?People think that Treasury bonds are riskless, but a 100 basis point rise in interest rates leads to an 18% capital loss,? said Andrew Neale, a portfolio manager at Fogel Neale Partners.
Another great American Icon is falling victim to the collapse of the country?s manufacturing industry. Shanghai Zhenhua Heavy Industries has completed construction of the last of four steel modules for the new Oakland Bay Bridge. The pieces of this giant erector set, which weigh 5,300 tons together, will shortly begin the arduous 22 day journey across the Pacific, baring weather delays.
These are the last of 43,000 tons of Chinese heavy engineering handiwork that will be used to rebuild the aging structure, which was damaged in the 1989 Loma Prieta earthquake. Caltrans authorities have been holding their breath ever since, with potholes occasionally opening up to the bay 100 feet below, cables snapping to behead unfortunate rush hour commuters, and trucks breaking through a treacherous ?S? curve to crash land below.
Zhenhua won the contract with a rock bottom $250 million bid, which is not much more than the cost of the steel itself. The company had to agree to train 1,000 welders to US union standards to get the job. An all American bid would have come in at several times this figure. When the 525 foot tall tower is completed, it will become the world?s largest single span suspension bridge.
The only catch is that if repairs are required on site, the operating manual is written in Mandarin. Will the last person to leave US based manufacturing please turn out the lights? At least many of the tourists photographing the new bridge will be visiting from the Middle Kingdom and paying for it with their vacation dollars.
Small consolation if you are an American worker waiting for his next food stamp hand out.
?I?m long tear gas after the Athens experience. They are going to need that tear gas in Rome and Madrid at some point,? said Steve Cortez at Veracruz Research.
Come join me for lunch for the Mad Hedge Fund Trader?s Global Strategy Update, which I will be conducting in London on Monday, July 16, 2012. A three course lunch will be followed by a PowerPoint presentation and an extended question and answer period.
I?ll be giving you my up to date view on stocks, bonds, currencies commodities, precious metals, and real estate. And to keep you in suspense, I?ll be throwing a few surprises out there too. Enough charts, tables, graphs, and statistics will be thrown at you to keep your ears ringing for a week. Tickets are available for $299. Sorry for the high price, but the Olympics have driven the price of everything in London through the roof.
I?ll be arriving an hour early and leaving late in case anyone wants to have a one on one discussion, or just sit around and chew the fat about the financial markets.
The lunch will be held at a private club on St. James Street, the details of which will be emailed to you with your purchase confirmation.
I look forward to meeting you, and thank you for supporting my research. To purchase tickets for the luncheons, please go to my online store at http://madhedgefundradio.com/ and click on ?LUNCHEONS?.
Any trader will tell you the trend is your friend, and the overwhelming direction for the US dollar for the last 220 years has been down.
Our first Treasury Secretary, Alexander Hamilton, found himself constantly embroiled in sex scandals. Take a ten dollar bill out of your wallet and you?re looking at a world class horn dog, a swordsman of the first order. When he wasn?t fighting scandalous accusations in the press and the courts, he spent much of his six years in office orchestrating a rescue of our new currency, the US dollar.
Winning the Revolutionary War bankrupted the young United States, draining it of resources and leaving it with huge debts. Hamilton settled many of these by giving creditors notes exchangeable for then worthless Indian land west of the Appalachians. As soon as the ink was dry on these promissory notes, they traded in the secondary market for as low as 25% of face value, beginning a centuries long government tradition of stiffing its lenders, a practice that continues to this day. My unfortunate ancestors took him up on his offer, the end result being that I am now writing this letter to you from California?and am part Indian.
It all ended in tears for Hamilton, who, misjudging former Vice President Aaron Burr?s intentions in a New Jersey duel, ended up with a bullet in his back that severed his spinal cord. Cheney, eat your heart out.
Since Bloomberg machines weren?t around in 1790, we have to rely on alternative valuation measures for the dollar then, like purchasing power parity, and the value of goods priced in gold. A chart of this data shows an undeniable permanent downtrend, which greatly accelerates after 1933 when FDR banned private ownership of gold and devalued the dollar.
Today, going short the currency of the world?s largest borrower, running the greatest trade and current account deficits in history, with a diminishing long term growth rate is a no brainer. But once it became every hedge fund trader?s free lunch, and positions became so lopsided against the buck, a reversal was inevitable. We seem to be solidly in one of those periodic corrections, which began six month ago, and could continue for months or years.
The euro has its own particular problems, with the cost of a generous social safety net sending EC budget deficits careening. Use this strength in the greenback to scale into core long positions in the currencies of countries that are major commodity exporters, boast rising trade and current account surpluses, and possess small consuming populations. I?m talking about the Canadian dollar (FXC), the Australian dollar (FXA), and the New Zealand dollar (BNZ), all of which will eventually hit parity with the greenback. Think of these as emerging markets where they speak English, best played through the local currencies.
For a sleeper, buy the Chinese Yuan ETF (CYB) for your back book. A major revaluation by the Middle Kingdom is just a matter of time.
I?m sure that if Alexander Hamilton were alive today, he would counsel our modern Treasury Secretary, Tim Geithner, to talk the dollar up, but to do everything he could to undermine the buck behind the scenes, thus over time depreciating our national debt down to nothing through a stealth devaluation. Given Geithner?s performance so far, I?d say he studied his history well. Hamilton must be smiling from the grave.
I recently spent an evening with Ambassador Richard Jones, the Deputy Executive Director of the International Energy Agency in Paris, who had some eye opening things to say about the energy space. The IEA was first set up as a counterweight to OPEC during the oil crisis in 1974, and has since evolved into a top drawer energy research organization.
World GDP will grow an average 3.1%/year through 2030, driving oil demand from the current 84 million barrels/day to 103 million b/d. That means we will have to find the equivalent of six Saudi Arabias to fill the gap or prices are going up, possibly a lot. His conservative target has crude at $190 in twenty years. Some 39% of that increase in demand will come from China and 15% from India.
A collapse in investment caused by the financial crisis means that supply can?t recover in time to avoid another price spike. More than 1.5 billion people today don?t have electricity at all, but would love to have it. The best the climate negotiations can hope for is for CO2 to rise until 2020, and then plateau after that, because once this greenhouse gas enters the atmosphere it is very hard to get out.
This will require a massive decarbonization effort reliant on nuclear, hydro, alternatives, and carbon capture and storage. Up to half of the needed carbon reduction can be achieved through simple efficiency measures, like ditching the incandescent light bulb, driving more hybrids, and closing dirty, old coal fired power plants. Natural gas will be a vital bridge, as it is cheap, in abundant supply, and emits only half the carbon of traditional fossil fuels. The total 20 year bill for the rebuilding of our new energy infrastructure will exceed $10 trillion.
Richard, who comes from a long diplomatic career in Kuwait, Kazakhstan, and Israel, certainly didn?t pull any punches. I have been a huge fan of the IEA?s data for 35 years. Better use any weakness in oil prices to accumulate long term positions in crude through the futures, the ETF (USO), the offshore drilling companies like Transocean (RIG), and oil and gas plays like XOM, and OXY. When oil comes back, it will do so with a vengeance.
I?ll Take Another Six Please
?We?ve seen the S&P 500 drop 50% twice in the last decade. That is the new normal?, said Richard Kang of Emerging Global Advisors.
Come join me for lunch for the Mad Hedge Fund Trader?s Global Strategy Update, which I will be conducting in Frankfurt, Germany on Wednesday, July 18, 2012. A three course lunch will be followed by a PowerPoint presentation and an extended question and answer period.
I?ll be giving you my up to date view on stocks, bonds, foreign currencies, commodities, precious metals, and real estate. And to keep you in suspense, I?ll be throwing a few surprises out there too. Enough charts, tables, graphs, and statistics will be thrown at you to keep your ears ringing for a week. Tickets are available for $279.
I?ll be arriving an hour early and leaving late in case anyone wants to have a one on one discussion, or just sit around and chew the fat about the financial markets.
The lunch will be held at a prestigious private club not far from the Botanical Gardens, the details of which will be emailed to you with your purchase confirmation.
I look forward to meeting you, and thank you for supporting my research. To purchase tickets for the luncheons, please go to my online store at http://madhedgefundradio.com/ and click on ?LUNCHEONS?.
?Free choice is not relevant in financial markets because there are too many players. A stock with a million holders is much more predictable than one with five,? said Charles Nenner, of Charles Nenner Research in Amsterdam."
If you have been living in a cave for the last 72 years and missed the work of management guru, Peter F. Drucker, here is your chance to catch up. I just finished reading The Essential Drucker, a weighty tome of 368 pages which summarized the high points and pearls of wisdom of the author's 38 books published since 1939.
A self-described 'social ecologist', Drucker was a journalist who moved to Germany because job prospects in his native Austria-Hungary were so poor following its defeat in WWI. He became a close friend of Austrian economist Joseph Schumpeter, who popularized the term 'creative destruction,' and attended lectures by John Maynard Keynes. He fled to the US in 1934 after his writings were burned by the Nazis.
For most of human history, armies were the predominant management model, and most corporations today show the military influence. Management only emerged as a science during the 1920's, and Drucker was one of the founding fathers. Early adopters, like Coca Cola, Du Pont, IBM, and General Electric, went on to prosper mightily.
He observed that Franklin Delano Roosevelt set up the most productive administration in history. Taking even a single step was so painful for him that he, and all those who worked around him, had to organize the government with the maximum efficiency possible. This was a key element in America's victory in WWII.
Drucker writes at length on the risks and opportunities of entrepreneurship, and argues that all companies must innovate, or die, no matter how pedestrian their product. He predicted many of the trends that came to dominate the late 20th and early 21st century, such as privatization, decentralization, globalization, and the rise of the knowledge worker. He had a huge following when I was in Japan during the seventies, and his mark can be seen in today's global presence of the major Japanese keiretsu.
While most define a company in terms of producing products and making a profit, Drucker sees its mission as 'creating a customer.' He presents a rigorous process for decision making. He lauds nonprofits as the best run organizations in the country because they have to be. Groups like the Girl Scouts, the Red Cross, and United Way maintain an effective global presence without paying their people any money. He makes the distinction between efficiency and effectiveness; doing things well, versus doing the right thing.
Anyone who manages any business of whatever size, from a Fortune 500 company to a single individual banging away on a PC at home, will benefit from reading this book. It forces you to take a look at your own operation with a fresh set of eyes. It even advises on how to manage one's own time, from dispensing with unnecessary meetings to minimizing paperwork and bureaucracy.
Drucker moved to California during the seventies, where he set up one of the early MBA programs for Claremont College. He died in 2005 at the age of 96. To obtain preferential pricing from Amazon for this insightful book, please click here.
