SPECIAL $5/BUSHEL CORN ISSUE

Featured Trades: (GOLD), (SILVER)

2) Silver Blasts Through $21! Gold hit a new high too at $1,284, and the yellow metal seems hell bent on taking out $1,300 before it takes a rest. The street was bubbling today with rumors of some leveraged gold traders getting margin calls on their shorts. A major incentive last week was Japan's massive $21 billion intervention in the foreign exchange markets to drive down the yen. Some believe that this is only the opening shot in a global attempt at quantitative easing in the run up to the November elections that will debase all paper currencies to the benefit of all hard assets.

The silver move carries broader implications in that with 50% of demand coming from the industrial sector, strength here suggests that the economy may be stronger than the 'double dippers' realize. I never have been of the double dipper persuasion myself, instead believing that we would get real growth, but growth that is a shadow of its former self (click here for 'Here Comes the Square Root Shaped Recovery').

However, I did expect several double dip scares. That's why I was pulling the fire alarm about equity exposure in April (click here for 'How Can the US Go Up and China Go Down' ). Such a scare certainly showed its ugly face this summer. Perhaps investors are looking at the chart below of ten year returns by asset class showing that gold has been trouncing all comers since 2000, with the yellow metal bringing in a blistering 343% return, versus a 31% loss for the S&P 500.

Featured Trades: (GOLD), (ABX), (AU), (GLD)
SPDR Gold Trust Shares ETF

2) More Reasons to Buy Gold. As a four decade observer of the global financial markets, I often see a situation where the higher a price goes, the more reasons for it to rise come out of the woodwork. That is happening with gold now.

Yesterday, I learned that Anglo Gold Ashanti is spending $1.375 billion to take its gold hedges off. The obvious implication here is that they have studied the long term supply and demand for the lustrous product, and believe that the downside risk no longer exists. When an organization with far more massive resources than I reaches such a conclusion, should I follow suit? Barrack Gold (ABX) did the same a year ago, and the move was one of the sparks that ignited the jump in the yellow metal from $950 to $1,200.

And then I read in the Financial Times today that central banks are planning to buy 15 tonnes of the barbarous relic in 2010, flipping them from net sellers to net buyers for the first time in 20 years (click here for my piece predicting this seven months ago). For the past decade, central banks averaged 442 tonnes/year in sales. Gone are the perpetual rumors of the elusive 400 tonne IMF sale that overhung the market. It seems the list of emerging market central banks loading up on gold is growing by the day. I think the outlook for the value of my gold teeth is looking pretty good these days.

SPECIAL GOLD ALL TIME HIGH ISSUE

Featured Trades: (YEN), (FXY), (YCS)
ProShares Ultra Short Yen ETF

3) Japan Draws its Line in the Sand for the Yen. The Bank of Japan ambushed the foreign exchange market, gaping the yen three hands from the high ?82's to the ?85's by dumping hundreds of millions of dollar in a matter of minutes. It is the first time the central bank resorted to such a drastic move in six years.

As a career dollar/yen trader, I have seen this movie play many times. Wait for the market to take on a maximum position short, slam the market the other way, literally taking the money away from the speculators through trading losses. The first several attempts usually fail, and traders pooh pooh the effectiveness of such a strategy. But in the end, the government always wins out, as it can print unlimited amounts of money for free.

Sure there is an inflation risk down the road if the BOJ does this in an unsterilized manner. But after two decades of deflation, I doubt if anyone in Japan can even spell inflation.

Japanese prime minister Naoko Kan set up this move by handily beating challenger Ichiro Ozawa for control of the ruling? Democratic Party of Japan (DPJ) in elections on September 14. There was a time in my life when I could go on for pages about the intricacies of the factional infighting that is going on in the sushi bars of Nagato-cho, where the country's government is located. That time is long past, and I'm sure you don't care anyway. Suffice to say that from the foreign exchange market's point of view, inaction won and intervention lost.

While it is Kan's officially stated policy to weaken the Japanese currency, bold action seemed unlikely in the confusion and chaos that now ruled supreme in the government. A challenge of a sitting prime minister only three months after a successful election is unprecedented in Japanese politics. This emboldened speculators and momentum players enough to push the yen up to a new 15 year high of ?82 and change, and they clearly had ?80 in their sites. It also spurred China to step up its purchases of JGB's as a reserve asset, further pouring gasoline of the flames. In the meantime, the strong yen is wreaking havoc on the country's export oriented economy, with companies are marking down profit forecasts by the day.

Capturing profits in such high risk, volatile conditions as these is way beyond my pay grade. You really need a 24 hour global trading desk with several million dollars of IT back up to do this. I think the big play setting up here is on the short side. I continue to believe that the yen, along with Japanese government bonds and the 30 year US Treasury bond are the world's most over valued assets, and will be the core shorts of most hedge funds for the coming decade. To understand why, please review my earlier work (click here for 'Why the World's Worst Economy Has the World's Strongest Currency'? and click here for 'Who's Been Buying All Those Japanese Government Bonds').

We may not have seen the peak in the yen yet, but this is starting to resemble what a peak looks like.

Japan is only Praying for a Weaker Yen

Featured Trades: (EMERGING MARKETS), (ECH), (IDX), (TF), (EZW), (GXG), (EIRL)
iShares MSCI Chile Index Fund ETF
Market Vectors Indonesia Index ETF
Thai Capital Fund Inc.
Global X/Interbolsa FTSE Columbia 20 ETF
iShares MSCI Ireland Capped Investable Market Index ETF
PowerShares Water Resources Portfolio ETF

1) The Big Win in Emerging Markets. Take a look at the three year ranking of world stock markets below, and the themes that I have been pounding on the table about in this letter for the past 18 months will practically jump off the page at you.

Emerging markets shout out loud and clear, with the US down in the dumps at an 8.96% loss, and the lower echelons are populated with the widely despised PIIGS showing double digit losses. In fact, emerging markets occupy 18 of the top 20 spots.

Two of my picks, Indonesia (IDX) (click here for the call) and Chile (ECH) (click here for 'Chile is Looking Hot' ) grabbed the number two and three positions.? Thailand (TF) comes in at number seven (click here for that piece), while South Africa (EZW) (click here for 'On Safari for Trades in South Africa'), ranked ninth.

I missed the number one performer, Colombia (GXG), which brought in an annual 25.14% return for the last three years. But who new Juan Valdez was going to dump his job as a coffee grower and head up the Latin American desk at a major macro hedge fund (click here for 'Hedge Funds Head for the Frontier') ?

I have no doubt that emerging markets will maintain growth rates a multiple of ours for at least another decade. The $64,000 question is that a decade into the move, how much of this is already in the price? Buy on dips.

Country	3 Yr	ev/Emerging
COLOMBIA	25.14%	E
INDONESIA	13.56%	E
CHILE	12.40%	E
PERU	8.44%	E
MALAYSIA	6.86%	E
BRAZIL	6.27%	E
THAILAND	6.13%	E
ISRAEL	2.41%	D
SOUTH AFRICA	1.40%	E
PHILIPPINES	1.26%	E
INDIA	1.12%	E
TURKEY	-0.07%	E
SINGAPORE	-1.16%	D
SINGAPORE FREE	-1.16%	D
HONG KONG	-2.70%	D
CANADA	-3.20%	D
EGYPT	-4.83%	E
SWITZERLAND	-5.04%	D
MOROCCO	-5.47%	E
CHINA	-5.55%	E
MEXICO	-5.56%	E
DENMARK	-6.05%	D
TAIWAN	-6.19%	E
AUSTRALIA	-6.31%	D
SWEDEN	-7.66%	D
KOREA	-7.73%	E
CZECH REPUBLIC	-8.60%	E
USA	-8.96%	D
SPAIN	-11.42%	D
JAPAN	-11.60%	D
NETHERLANDS	-13.00%	D
UNITED KINGDOM	-13.35%	D
GERMANY	-13.48%	D
RUSSIA	-13.51%	E
NORWAY	-13.93%	D
FRANCE	-13.96%	D
POLAND	-14.51%	E
NEW ZEALAND	-15.27%	D
HUNGARY	-15.82%	E
PORTUGAL	-19.52%	D
ITALY	-21.18%	D
FINLAND	-22.61%	D
BELGIUM	-23.12%	D
AUSTRIA	-27.53%	D
GREECE	-32.75%	D
IRELAND	-42.10%	D

From Coffee Growing to Hedge Fund Trading?

Featured Trades: (GLD), (NEM), (AEM), (GG), (SLV), (CU),
(MSFT), (VZ), (AAPL), (FXC), (CYB)
SPDR Gold Trust Shares ETF
iShares Silver Shares Trust ETF
Currency Shares Canadian Dollar Trust ETF
Wisdom Tree Dreyfus Chinese Yuan Fund ETF
First Trust ISE Global Copper ETF

 

1) Bill Fleckenstein, Legendary Hedge Fund Manager, on Hedge Fund Radio. My guest on Hedge Fund Radio this week is the legendary hedge fund manager Bill Fleckenstein, president of Fleckenstein Capital, based in Seattle, Washington.

Bill graduated from the University of Washington with a major in Mathematics, and joined the prestigious Wall Street firm Kidder Peabody in 1979. In 1982 he launched his own firm, following in the footsteps of the great hedge fund pioneers like George Soros, Julian Robertson, and Michael Steinhart.

He became a highly controversial figure during the nineties by warning of the dangers of the dotcom bubble. Bill stuck to his convictions and cashed in big time in the collapse that followed, riding some of his short positions down to zero.

Fleck, as he is known to his friends, was a vociferous critic of the Fed's easy money policies during the 2000's. He published a bestselling book, Greenspan's Bubble: The Age of Ignorance at the Federal Reserve in January of 2008.

Fleck ran a short only hedge fund which he closed within days of the March 2009 bottom in the stock market, and returned the capital to his ecstatic investors. Since then he has been predominantly long investments that are beneficiaries of the relentless running of the printing presses in Washington, such as gold and the Canadian dollar. He still keeps in his office a six foot high stuffed black bear, wearing a blue 'Dow 10,000' baseball hat, given him by a client. Note to readers: Bill doesn't play in the ETF space, but I have included the relevant stock symbols for the convenience of individual investors.

Bill is sitting a major position in gold (GLD) these days, both in the physical and through the major miners, Newmont Mining (NEM), Agnico Eagle (AEM), and Goldcorp (GG). Despite a fourfold return over the last decade, the barbarous relic is still hated by many professional money managers, which means it still has much further to rise. Falling confidence in 'colored paper' (dollars) will just add fuel to the flames. Fleck is matching investments in the yellow metal with serious positions in silver and its miners. His target is nothing more specific than 'UP'.

As much as Bill despises Treasury bonds (TBT), (TMV) at these nosebleed levels, he isn't going short yet. He thinks we need to see a dollar crash first, and a recognition that we are in a stagflationary environment. Don't waste time trying to call the top, because once the spike in interest rates starts, it will be 'a big, big bear market,' that could go on for decades. The same currency/bond market tandem collapse logic may also apply to the yen and the JGB market. Rising commodity prices, like in copper (CU), are an indication that some real inflation is on the way.

Stocks generally are headed for a big multiple compression, but until then, are stuck in a wide trading range. One of his few long picks is Microsoft (MSFT) which has recovered from its disastrous Vista operating system launch, and is now hitting on all cylinders with a series of successful new product launches. MSFT is selling for only ten times earnings. Bill also likes Verizon (VZ), which has been running on the prospect of a big network deal for Apple's (AAPL) Iphone. Fleck hates banks because they are still depending on a bogus accounting system, but won't short them because the government keeps rescuing them with arbitrary safety nets.

Regarding China, Bill is not in the China bubble camp, and likes emerging markets generally, but isn't a specific investor. The Western world ruined its banking systems during the bubble, while emerging markets didn't. The consequence is that they are booming and we aren't.

On the currency front, Fleckenstein likes the Canadian dollar (FXC), and admires the Singapore dollar and the Norwegian kroner from afar. He also has some cash in the Chinese Yuan (CYB) because he thinks it has to appreciate at some point, but doesn't know how long it will take to pay off.

To listen to my interview in full with Bill Fleckenstein on Hedge Fund Radio, please click here. To buy Fleck's excellent book on the insanity of the Fed's easy money policies and their dire consequences, please click here.