stock market?
Firstly, for some historical perspective, the MSCI World Index and the MSCI Emerging Markets Index have improved by 18.9% and 23.2% respectively since the November 20 lows. As far as the US markets are concerned, the Dow Jones Industrial Index has gained 18.2% since the low, the S&P 500 Index 21.4%, the Nasdaq Composite Index 20.8% and the Russell 2000 17.1%.
In addition to the Fed’s attempts to inflate asset prices, there are a number of short-term positives for equities.
(1) The period post Thanksgiving through the end of the year has usually been a bullish time for stocks, based on studies by Jeffrey Hirsch (Stock Trader’s Almanac).
(2) With the exception of the Russell 2000 Index, all the major US indices yesterday breached their 50-day moving averages. Should the bullish seasonal tendencies provide a further tailwind, the next targets for the various indices are the November 4 highs and the key 200-day moving averages, as shown in the table below. On the downside, the December 1 lows (not shown in the table) must hold for the rally to remain intact.
The number of S&P 500 stocks trading above their respective 50-day moving averages has increased to 53.4% from almost zero in October. However, only 5.4% of the index constituents are trading above their 200-day lines.
(3) The CBOE Volatility Index (VIX) (green line) has declined from the 80s in October and November to 52.4 yesterday. It is not uncommon for short-term volatility to be at extreme levels at bottom turning points, and for stocks to improve as the “storm” grows quieter.
(4) I have mentioned in a previous post that “for a more lasting market turnaround to happen, I would like to see … a 90% up-day …” Yesterday was likely another 90% up day, the first since December 1. The Lowry’s figures are looking better and the Buying Power Index has just broken out above its declining trend line.
(5) Since the peak of the TED spread (i.e. three-month dollar LIBOR less three-month Treasury Bills) at 4.65% on October 10, the measure has eased to 1.83%. Although this measure is moving in the right direction, credit spreads need to narrow further to indicate that confidence is returning and liquidity is starting to move freely again.
(6) On a fundamental note, it is hard to get a grip on the “E” component of price-earnings multiples, but it will be remiss to ignore the fact that 39% of the constituents of the MSCI World Index sell at a discount to shareholders’ equity. “The cash-rich companies allow investors to pay nothing for future earnings streams,” said Jean-Marie Eveillard in an interview with Bloomberg.
(7) Markets have been shrugging off bad news since the poor ISM manufacturing and payrolls data of two weeks ago. I quoted Richard Russell (Dow Theory Letters) in my “Words from the Wise” review on Sunday, saying: “This is all the more dramatic since this potential upturn has arrived in the face of black-bearish news. Markets bottoming and rising in the face of bearish news are often the most profitable ones. I have never seen a bear market hit its low amid happy news headlines.”
Notwithstanding the improvement since the November lows, it remains too early to tell whether a secular low has been recorded. The chart below shows the long-term trend of the S&P 500 Index (green line) together with a simple 12-month rate of change (or momentum) indicator (blue line). Although monthly indicators are of little help when it comes to market timing, they do come in handy for defining the primary trend. An ROC line below zero depicts bear trends as experienced in 1991, 1994, 2000 to 2003, and again since December 2007.
Stock markets are still caught between the actions of central banks furiously fending off a total economic meltdown on the one hand, and a worsening economic and corporate picture on the other. The rally may have more legs, but failing further technical and fundamental evidence, I remain distrustful as to whether “this is it”.
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Tags: Available Tools, Ben Bernanke, Bill King, Debt Markets, Deflationary Forces, E Mail, Effective Rate, Fed Funds Rate, Federal Open Market Committee, Fixed Incomes, Fomc Statement, Frantic Effort, Global Economic Analysis, Interest Rate Policy, Moral Hazard, Open Market Committee, Sustainable Economic Growth, Target Range, Target Rate, Zero Interest
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Hugh Hendry: Commodities Stocks to Remain Weak?
Tuesday, December 16th, 2008
Hugh Hendry, the eloquent and outspoken CIO, Eclectica Asset Management, in an appearance on CNBC’s PowerLunch (Dec. 10) shares his thoughts on agriculture commodities stocks such as Potash, and Syngenta.
Among other things, Hendry makes a forthright confession that he was wrong earlier this year to make the call to be long commodities stocks. He continues on to say that when he realized he was wrong, he promptly sold them too. Hendry runs a long-only Agriculture fund, as well as his primary hedge fund, and has been controversial in some of his choices to oppose his funds’ mandates at times in favour of cash or government securities.
His main quid pro quo is his caution that although commodity stocks could revisit highs, we could be waiting as many as 10 years for it. Its a must watch.
In a 7-minute segment earlier the same day, Hendry discussed the idea that as the financial crisis deepens, civil liberties are curtailed by governments eager to put an end to falls in share prices and economies. This is an insightful discussion, a must-watch.
“The government has gone to war, it is an economic war. And in a war the government takes a larger and larger role in the society. That’s fine, you have to accept that,” Hendry said. “What is concerning is the erosion of civil liberties.”
The ban on short-selling financial securities in the UK is one example of erosion of civil liberties, another is a statement made in parliament last week which opens the way to silencing the press during financial crises.
The Treasury Select Committee said that it will look at the role of the media in financial stability and whether financial journalists “should operate under any form of reporting restrictions during banking crises”.
“We’re only a year into this and suddenly, already, our liberties are being brought back, brought in,” Hendry said.
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Tags: 10 Years, Agriculture Commodities, Array, Asset Mana