[TheDude]

$this->bbcode_second_pass_quote('BigTex', 'T')imes like this makes me want to put all my money in the Permanent Portfolio fund (PRPFX). 25% bonds, 25% stocks, 25% gold, 25% cash (mostly short term Swiss bonds, I believe). Not great returns, but very consistent year in and year out.

[BigTex]

$this->bbcode_second_pass_quote('TheDude', '')$this->bbcode_second_pass_quote('BigTex', 'T')imes like this makes me want to put all my money in the Permanent Portfolio fund (PRPFX). 25% bonds, 25% stocks, 25% gold, 25% cash (mostly short term Swiss bonds, I believe). Not great returns, but very consistent year in and year out.

[BigTex]

delete

[MrBill]

Sorry, I am a little bit in lock-down mode today. The margin calls are coming in hot & heavy at the moment, so I need to mind the store. The technicals for a lot of markets are very interesting right now. Do not worry, there may be bargains to be had, but I am also confident we will see better entry levels, yet. Keep some powder dry. Estimated P/E ratios will be a lot lower before the dust settles. In any case, I will post more later. Good luck.

UPDATE:
$this->bbcode_second_pass_quote('', '
')Commodities Comment

Liquidation pushes markets lower despite strong fundamentals
Although we still believe liquidation risk exists, we continue to believe
that fund-driven pullbacks will likely be short-lived and represent scaled-up
buying opportunities in crude, copper, and corn.

[MrBill]

15.15 Friday, August 17, 2007.

The Fed cuts the discout rate to 5.75% from 6.25%. Gold and oil jump in price to $664.40 and $72.15 respectively. Hello inflation!

UPDATE:
$this->bbcode_second_pass_quote('', 'T')he Federal Reserve, in an unscheduled meeting, cut the discount rate to 5.75 percent from 6.25 percent, noting market conditions have deteriorated since it last met Aug. 7.

``Financial market conditions have deteriorated, and tighter credit conditions and increased uncertainty have the potential to restrain economic growth going forward, '' the central bank's Federal Open Market Committee said in a statement. ``The downside risks have increased appreciably.''

The FOMC left the overnight federal funds target rate unchanged at 5.25 percent.

[Micki]

WOW! I was just watching my screen wondering if I should cut off a few silver contracts in fear they would take a $1 drop and BANG all went up in 2 seconds.

So it seems the FedReserv do prefer inflation to deflation.
i think I'll hold on to my silver and gold....

[rostov]

I don't understand it. Why did the Feds have to do it? Does this really indicate their preference for inflation? Rather than deflation? Why?

(Note : I'm not bitching about it, but genuinely curious about the underlying reason)

Was there a chance Warren Buffett and any other heavyweight investors knew what options were available to the Feds and thus what path they had a higher probability of taking? Why is it a "have to do it"? Why wasn't deflation an plausible option?

[MrBill]

$this->bbcode_second_pass_quote('rostov', 'I') don't understand it. Why did the Feds have to do it? Does this really indicate their preference for inflation? Rather than deflation? Why?

(Note : I'm not bitching about it, but genuinely curious about the underlying reason)

Was there a chance Warren Buffett and any other heavyweight investors knew what options were available to the Feds and thus what path they had a higher probability of taking? Why is it a "have to do it"? Why wasn't deflation an plausible option?

[Doly]

I didn't have anything invested in shares when the stock markets started going belly-up. Luck, rather than clever forecast, but it's equally conforting to think my last deal went well and was done three weeks before all this mess started.

Anyway, I find that now about half the little money I have to invest is in index-linked gilts (traslated to American: inflation-protected bonds) and the other half is cash. My question is: under the current circumstances, what is the smarter move? Leaving things half and half, buying more gilts or selling some gilts?

[BigTex]

$this->bbcode_second_pass_quote('Doly', 'I') didn't have anything invested in shares when the stock markets started going belly-up. Luck, rather than clever forecast, but it's equally conforting to think my last deal went well and was done three weeks before all this mess started.

Anyway, I find that now about half the little money I have to invest is in index-linked gilts (traslated to American: inflation-protected bonds) and the other half is cash. My question is: under the current circumstances, what is the smarter move? Leaving things half and half, buying more gilts or selling some gilts?

[MOCKBA]

$this->bbcode_second_pass_quote('MrBill', 'T')his might be a Bull Trap.

[MrBill]

I must apologize. My chasing the market today was a reflex reaction. Like a cat on a mouse. When the Fed starts cutting, I start buying. I doubt it was the right thing to do, so I will own up to it now. However, these are all stocks that I had sold much higher and was buying back. Also, the US dollar weakened as well. I am still over-weight cash.

When I said I bought in 25% it was from a very low base. I might sell on as little as a 10% bounce. This is trading and not long-term investing. I would feel like a hypocrit to say patience, patience and then jump in like I did.

Thank goodness most of my funds are tied-up. Exactly for this reason. Think the 2000 Dot.Con bust and how low stocks can go after a long rally.

The graph Moskba posted in another forum is very instructive. I would appreciate if he would post it again here. Spasibo.

Poka,

MrBill.

[BigTex]

$this->bbcode_second_pass_quote('MrBill', 'P')rivat,

I must apologize. My chasing the market today was a reflex reaction. Like a cat on a mouse. When the Fed starts cutting, I start buying. I doubt it was the right thing to do, so I will own up to it now. However, these are all stocks that I had sold much higher and was buying back. Also, the US dollar weakened as well. I am still over-weight cash.

When I said I bought in 25% it was from a very low base. I might sell on as little as a 10% bounce. This is trading and not long-term investing. I would feel like a hypocrit to say patience, patience and then jump in like I did.

Thank goodness most of my funds are tied-up. Exactly for this reason. Think the 2000 Dot.Con bust and how low stocks can go after a long rally.

The graph Moskba posted in another forum is very instructive. I would appreciate if he would post it again here. Spasibo.

Poka,

MrBill.

[MrBill]

Here is the graph that Mockba posted earlier. It is a great reminder of where we are, where we have come from, and where we might be headed.



Have a nice weekend. Focus on friends and family. Enjoy! ; - )

[MrBill]

Markets have generally opened on a positive note this week. Asia is up 3-4% while Europe starts up 1-2% after America's 2% gain on Friday.

The S&P Energy Index (GSPE) touched 485 on Friday, just short of our 480 target before rallying to 520 where it is now (+7%). However, it is still under key resistance levels, so at least from a technical perspective these are selling levels.

In general, refering to the chart above, classify this as the Bull Trap phase of the market. Two reasons that the market may gain a little more before sliding again are a) August 15th is over, the date when investors had to signal whether they would withdraw money from their mutual and hedge funds at the end of September, and b) the discount rate cut by the Fed and other CBs willingness to lend to aid liquidity means that until the end of Q3'07 we do not have anymore inputs until the Fed meets again in September.

My guess is a stronger tone to the market this week, but I will use this rally to lighten up on some stocks that seem to be perennial under-performers. I may be wrong, but if we slide again, I would sooner have a smaller, core portfolio of stocks I like in the longer term than just some value traps that will drag me down. Better to have a fresh head if we go south again.

There is a base of support for Brent at $69 and $70 in the WTI. I think that can give way sooner or later. Still targeting $68 and eventually $65 in the crude.

$this->bbcode_second_pass_quote('', ' ')The fundamental to fund-liquidation tug-of-war continues

Prices generally unchanged since last week

The energy complex is trading up today along with other assets in response to the Federal Reserve's Board unexpected discount rate cut, in addition to the emergence of the first real storm threat to energy production this year as Hurricane Dean heads towards the US Gulf of Mexico. This price action, however, follows a week characterized by a tug-of-war between tight fundamentals and fund liquidation, leaving prices not far from where they closed last Friday.

While downside risks remain, current dip is a buying opportunity

Although the recent Fed move may begin to restore investor confidence and, in turn, calm the recent volatility in the markets, the biggest risk to the oil market has been and continues to be fund liquidation against a back drop of very strong underlying fundamentals. We believe that further liquidation could cause WTI prices to drop to the mid-$60/bbl level given the large remaining net speculative length in the market. However, due to the strong
underlying fundamentals, we believe that these liquidation-driven pull backs will likely be short-lived and represent increasingly attractive buying opportunities. We maintain a $73.50/bbl 12-month-ahead price forecast and believe risks are substantially skewed to the upside relative to this forecast, even in a weaker demand environment.

US refining system vulnerable to weather-related disruptions

As the first hurricane of the season threatens energy production in the Gulf of Mexico, the oil market seems to be focusing for the first time on the potential for weather-related supply disruptions. At the same time that the expected above-normal hurricane season enters its most active phase, the US refining system is particularly vulnerable to weather events given the extremely low level of product inventories and the fact that the system is still recovering from the string of outages that has been plaguing it since
March.

[MrBill]

Okay, now I feel better. I was able to get out of a lot of core positions on this bounce. Some were real value traps, but I thought their day would come. But obviously not in a bear market it would seem? Now out of sight out of mind.

Reduced my total equity exposure by 30% keeping just my core position of the stocks that I really wanted. In the process took profit on some European stocks that were up 27% YOY as well as locked in some gains on the EUR/USD while closing out additional US dollar longs. The DAX is up 15% YTD measured in USD. It was some much needed housekeeping. Had I been more prudent I could have achieved the same before the market topped out in July.

Then I went down to the bank and dropped another large chunk of cash against my mortgage. If the Fed cuts rates on September 18th then it will likely be inflationary in its consequences, which will also be bad for the US dollar. What I do not know is whether the ECB will also put planned rate hikes on hold? Somewhat neutral on the currency front, but equally bleak for the global inflation outlook. Therefore, it made some sense to payback debt that would have re-set higher if the ECB does raise rates, while saving myself multiples on future interest costs that are not tax deductible here in any case.

Getting as close to flat as I can ahead of further fallout. Long cash.

On the business side, one major US investment bank closed an open repo with me and I was forced to find that financing elsewhere. They are cutting their exposure to equity. Then another did do a roll-over, but another 25 basis points higher. If I assume I get preferential treatment on my funding needs due to our credit quality then I can only assume that others are finding out that their open repos are either not being renewed, and if, then at much higher spreads. That is having a cascading effect on all open positions that need to be funded.

Given that I feel like it is the right thing to do to make sure I take as much risk off the table as possible and remain defensive. A half point follow through buying today in N. America is not very awe inspiring. Not enough to take the S&P 500 and other major indices through their resistance points and increasing the odds that those that cannot find reasonable re-funding will decide instead to sell while the selling is still relatively good. September 18th is still almost a month away.

[MrBill]

Bank of Japan bows to market pressure not to raise rates (as expected) while ongoing liquidity injections by the Fed and the ECB raises the expectation that the Fed will also cut interest rates on September 18th (if not sooner according to some optimists). Let us just say that is horribly inflationary.

Snippets:

Wheat hits 11-year high at $7.20 drags corn, soybeans and rice up as well.
Shanghai copper up 2.5%
Malaysian tin +2.3% on LME
Australian wool +1%
Rubber +2% in Tokyo futures
Nickel +5%
Gold $3 an ounce
Silver +2% on the Comex
Shanghai stock market hits 5000!
AUD & NZD both up 1% as yen weakens again

And what is good for the credit markets is not likely going to work out very well for the stock markets, so participants should be careful what they wish for.

Well, more on that later. Far too busy here getting our own funding in place for what we expect to be a larger slide later on (maybe sooner rather than later), so there is no time to waste.

Just wanted to attach this piece on sovereign wealth management funds. Cheers.

$this->bbcode_second_pass_quote('', 'S')overeign wealth funds have been around for decades. The Kuwait General Reserve Fund was established in 1960. The Abu Dhabi Investment Authority was established in the 1970s and today has investments totaling roughly $800 billion, making it the world’s largest such fund.

With $300 billion in its fund, Norway is seen by many financial experts as a model for disclosure of portfolio strategy, holdings and methods. But it is also unabashedly political, recently withdrawing its investment in Wal-Mart, citing accusations that the company has violated child-labor laws and scuttled efforts by employees to unionize.

But China and Middle East countries have a long way to go before they are as transparent as Norway is. Some experts wonder what would happen if China took over an American pharmaceutical company and pressed for changes in prescription drug programs. Likewise, what would the reaction be if an Arab government demanded a bailout or tax break for its company in return for supporting peace talks in Iraq or Israel?

“If these funds buy into a big Fidelity mutual, they make standard kinds of investments that the Yale endowment makes,” said Lawrence H. Summers, the economist who served as Treasury secretary and president of Harvard. “But if they make more direct investments, they become meaningful actors in the economy, and that raises many more questions.”

[MrBill]

I am just re-posting this private message. Thanks.

$this->bbcode_second_pass_quote('', 'I') also own SLB. But I sold 3/4 of my position on the last run-ups. I sold the last bit out just after their Q2'07 results. On the last retracement I bought Baker Hughes instead (BHI). SLB looks a little expensive relative to its peers. And it has outperformed them year on year as well. So it was a good time to take profit and then look at putting some of that money into other segments. SLB has a P/E of 21-22 versus HAL 13-14 and BHI 16-17. SLB is up 37% YOY versus HAL -3.8% (ouch) and BHI +3.45 (next to nothing).

So SLB has been the stock of the three to own at least looking back. But if you feel we are in a bull trap then it may make sense to use this rally in the S&P Energy Index (GSPE) to lighten up and take some money off the table in any case.

The GSPE looks like it is toppish around 540 and it is currently near 535. That would confirm what looks to me like a head and shoulders formation. I expect the S&P 500 (SPX) to be stable now until after the Fed meets on September 18th. Then I expect a resumption of the downtrend, but I am leaning against the wind as the central banks seem to want to accomodate this rally (and higher inflation) as best as they can.

So given my long-term view I would not short any of these stocks, but I would expect to see better entry levels going forward, so I am prepared to sell into this rally in that expectation. However, please remember that I am more tolerant of risk, so I do not mind missing a larger rally if in doubt. My core inner position is still in place and I would not look to sell it out come what may because overall I am still overweight cash for new investments at the right level as well. Therefore, I am constantly improving my average while remaining on the long side of the energy sector in general.

Especially in light of recent central bank moves that I fear will likely boost inflationary expectations with or without the reality of peak oil depletion with increased demand playing out in many former oil producing countries and the cost of making and exploiting equivalent new finds. I think with demand rising near 2% per year and supply only 1% that it is a no brainer in the long-run. However, because the beta of GSPE is approximately 1.20 of the SPX it will not levitate in mid-air if there is a wider sell-off either.

I am attaching the lastest from GS with regards to base metal demand from the BRIC producers. I think the same applies to the energy sector as well.

$this->bbcode_second_pass_quote('', ' ') Commodities Weekly

BRICs continue to provide the foundation for strong metals demand

While the base metals markets are likely to remain highly volatile in the coming weeks as the financial markets continue to sort through the implications of the credit crunch, we believe that solid underlying fundamentals will continue to reassert themselves and thus we retain our bullish outlook for the complex.

Sell off in base metals reflects market volatility, not changing fundamentals

Base metals have risen steadily this week, with the S&P GSCI Industrial Metals spot index climbing by 4.5% since last Friday, partially reversing sharp declines earlier in the month. This reversal provides support to our view that the sharp decline in metals prices was a reflection not of deteriorating fundamentals, but rather the spread of financial market volatility that had originated with the implosion of the US subprime market.
Accordingly, as the markets have begun to stabilize, base metals prices have begun to recover as well. While the base metals markets are likely to remain highly volatile in the coming weeks as the financial markets continue to sort through the implications of the credit crunch, we believe that the solid underlying fundamentals will continue to reassert themselves and thus we
maintain our bullish outlook for the complex.

Raising our long-dated base metals price forecasts on continued cost pressures

Metals and mining companies continue to face cost pressures, and
thus long-dated prices continue to rise in order to motivate the necessary investment.

Wheat rallies as tight inventories cannot buffer further supply woes

Wheat prices surged by 10% over the past week as Canada and Russia revised production downward against a backdrop of near record-low inventories.

[BigTex]

Mr. Bill,

Are you still thinking Bull Trap?

When an anticipated rate cut is all that is keeping the market going, that's not good.

[TheDude]

What do you fellows think of these stories:

Mystery trader bets market will crash by a third

$4.5b bet on another 9/11 within 4 weeks

Discussion at tickerforum.org

$this->bbcode_second_pass_quote('', 'R')enee Schultes

16 Aug 2007

Carry trade unwinds as yen hits one-year high

An anonymous investor has placed a bet on an index of Europe's top 50 stocks falling by a third by the end of September, as world equity markets plunged for a third day and volatility hit a three-year high.

The mystery investor has bought put option contracts on the DJ Eurostoxx 50 index that will result in a profit if it plunges to 2,800 or below by the end of September. Based on the 2,800 strike price, the position covers a notional €6.9bn, and potentially even more using a market price of about 4,100 when the trades were done on Tuesday and Wednesday.

The identity of the investor is unknown but market sources speculated it was either a large hedge fund hedging itself against deepening losses, or a long-only fund manager pressing the panic button to protect its gains.