Finance Trends Matter

How Dubai is affecting global markets

2009-11-27T11:39:00.007-06:00

Catching up with some news today. The main theme in my Twitter stream yesterday and into this morning has been Dubai.

Specifically, markets around the world have been moving on news of Dubai World's debt restructuring (possible delay of debt repayments) and what that could mean for Middle Eastern and emerging markets in a larger sense.

More from Financial Times, "Dubai sends markets into turmoil":

"Stock markets around the world were convulsed yesterday as investors scrambled to understand the implications of Dubai World's restructuring and unexpected debt standstill.

The lack of information about Dubai's flagship government-owned holding company, made worse by a religious holiday in the Middle East, prompted indiscriminate selling of stocks linked to the region. The cost of insuring against default in emerging markets around the world also leapt...

With trading volumes low because of the Eid holiday and US Thanksgiving, investors moved into safer assets, pushing up prices of traditional havens such as government bonds...

Investors said that the lack of information about the debt standstill, announced on Wednesday, was the key factor sparking the wider turmoil. "

Adding to our earlier theme of sovereign debt default, Bloomberg notes that Dubai's debt problems may trigger a major sovereign default if the problems are not contained within the emirate's corporate sector.

"Dubai’s debt woes may worsen to become a “major sovereign default” that roils developing nations and cuts off capital flows to emerging markets, Bank of America Corp. said.

“One cannot rule out -- as a tail risk -- a case where this would escalate into a major sovereign default problem, which would then resonate across global emerging markets in the same way that Argentina did in the early 2000s or Russia in the late 1990s,” Bank of America strategists Benoit Anne and Daniel Tenengauzer wrote in a report.

A default would lead to a “sudden stop of capital flows into emerging markets” and be a “major step back” in the recovery from the global financial crisis, they wrote..."

Of course, this seems to be analysts' worst-case scenario for debt markets and emerging markets, but it seems all eyes are currently on Abu Dhabi to determine if there will be some sort of bailout for its neighboring emirate, Dubai.

Is sovereign debt the new subprime?

2009-11-23T14:55:00.005-06:00

Will sovereign debt be the new subprime? This the question posed by Gillian Tett in today's FT:

"A few weeks ago, Claudio Borio, head of research at the Bank for International Settlements, warned in a solemn note to Group of 20 leaders that modern financial policymakers are "driving while just looking in the rear-view mirror": western finance officials have focused so much on past risks that they fail to spot new dangers.

Worse still, as policymakers rush to implement reforms in response to one financial calamity, they are apt to create distortions that pave the way for the next disaster. Just such an unintended consequence could now be festering in the banking sector, as its balance sheets are increasingly stuffed with government bonds.

These days, there is a near-unanimous belief among western regulators that one way to prevent a repeat of the 2007-08 crisis is to stop banks taking crazy risks with subprime mortgage bonds or complex instruments such as collateralised debt obligations (CDOs). Instead, banks are being urged to hold a higher proportion of their assets in the form of "safe" instruments, most notably sovereign or quasi-sovereign debt..."

Read on at the link above for Tett's explanation of why government bonds may prove to be more of a risky trap (a la subprime MBS) than a "risk-free" investment.

Speaking of subprime and the problems it hath wrought: if you want to take a quick jog down memory lane to the (relatively) innocent days of summer 2007, check out our post, "Asset backs, subprime: shades of 1990?".

You may also find some additional worthwhile reading on the subject of looming sovereign risk in our related articles section below.

Related articles and posts:

1. Sovereign risk and UK credit ratings - Finance Trends.

2. Sovereign bankruptcies will rise - Puru Saxena at FSO.

3. Marc Faber on sovereign risk (Bloomberg) - Finance Trends.

4. Jim Rogers agrees with Marc Faber (CNBC) - Fund My Mutual Fund.

John Paulson's new gold fund + lessons

2009-11-20T07:28:00.002-06:00

It's been a big week for the cottage industry of John Paulson-watching.

The Paulson & Co. fund manager is set to launch a dedicated gold and gold mining equity-focused fund at the start of next year, in which he'll invest $250 million of his own money.

You may recall that Paulson's earlier forays into gold ignited a new rush into gold by hedge funds and investors piggybacking on the trades of sophisticated hedge fund managers. JP's new fund signals his continued positive outlook for the precious metals sector over the intermediate to long-term.

That's not all that's happening in the world of John Paulson. Investors have pored over his firm's recent 13-F filing and letter to investors, while his comments on Bank of America (Paulson & Co.'s largest position in the financials sector) have fueled publicity over a divergence of opinion with bank analyst Meredith Whitney on the stock's outlook.

Plus, there are gathering opinions on Gregory Zuckerman's new book, "The Greatest Trade Ever", which details the fund's (now legendary) short subprime CDS bet, and its role in pushing Paulson & Co. into the investment world limelight.

If that's not enough, you can also catch Zuckerman's recent Wall St. Journal piece adapted from that book, or check out Eric Jackson's fine article, "What John Paulson could teach us". This is one I'm currently reading, and it contains some great insights on the team (including Paolo Pellegrini) that put together Paulson & Co.'s housing trade strategy. Do take a look.

Related articles and posts:

1. John Paulson: The man who made too much - Portfolio.com.

2. John Paulson in Bloomberg Markets - Finance Trends.

Bruce Berkowitz 'Wealthtrack' interview

2009-11-18T19:06:00.004-06:00

Value investor and Fairholme Fund founder, Bruce Berkowitz sits down for an interview with Consuelo Mack on 'Wealthtrack'.

Thanks to Prieur at Investment Postcards for highlighting this interview, which offers a nice glimpse into Berkowitz' value investing style.

Check out the clip to hear Bruce's rules on investing, his thoughts on Berkshire Hathaway, and why Warren Buffett may be making a "brilliant" investment with his Burlington Northern acquisition.

When you're done with that, you can peruse our related posts for much more with Bruce and the aforementioned Berkshire Hathaway value investing greats. Enjoy!

Related articles and posts:

1. Bruce Berkowitz talks with Steve Forbes - Forbes.

2. Lessons from Warren Buffett - Finance Trends.

3. Lessons from Charlie Munger - Finance Trends.

Hugh Hendry Eclectica fund letter (November '09)

2009-11-17T12:48:00.005-06:00

John Mauldin highlights investor Hugh Hendry's November commentary in his latest "Outside the Box" column.

Hugh covers a lot of ground in this missive (I'm still trying to finish the letter as I write this), with comments on the great inflation-fueled rallies in commodities and stocks, the state of the global economy, the state of the Japanese, Chinese, and US economies, and more.

Here's the leadoff from Hendry's recent letter:

"This month I will attempt to answer the entrance examination for the Chinese civil service. That is to say, I will attempt to tell you everything that I know. In doing so, I will argue that this year's rally in inflationary assets, from emerging stock markets to industrial commodities to the fall in the US dollar, could be a FAKE. Let me explain why..."

Check the link above to read on for more. You can also view the November Ecletica Fund letter here on Scribd. See our related posts section for more interviews with Hugh Hendry.

Related articles and posts:

1. Hugh Hendry interview with FT.com - Investment Postcards.

2. Stocks, gold, & a legacy of debt: Hendry - CNBC.

3. Hugh Hendry on banks & govt. intervention - Finance Trends.

Marc Faber BNN interview

2009-11-13T12:53:00.004-06:00

Market strategist and investor, Marc Faber joins Canada's BNN from Vancouver to talk about the economy and his outlook for investment markets.

Marc begins by talking about the growing disconnect between the real economy and the stimulus-driven speculative activity in various asset classes (commodities, share markets) worldwide.

You'll also hear Marc's thoughts on employment trends, US manufacturing, inflation, Ben Bernanke's role in destroying the US dollar, gold and commodities, and much more. Enjoy the clip.

Market Shrinkology: poker & trading

2009-11-11T12:19:00.006-06:00

If you missed last night's episode of Market Shrinkology (on Stocktwits TV) with Dr. Phil Pearlman, you missed a good one. That's why I'm posting it here for your archived enjoyment.

I've been recommending Phil's show lately to a few of my friends as I'm consistently impressed with the show's (and the channel's) no-frills, lo-fi, DIY approach. There are no fancy lights or makeup, no contrived set designs or teleprompters, just live web TV with a ton of interesting ideas and live feedback from the Stocktwits user stream.

As you'll see in this episode, poker and trading were actually secondary themes in a discussion on Prospect Theory, "rational aggression", and the relationship between fear and greed.

Still, there is some very interesting info here on position sizing and money management in poker and trading, with particular reference (from host and viewers) on the philosophies of poker player Doyle Brunson and trader Jesse Livermore. Plus, a few thoughts on the importance of keeping accurate and organzied trading records.

Enjoy the program, and check out Stocktwits TV for more shows done by traders, for traders.

Related articles and posts:

1. Poker investing: Jeff Yass of Susquehanna - Finance Trends.

2. Dasan on poker and investing - Finance Trends.

Trade war brewing for China & US?

2009-11-09T14:05:00.001-06:00

You might have noticed some headlines over the weekend about protectionist back-and-forth between China and the US.

Specifically, the issue at hand centered on US tariffs imposed on Chinese steel goods and a resulting Chinese probe into US car imports. Of course, this is just the latest chapter in a growing list of Sino-US trade disputes.

However, Monday's news that a US trade panel has rejected an investigation into imports of Chinese steel fasteners may go some way to smoothing over latest tensions.

The timing of this trade debate is especially noteworthy as US President Barack Obama is scheduled to make his first trip to Asia next week, with stops in Beijing and Shanghai.

In the meantime, let's take a look at this post, "Is There a Trade War Between China and the US?", from Jim Gobetz (aka Aiki14) which examines trade practices between China and the US from both sides.

Interview: John Perkins (Economic Hit Man)

2009-11-08T18:12:00.006-06:00

Matt Davio at MissTrade interviews John Perkins, author of Hoodwinked and Confessions of an Economic Hit Man.

Some interesting ideas shared here on US foreign policy and the alleged role that economic consultants/"hit men" (as Perkins tags his former career) play in shaping the fates of many across the globe.

If you'd like to hear more about Perkins' life as an "Economic Hit Man", check out this Financial Sense Newshour interview from 2005 (soon after his famously titled book was released).

You may also want to check out some additional interviews from Davio's Trader Talk series. Discussions with traders Brian Shannon, Fari Hamzei, and Phil Pearlman are just a few that I have enjoyed.

Another Fed day, another dollar

2009-11-04T15:15:00.003-06:00

Market chatter and action today has been (predictably) dominated by the spectacle of yet another Fed announcement day.

Today's shocker: rates are left unchanged near zero, with talk (from the high priests in media and central banking) of some kind of unfolding economic recovery (one supported by "stimulus" and accompanied by high unemployment rates for the next couple of years).

Actually, I spent very little time focusing on this subject today, aside from catching up with some amusing and informative tweets on the market impact from the likes of Howard Lindzon, Tradefast, and others in my Twitter stream.

Good to know there are people keeping up with some of this stuff (Fed's impact on yield curves, equities) when you need a quick refresher and a bit of insight from those in the know. This is one of the areas in which my Twitter community and favorite blog lists really stand out.

I'm also checking in with BMB's market wrap (hot off the Wordpress) for an overview of the day's action and a look at what may lie ahead for the stock market in the coming days.

What I'd really like to do is revisit this January 2009 piece from Bronte Capital, "Zero in Japan versus zero in America", and find some more recent material on the differences between ZIRP Japan and ZIRP US in the late 2000's. This is an area I could stand to learn more about, so look for updated notes in the comments section (or please add thoughts/links of your own).

To hell with the TV news, I will be searching the blogosphere and online print and journals for more on this.

Jim Rogers interview with FT.com

2009-11-02T10:48:00.009-06:00

Over the weekend, FT reported that investor Jim Rogers expects a currency crisis in the next 1-2 years.

Rogers did not say which currency would be the focus of the crisis, but felt rather certain that such an event would occur due to global imbalances and the problems of the financial crisis being "papered over" rather than solved.

Jim also sat down with FT.com for a video interview on their "View From the Markets" series.

You can click the image or text link to hear Rogers discuss the US dollar, the next currency crisis, Chinese shares and the renminbi, and more with the FT. Enjoy the interview.

Happy Halloween! Welcome Great Pumpkin

2009-10-30T13:59:00.002-05:00

Earlier in the week I noticed we were suddenly getting a batch of Google image search traffic into our October 2007 post archive. When I looked at the link, I was quickly reminded why: "It's the Great Pumpkin, Charlie Brown!".

Since watching the Peanuts Halloween special is a Finance Trends tradition going back to 2006, I had to update the post's video link and, of course, watch it again for myself!

Let's all watch it together and find out if the Great Pumpkin appears this year. Enjoy the show!

Jeremy Grantham GMO 3Q letter

2009-10-29T11:20:00.004-05:00

GMO chief investment strategist, Jeremy Grantham is out with the firm's latest missive to investors; the GMO quarterly letter for 3Q 2009 is available at the GMO website and at Zero Hedge.

For a quick preview, here are some excerpts from Business Insider:

"The idea behind my forecast six months ago was that regardless of the fundamentals, there would be a sharp rally [to S&P 1000-1100]. After a very large decline and a period of somewhat blind panic, it is simply the nature of the beast. Exhibit 1 shows my favorite example of a last hurrah after the ﬁrst leg of the 1929 crash…

Today there has been so much more varied encouragement for a rally than existed in 1930. The higher prices preceding this crash (that were far above both trend and fair value) had lasted for many years; from 1996 through 2001 and from 2003 through mid-2008.

This time, we also saw history’s greatest stimulus program, desperate bailouts, and clear promises of years of low rates. As mentioned six months ago, in the third year of the Presidential Cycle, a tiny fraction of the current level of moral hazard and easy money has done its typically great job of driving equity markets and speculation higher.

In total, therefore, it should be no surprise to historians that this rally has handsomely beaten 46%, and would probably have done so whether the actual economic recovery was deemed a pleasant surprise or not.

Looking at previous “last hurrahs,” it should also have been expected that any rally this time would be tilted toward risk-taking and, the more stimulus and moral hazard, the bigger the tilt. I must say, though, that I never expected such an extreme tilt to risk-taking: it’s practically a cliff! Never mess with the Fed, I guess…"

Catch the full report at the links above. Should be an insightful read, as always.

Related articles and posts:

1. Jeremy Grantham: first TV interview - Finance Trends.

2. Seasoned investors search for value - Finance Trends.

3. Grantham profiles in Barron's, Financial Times - Finance Trends.

Links: history, present, and future

2009-10-28T12:43:00.007-05:00

Sharing some of the more interesting links and stories that I've come across (or revisited) this week.

We've got Paolo Pellegrini on US debt, an honest and brief overview of the global energy picture, a comparative look at China and the US, and much more. Enjoy the links.

1. Paolo Pellegrini says shorting US debt "attractive bet" - Bloomberg.

2. Capitalism, Socialism, or Fascism? - Washington's blog.

3. Leonard Kleinrock: Mr. Internet (interview) - LA Times.

4. The Truth about Energy - Puru Saxena.

5. The "democratization of credit" is over - John Rubino.

6. Why the Dreyfus Affair Matters: Louis Begley interview with Bloomberg.

7. Niall Ferguson: US on collision course with China.

8. Gore Vidal thinks the US is headed for dictatorship.

9. Milton Friedman makes the case for limited government (PBS).

Jeff Saut on "Permanent Investments"

2009-10-26T15:38:00.002-05:00

Checking out this article from Raymond James strategist, Jeff Saut, on the "Intrigue of Permanent Investments" (hat tip: Derek Hernquist).

There are some very interesting comments here on gold, farmland, and the "intriguing concept" of a permanent investment portfolio - if such a thing can ever really exist.

Rather than spoil the surprise (or front-run the excellent Bernard Baruch story), we'll let you read it for yourself. Enjoy the article!

Related articles and posts:

1. Tangible Investments - Financial Sense Online.

2. Unloved, Undervalued, & Underowned - Jim Puplava at FSO.

Warnings on Euro hedge fund regulation

2009-10-23T11:55:00.004-05:00

Highlighted this Financial Times article on Twitter yesterday; certainly wanted to mention it here as well.

This story on proposed European regulations of the hedge fund and private equity industries and its likely effects may also reverberate here in the US. Here is an excerpt from, "ECB warns Brussels on hedge fund rules":

"Europe’s controversial plans to regulate hedge and private equity funds were dealt a fresh blow on Thursday when the European Central Bank warned the proposals would put the industry at a significant competitive disadvantage.

The opposition voiced by the Frankfurt-based ECB, which feared a go-it-alone approach in Europe would backfire, is likely to be seized upon by the alternative investment fund sector – and influence the extensive re-writing of the proposals that is already under way.

Hedge funds have warned that business could be driven out of Europe as a result of the plans to regulate the sector for the first time on a pan-continent basis."

As we read on, the article seems to convey the notion that the problem lies not with this new layer of burdensome industry regulation, but the possibility that other regions may not move quickly enough to join Europe in adopting similar rules and restrictions.

You can see where this is going: the now commonly-cited fear of "regulatory arbitrage" rears its head once again. In other words, Europe doesn't want to be the only one to pass potentially restrictive industry legislation; they want to make sure the USA and other nations will institute similar rules ("harmonize") so that affected hedge funds and LBO firms have fewer places to relocate.

"In a legal opinion published on its website, the ECB warned that funds could simply shop around to find a country where the policing of the sector was less stringent. “An internationally co-ordinated response is necessary given the highly international nature of the industry and the consequent risks of regulatory arbitrage and evasion,” it said."

We also see this trend towards incremental global regulation unfolding in a number of areas outside of finance, but our focus today is the current and future regulatory environment for hedge funds and private equity.

What is likely to happen in this area in the year ahead? Your thoughts and insights on this issue are certainly welcome here, readers.

Julian Robertson interview at FT.com

2009-10-21T11:59:00.003-05:00

Tiger Management founder and hedge fund legend, Julian Robertson sits down for an interview with FT.com's "View from the Top".

On tap for this discussion: Robertson's views on US debt and our reliance on foreign creditors (especially China), lessons from the tech bubble, risk control and avoiding "the big loss", the future of the hedge fund industry, and even his outlook on gold and gold mining shares.

Speaking of the precious metal and its allure to savers and investors, Julian says, "I don't believe in gold". Despite being bullish on the outlook for gold mining shares, Robertson dismisses gold as a worthwhile inflation hedge.

Interestingly, he comments that gold is a "psychological store of value" and that a psychiatrist would be better suited to understanding its appeal. I say interesting, because this is exactly the topic Dr. Phil Pearlman (trader and psychologist) took on in a recent episode of "Market Shrinkology" on Stocktwits.tv. This is a very worthwhile discussion in itself, and it provides an excellent contrast to some of Julian Robertson's views on gold.

Enjoy the interview, and be sure to check out the related links below for more on Robertson's views and investment strategies.

Related articles and posts:

1. Replicating Julian Robertson's CMS trade - Marketfolly.

2. Julian Robertson: CNBC interview - Finance Trends.

Gold's inflation adjusted high: $2,000+

2009-10-19T14:05:00.004-05:00

Here's an article on gold from Bloomberg that we highlighted on Twitter this morning. It notes that gold's recent nominal high of $1,072 an ounce still puts it well under the 1980 inflation-adjusted peak.

For gold to surpass that peak in real (inflation-adjusted) terms, it would have to climb north of the $2,000 an ounce mark. More on that from Bloomberg:

"Gold’s rally to a record means prices are still 53 percent below the 1980 inflation-adjusted peak.

While gold rose 19 percent this year to $1,072 an ounce on Oct. 14, consumer prices almost tripled in the past three decades, eroding the metal’s value. Bullion hasn’t kept pace with the cost of bread, fuel or medical care. In 1980, gold hit a then-record $873 an ounce. In today’s dollars, that would be $2,287, according to the U.S. Labor Department’s inflation calculator..."

However, I take exception to the statement that "consumer prices tripled...eroding the metal's value". If anything has been eroded over time, it is the purchasing power of the dollar (and other fiat currencies like it). Those who study gold know that over long periods of time, the precious metal does remarkably well as a store of value and preserver of purchasing power.

The basket of goods or services that you can buy with an ounce of gold today, versus what you could buy with an ounce of gold in 1980, or in 1880, for that matter, remains relatively constant. There are changing tides in valuation, of course, when an ounce of gold will buy so many more (or less) barrels of oil, or so many shares in the Dow (figuratively speaking).

Unlike an inflated fiat currency, whose value is continually eroding over time, gold will retain its role as a store of value and maintain its purchasing power when the prices of a given asset or quality good come back in line with their historical mean. You can look to the Dow/Gold ratio chart for an example of this property illustrated over time.

One other quick point to mention. During the run of this current gold bull market, I've often heard comparisons made regarding gold's current price in relation to its inflation-adjusted 1980 high. What often seems to be missing from the discussion is the fact that the 1980 high was just that: a peak price high that came at the end of a parabolic spike in gold (as measured in US dollars).

Right now we are in the middle of a bull move in gold prices. We don't know when this current move will end, but for now it may be more instructive to use middle to latter portions of past gold bull markets (for example, 1975-1978 vs. 2006-2009), rather than past peaks, when comparing current nominal gold prices and inflation-adjusted prices.

At some point, gold may run up quickly to "catch up" with monetary inflation, but it's difficult to foretell such a move. In fact, noted gold watcher, Paul van Eeden points out that there may actually be too much of an "inflation fear" premium built into the current $1,000+ gold price.

I'm a little rusty and need to brush up on some of these points, so further study is needed here. If our readers have any insights to share on gold's purchasing power in relation to past highs or previous decades, I'd definitely appreciate their sharing them with us.

Marc Faber on investment strategy (Bloomberg)

2009-10-16T11:59:00.003-05:00

Famed investor and market commentator, Marc Faber joins Blooomberg TV to talk investment strategy.

There is an interesting and lengthy discussion of the inherent worth of the US dollar and other fiat currencies, and why paper currencies are losing their purchasing power against most asset prices, especially gold.

You'll also find an update on Marc's view of Intel shares and technology, along with his views on natural resource shares and why you should try to focus on buying assets and shares when prices are depressed.

Related articles and posts:

1. Marc Faber on Lateline Business - Finance Trends.

2. Marc Faber: Another Case for Inflation - Financial Sense Newshour.

Dow 10,000, we meet again

2009-10-15T12:52:00.004-05:00

Being plugged into the market chatter on Twitter and Stocktwits, it was hard to avoid yesterday's talk (often dismissive) of a return to Dow 10,000.

So now we're back to the vaunted high number mark that serves to remind us of the glory days of the dot.com era & the possibility for an even higher 5 digit readout in the not-too-distant future. But what does Dow 10,000 really mean, if anything at all?

Noting the fact that inflation over the past decade has reduced our purchasing power by at least 20-30 percent, we should remind ourselves that a trip back to a nominal high in a widely followed market average does not automatically translate to money in our pockets.

Reflecting on these thoughts yesterday, I went off to dig up my old copy of the Wall Street Journal from March 30, 1999, the first time the Dow Jones Industrial Average crossed 10,000. I could not find that old paper, but I did find this interesting article instead.

Excerpt from, "Dow 10,000 and the Lost Decade":

"I have made it a habit to save the print edition of the Wall Street Journal on certain key dates including March 30, 1999, the day after the Dow Jones Industrial Average (DJIA) first crossed 10,000.

Although the DJIA is a flawed benchmark, no other index has captured the imagination of the public to the same degree. As we again approach the 10,000 level, there appears to be no shortage of commentators ready to discuss what this means for the overall market. It comes as no surprise that value investors attach no particular significant to round numbers for individual stock quotations or for market indices.

However, it is hard to avoid recognizing the obvious fact that the past decade has seen very disappointing returns for index investors given that stocks started the ten year period at very high valuations. This is true of many individual DJIA components as well..."

Read on for a very interesting look at the market's performance over the past decade, along with some worthwhile notes on the changes we've seen in media, business, and the debt and commodity markets over that time frame.

Related articles and posts:

1. The great "bear market rally" post - Finance Trends.

2. The Invisible Crash: book review - Financial Sense.

FSN inflation vs. deflation debate updates

2009-10-14T13:12:00.003-05:00

We recently called your attention to the inflation vs. deflation debates aired on the Financial Sense Newshour.

Some of the interview guests in the debate included Mike "Mish" Shedlock, Daniel Amerman, and Marc Faber. Earlier broadcasts included inflation vs. deflation arguments from Bob Prechter at Elliot Wave and Peter Schiff.

FSN host Jim Puplava recently concluded the debate series by replaying segments of these broadcast interviews, and offering his own views on the likelihood of a future US inflationary or deflationary environment. I won't hesitate to add that, in spite of Puplava's partiality to the inflation side of the debate, you'll be hard pressed to find a fairer or clearer treatment of these arguments.

If you caught any of the earlier broadcasts, or would just like an overview of this broadcast debate, check out this excellent macro overview (part one, part two) on the great inflation vs. deflation debate.

FT Alphaville: Debt and dollar's demise

2009-10-12T14:05:00.004-05:00

Over in London, at the FT Alphaville blog, they're talking about the US' federal debt (now $11.9 trillion or $38,000 per citizen) and the fact that we are fast approaching the point at which the government will once again have to raise its "debt ceiling" past the current $12.1 trillion mark.

More from Alphaville on the implications for the US dollar:

"...Fine, but what would an increased debt limit actually mean for the US exactly?

Well, for a start it effectively `kicks the can’ of the debt problem to the next generation.

But it could also have more near-term implications — namely a massive effect on the US dollar — a currency already under pressure from the Federal Reserve’s unconventional monetary policies and journalists from The Independent...."

Will we see a dollar devaluation in the not-too-distant future? Read on if you're up for a rather dour view on the US' ability to deal with its "gigantic and excessive levels of debt".

Related articles and posts:

1. Reasons to raise the debt ceiling - James Altucher at WSJ.com

2. Killing the goose - John Mauldin at Goldseek.

Features of the Week

2009-10-09T15:00:00.004-05:00

It's been a while since we last updated our regular linkfest, but have no fear: "Features of the Week" is here. Enjoy the market-fueled goodness.

1. Jim Rogers chats with Pimm Fox about commodities, inflation, and the outlook for global equity markets - Bloomberg.

2. Hedge fund managers are cautious on market rally while real economy is shrinking; see liquidity driven market - FinAlternatives.

3. David Rosenburg fumes over the bear market rally - FT Alphaville.

4. The rise and fall and rise of US cities (interactive graphic) - Infectious Greed.

5. In depth interviews with Jim Chanos - Marketfolly.

6. Are gold and US Treasuries in conflict? - Gregor.us.

7. Don't miss MacroTwits discussion hour with GregorMacdonald, Sundays at 9 pm EST - Stocktwits TV.

8. Has anyone noticed that silver is up 56% year to date? - Reuters.

9. Be sure to check in with Upsidetrader and Abnormal Returns for more excellent weekend linkfests.

Thanks for reading Finance Trends Matter. You can also keep with us via RSS and on Twitter. Have a great weekend!

Bill Fleckenstein: wary of dollar, long gold

2009-10-08T18:38:00.004-05:00

William Fleckenstein has some very interesting things to say about the US dollar, gold (with quotes from John Paulson), and an impending turn in inflationary psychology in this new Minyanville article.

Bill is also seen here in this Bloomberg TV interview, explaining why he is currently long gold stocks and looking for future short opportunities in the market.

He also makes a few choice points about the Fed's culpability in bringing about this financial crisis, and why we can't "print our way to prosperity". Check it out.

Related articles and posts:

1. Bill Fleckenstein on PPIP, inflation - Finance Trends.

2. FSN interview w/ Bill Fleckenstein - Finance Trends.

Gold rises to new record price

2009-10-07T11:17:00.013-05:00

Certainly one of the biggest stories of yesterday's market action is carrying over to today; gold's breakout to new record highs.

We spoke quite a bit about gold in yesterday's Twitter stream, noting that gold's latest upsurge has come amidst a global tide of inflationary worry and growing anti-fiat money sentiment. This is quite remarkable, as much of gold's rise this decade was, previously, widely perceived as a "weak dollar story".

Reuters shares this quote from gold watcher and newsletter writer, Dennis Gartman:

"Gold's rise is not a dollar phenomenon but an "anti-currency" phenomenon as money is flowing away from almost any and all currencies.".

Interestingly enough, today's coverage from the Financial Times seems to take an opposing tack, quoting an analyst who noted the lagging performance of gold in euro terms:

Eugen Weinberg of Commerzbank said: “The fact that the rally of gold prices is mainly attributable to the weak US dollar at the moment is clear if we look at the price of gold in euro terms. At €710 a troy ounce, this is still 10 per cent lower than the all-time peak recorded in February 2009.”"

However, Bloomberg's article coverage of gold's new price highs yesterday cited inflation as a mounting global concern, alongside quotes from analysts and investors who noted the metal was acting as "a hedge against all currencies".

It's been a while since we covered the gold market in depth, but then a round of all-time highs usually seems to get everyone's attention. For more on the subject, please have a look at these previous gold commentaries in the related articles section below.

Related articles and posts:

1. John Paulson, hedge funds move into gold - Finance Trends.

2. Gold's place as a reserve currency - Gillian Tett via Gata.org.

3. Gold hits all-time highs (Jan. 2008 roundup) - Financial Sense.

4. The Invisible Crash: book review - Financial Sense.