Monday, July 26, 2010

Choco-Tastic- Cornering the Market sort of works - sort of

Anthony Ward is buying Chocolate, a lot of it and well might he do so. Last time he did it he cleaned up 10s of millions of dollars. There will be a few shrill chocophiles distraught at the notion that their Yorkie bars will get more expensive but there's nothing to get too concerned about. Cornering a market is very difficult, not to mention illegal. John Ward is simply making an informed bet on the movement of a market and his purchases will do nothing to slow down Nestle, Frito-Lay and anyone else who presumably has long term off-takes for mega-tonnes of Cocoa from all over the globe.
The great fallacy with cornering a market is that you are hoovering up all the supply and can therefore cause a price rise and benefit from the abnormal price action. If your buying causes a shortfall, then so too will your selling cause an oversupply. There will be volatility along the way, but unless the supply-demand equilibrium as somehow fundamentally shifted (all chocophiles switch to rhubarb) then buying up of a large number of futures simply causes a short time blip in volatility and a long term nothing.
Every time someone has genuinely tried to corner the market they've done their dough.
Copper - Sumitomo
Silver - Hunt Brothers
You know it makes sense.

Monday, May 3, 2010

House Prices in Australia

Nearly every day in the Australian print media (Murdoch or Fairfax, the only 2 flavours) there will be an article claiming either 'House prices to go up 10% per annum forever' or 'house price crash imminent.' Presumably both of these statements are designed to attract the highest number of user comments as passionate home owners, property flippers and career renters weigh into the debate. Neither of these blitheringly stupid statements are correct. There are definitely parts of Australia where property prices could crash massively. Look at some of the resource towns, where prices are underpinned by one large mine/project. A shut of the mine will remove 90% of the reasons for living there (Ravensthorpe is a good example). New apartments in regional areas, massive MacMansions 50kms from Sydney, Melbourne, Brisbane selling for $1,000,000 are all vulnerable. Sensible investing in property is not as prone to correction. Good quality housing, close to public transports and major sources of stable employment or social utility (Hospitals, Universities etc) will not drop 40% because there will also be a demand for housing in these areas (both rental and purchase). If I own a house near a University that is currently renting for $600 a week (which I believe is worth about $600k based on the rental yield), I'm going to take some serious convincing that I should sell it for 40% less.
The value of any asset is not the possibility to sell it to someone else (capital gain) it is it's ability to produce income. Anything other than income based assessment of investment opportunities is speculating, which is very different to investing. At its worst speculating is like playing roulette or betting on horses, at its best it is like counting cards. Good for a while, if you're smart.

Thursday, February 18, 2010

Stop Spending, Stop Spending, Stop Spending, Stop

What is it with governments and deficit spending? Do they not realise that at some stage someone has to pay back all the money they borrow? I know it sounds simple, but the thing is, it is simple. Sure you can print more money, and we've seen that with the USD depreciating 97% over the last 100 years (thanks daily reckoning), but if you want to encourage people to invest in your currency, in your country, then you need to provide a stable platform, and a large part of that stable platform is a currency, that is largely immune to the ravages of inflation.
We mock people who continually live their lives on their credit cards, continuously putting off fiscal responsibly in favour of living large now, yet we sit idly by and watch our state and federal governments do just that. It is ridiculous. Those of us who pay tax are essentially making the minimum payments on our credit cards each months so that our elected overlords can pork barrel this and that and take no real responsibility for their actions.
Stop spending all our money and running up the national credit card you idiots.

Why am I reminded of the time Homer Simpson had his legs stuck in quicksand and he elected to pull his legs out with his arms, and when his arms also became stuck, he attempted to pull his arms out with his face!

Monday, January 18, 2010

Nick Bolton, Inflation

Despite a barrage of negative and cynical articles, there is at least one thing that I know to be good and true. No they do not include Nicholas Bolton and his Vulture Fund but you can hardly blame him for wanting to profit from the mistakes of others. Brisconnections is/was a scam, a fraud and a rip off and anyone who bought equity in that was badly ripped off. We all know it is going to zero, the only difference between us and N.Bolton is that he decided to do something about it. If you are able to short Brisconnections at any price >$0.01, do it.
The thing that I know to be true is....drumroll, Australian inflation will rise, rise rise. St George bank is offering 8.00% term deposits for anyone who wants to put their cash away for 60 Months. What does that tell you? It tells you that the stimulus spending is having its desired effect, assuming the desired affect was to get inflation on the rise. If you spend lots of money and lend lots of money for cheap, that seems to grease the wheels. The big difference is that unlike the last time inflation rose (driven by some organic growth in the economy and a market with nearly full employment), this growth will be in an environment with rising unemployement and declining real wages...scary.

Friday, January 15, 2010

Tuesday, January 12, 2010

This can't be true...can it?

From the Daily Reckoning.

01/11/10 Stockholm, Sweden – Congo’s new economic stimulus package of distributing one AK-47 to each citizen certainly sounds — in a humanitarian sense — morally inferior to the various good-natured but ill-conceived measures applied by the US government.

Let us go then you and I

What are the brave and bold predictions for 2010? It's fairly straightforward really.

1: China will start slowing down. They have been growing like crazy (If you believe the official propaganda) for decades and it appears that they are building in some over capacity. The Global media is starting to pick up on this. Al Jazeera report on Ghost Cities
Does this remind anyone else of the Japanese government paving rivers in an effort to stimulate the economy.

2: Chinese slowdown will start to freak out the commodity bulls. This will cascade through all markets. The next big leg down in equity markets will be led by China.

3: Selling US debt will be the best trade you could make this year. There is basically no yield on T-Bonds. Inflation will rise. Yields will rise. The credit worthiness of the Fed is not in question, but their propensity for printing money will count against them.

4: USD to devalue further against the EUR, but to potentially to gain some ground against the commodity currencies (AUD, NOK, CAD, BRL)

5: Trading carbon credits or any sort of global alliance to fight climate change will become less important as governments in western countries concern themselves with fighting against rising unemployment and deteriorating economies

Finally some predictions for 2010:

“The problem is not solved. They're only making it worse. Countries that take the pain [let bankruptcies correct mistakes] move on. The U.S. is following the Japan model.” Jim Rogers, legendary investor

“The moment this fear of deflation turns into a fear of inflation … interest rates rise will in the long end … we are heading … into stagflation.” George Soros, chairman, Soros Fund Management LLC