Finally, A Wall Street Guy

One of my big criticisms of President Bush has been his reluctance to appoint people with Wall St. experience to the various financial and economic posts in his administration. Throughout his presidency it seems like Bush has made things more difficult for himself at almost every turn. It has always seemed like the treasury and economic guys have not been completely in the loop on all the decisions being made (this is just my perception and not meant to be taken as fact). The consensus of what I have read and heard infers that Paulson will be more of a strong dollar guy than a smoke stack CEO or someone like Donald Evans would be. So the question becomes can Paulson make enough of an impact in the next two and half years to help make improvements where they are needed. I don’t think the problems faced by the US economy are solvable in that time but improvements can happen. I do think that Paulson is making a huge financial sacrifice and that should be commended. Hopefully this works...

Can Gold Go To $8000?

James Turk says yes in this week’s Barron’s Interview. I’ll preface this post by saying that I view the scenario of $8000 (or any number close to that) as being very unlikely. Some of the things that concern Mr. Turk concern me as well (things I have been writing about for a long time here) but the magnitude of the consequence does not seem to be correct to me. As I read the interview Mr. Turk is concerned about increasing supply of dollars at a time of decreasing demand. This is troublesome. There has been visibility (to my way of thinking) for the dollar’s role as world reserve currency to change. I think the dollar will share that role, perhaps with the euro. Another concern is the message sent by denying foreign purchases of Unocal and the ports. He views that as protectionism. “Immediately after his comments about this he is asked for his target for gold and says “It is going much higher, and the $8,000 [per ounce] I mentioned a couple of years ago is probably as good a target as any.” He then says that gold could hit $2000 in the next six to twelve months. There was no real process shared for how her gets to either number, perhaps this is available on his web site, I did not check. Since I don’t find it plausible that we will see $2000 in his time period or $8000 in the next couple of decades it is worth understanding what the fallout could be if his predictions are correct. Gold tripling in a year, I would think,...

The Big Picture For The Week Of May 28, 2006

There were two interesting articles in the current BusinessWeek. The first article (sub req’d) was about CalPERS’ coming rotation into commodities. According to the article the fund has no commodity exposure and the expectation is that CalPERS will put up to 10% of the fund into commodities. The article includes a little where have they been criticism which is fair but the lead manager seemed unfazed. My take on this is that he is looking at commodities as an asset class with some long term merits in terms of portfolio diversification and some long term demographic demand catalysts that may exist. Regardless of where any of the commodities have come from, price-wise, the forward looking potential is either compelling to you or it is not. For example if you are part of the small crowd that sees $2000 (or higher per this week’s Barron’s interview) gold coming soon it would be foolish to be worried that the next $100 could be down. I buy into the demand for commodities and the potential portfolio benefits but I keep less than the 10% that CalPERS is considering. How much to own is clearly a subjective thing but owning some, even after the nice move of the last couple of years, is important. Especially when you consider the possible underperformance that Jeremy Siegel sees coming for domestic equities written about in the other BusinessWeek article that caught my eye. The general concern is that as baby boomers start to cash out of equities to fund retirement there will not be enough demand from within the US to absorb the supply that is...

Commodity ETF Issues

There is an interesting article up at ETFzone.com about demand for the GLD ETF moving the price of the commodity (tail wagging the dog so to speak). For evidence, the article cites that demand for things like jewelry and industrial use is down but the price is up a lot. The assertion made could be correct but my initial reaction is to disagree. I do believe investor demand has been a catalyst to lift the price but the total assets in the two ETFs add up to about $8 billion. For the analysis to be complete we would need to know what the growth in open interest for gold commodity contracts has been. I imagine the leverage offered in that market has caused more growth in futures than in ETFs. If anyone has this info please leave a comment. I would think the Silver ETF would be more likely to be the tail that wags the dog. The Silver Axis site explains this much better than I could. The short and dirty is that the silver market has different dynamics because much of it gets destroyed as it is consumed. A reader left a comment about the “tracking” problem that USO has in staying with the price of crude. The earlier Brent Oil Security (OILB.L) has a similar issue, in that the actual price of Brent is different than the price of the fund. The issue boils down to whether you as an investor can live with the flaws. Jimmy Rogers made an interesting comment the other day on Fox about oil stocks vs. oil the commodity. Some of...

Inverse ETFs

The first inverse index ETFs have been approved to trade by the SEC. They will be listed by Profunds. Actually there have been inverse ETFs trading in Europe for a short while (hat tip to long time reader Londoner). Naturally since there is something new coming, Dan Culloton is quoted with a negative opinion. That same article also noted the following. Take the Nasdaq 100 between June 11, 2002, and March 17, 2003, a time that covered the end of the bear market and the first part of a rally. During that time, the Nasdaq 100 lost 2.19%. So if you were in UltraBear Profund (Nasdaq:URPIX – News), a traditional mutual fund that tracks the inverse of the Nasdaq 100 by 200%, you might have expected to be up 4.38%. But no, you actually would have lost 33.22%, thanks to the strange arithmetic of leverage. OK, well URPIX is leveraged to capture twice the inverse of the S&P 500 not the Nasdaq.While expenses prevent it from capturing exactly double, the fund appears to be generally doing its job shorter term. Over the last 12 months URPIX is down 10% while the SPX is up 5%. The general idea of this type of product is to make short-term bets on the market. To have a shot of success the fund needs to do what it is supposed to do and I would say that URPIX fits the bill for short periods of time. Longer term though the SPX is flat and URPIX is down 25% which seems odd. I called the fund to try to get an explanation. The goal...