Another Hedge Fund Blow Up. Is The Industrial Metals Mania Ending?
First off, I've noted my disdain for most financial reporting in the U.S. It seems much of it is more of a cheerleader symposium rather than an objective, thought provoking analysis. There are a few names I've mentioned in the past as exceptions including Alan Abelson and Paul Farrell. I really appreciate Paul Farrell because he is a former Wall Street insider and his commentary is free at Marketwatch. He's a prolific writer and author of many books as well. If you are interested in more information on Farrell, here's the link to his personal web site. He has a free e-book on his site regarding stress management. I haven't read the book but I plan to. Who doesn't need new stress management tools in today's world? Oh, and who doesn't like free from a great journalist?
For whatever reason, I find much international journalism to be a breath of fresh air and a typical injection of reality so I'm constantly searching for new perspectives. While digging for more information on Red Kite, the most recent hedge fund blow up, I found a South African site, Moneyweb.com. They have a very prescient article on the state of the hedge fund industry and some very interesting comments by Jim Rogers. For those of you who don't know, Rogers is George Soros' former partner. Now, as I type this, I remind you of the quote I posted from John Kenneth Galbraith on January 30th. Don't assume that just because people are involved with success, they are experts. Rogers may be an expert or he may not. He's definitely no dummy. I just finished browsing Roger's book "Hot Commodities" and must say I am extremely dubious of some perspectives in the book. I give kudos to Rogers for writing a book which foretold commodities would rise after paper assets reached the most extended level in two hundred years. That said, one doesn't receive general deference for such a call. Most informed investors and forward thinkers on Wall Street knew it would happen because they were going to make it happen by shoveling billions into said markets.
One of Rogers' recent claims is that we will see $100 or $150 oil. He is basing this on extremely loose arguments. Over the past one hundred years, the 1970s still remains an anomaly in many respects. One is the OPEC extortion tactics that exacerbated the commodity bubbles of the time. Betting the 1970s will repeat itself nearly verbatim is a something I'm not convinced of as a foregone conclusion. In any event, commodities did not experience a 20 year bull market in the 1970s. Rather, they experienced yo-yo moves which were either very profitable or very devastating. Buying commodities at the wrong time during the 1970s would have decimated investors even more so than the stock crash in 2000-2003. So, we may see higher highs in oil or we may not. Regardless, oil and metals are in manic bubbles and the only question is if oil gets to be a bigger bubble. If oil does go higher, it will likely purge much more to the downside before doing so. I'm quite confident metals will not see a bigger bubble as I've noted this is the biggest bubble in one hundred years of data and likely the biggest bubble ever. In any event, plan to work alot longer because your retirement is now invested in this mess courtesy of Wall Street and London telling them they need to diversify into commodities. What do I mean by that? Your pension plan, if you are lucky enough to have one, has a high probability of being more underfunded after this debacle plays out.
That doesn't mean that I believe Chevron or Exxon or other large dividend paying energy companies are a bad investment. Energy stocks have a bright future regardless of whether they correct by a large amount or whether oil is at $15 a barrel or $100 a barrel or whether alternative energy takes a big chunk out of long term oil demand. I've said before I would much rather own Exxon than Google for the long term. Exxon has predictable dividend growth, tremendous balance sheet, low valuations, massive cash positions, tremendous intellectual capital and management, a wide moat, significant physical investment and a predictable business model.
Anyway, back to the article on Moneyweb. Rogers has some prescient comments cited in the Moneyweb article. Or, at least I think they are prescient because it's what I've been squawking about for a year on this blog. Here's one of his quotes: "Right now we have 25,000 or 30,000 hedge funds around the world. We don't have that many smart 29-year-olds in the world. I assure you, we are going to see a lot more blow ups." To read the entire article and more of his comments about private equity and hedge funds, click here.
For whatever reason, I find much international journalism to be a breath of fresh air and a typical injection of reality so I'm constantly searching for new perspectives. While digging for more information on Red Kite, the most recent hedge fund blow up, I found a South African site, Moneyweb.com. They have a very prescient article on the state of the hedge fund industry and some very interesting comments by Jim Rogers. For those of you who don't know, Rogers is George Soros' former partner. Now, as I type this, I remind you of the quote I posted from John Kenneth Galbraith on January 30th. Don't assume that just because people are involved with success, they are experts. Rogers may be an expert or he may not. He's definitely no dummy. I just finished browsing Roger's book "Hot Commodities" and must say I am extremely dubious of some perspectives in the book. I give kudos to Rogers for writing a book which foretold commodities would rise after paper assets reached the most extended level in two hundred years. That said, one doesn't receive general deference for such a call. Most informed investors and forward thinkers on Wall Street knew it would happen because they were going to make it happen by shoveling billions into said markets.
One of Rogers' recent claims is that we will see $100 or $150 oil. He is basing this on extremely loose arguments. Over the past one hundred years, the 1970s still remains an anomaly in many respects. One is the OPEC extortion tactics that exacerbated the commodity bubbles of the time. Betting the 1970s will repeat itself nearly verbatim is a something I'm not convinced of as a foregone conclusion. In any event, commodities did not experience a 20 year bull market in the 1970s. Rather, they experienced yo-yo moves which were either very profitable or very devastating. Buying commodities at the wrong time during the 1970s would have decimated investors even more so than the stock crash in 2000-2003. So, we may see higher highs in oil or we may not. Regardless, oil and metals are in manic bubbles and the only question is if oil gets to be a bigger bubble. If oil does go higher, it will likely purge much more to the downside before doing so. I'm quite confident metals will not see a bigger bubble as I've noted this is the biggest bubble in one hundred years of data and likely the biggest bubble ever. In any event, plan to work alot longer because your retirement is now invested in this mess courtesy of Wall Street and London telling them they need to diversify into commodities. What do I mean by that? Your pension plan, if you are lucky enough to have one, has a high probability of being more underfunded after this debacle plays out.
That doesn't mean that I believe Chevron or Exxon or other large dividend paying energy companies are a bad investment. Energy stocks have a bright future regardless of whether they correct by a large amount or whether oil is at $15 a barrel or $100 a barrel or whether alternative energy takes a big chunk out of long term oil demand. I've said before I would much rather own Exxon than Google for the long term. Exxon has predictable dividend growth, tremendous balance sheet, low valuations, massive cash positions, tremendous intellectual capital and management, a wide moat, significant physical investment and a predictable business model.
Anyway, back to the article on Moneyweb. Rogers has some prescient comments cited in the Moneyweb article. Or, at least I think they are prescient because it's what I've been squawking about for a year on this blog. Here's one of his quotes: "Right now we have 25,000 or 30,000 hedge funds around the world. We don't have that many smart 29-year-olds in the world. I assure you, we are going to see a lot more blow ups." To read the entire article and more of his comments about private equity and hedge funds, click here.
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