Monthly Archives: November 2014

Jim Rogers on double dip recession; Greenspan weighs in

Jim Rogers is predicting a new recession in 2012. So sayeth the Telegraph in a brief overview of his recent comments to CNBC:

Mr Rogers, the respected currency trader and hedge fund pioneer, cautioned that when the downturn takes hold “the world is going to be in worse shape because the world has shot all its bullets.”

Speaking in an interview with business television channel CNBC, the septuagenarian investor said that “since the beginning of time” there has been a recession every four-to-six years, and that’s mean another one is due around 2012…

Telegraph reporter James Quinn goes on to add that noted academic & Case-Shiller index co-creator, Robert Shiller is also expecting a double-dip recession, and that it may come sooner.

This follows David Rosenberg’s recent call of an increased likelihood for a double-dip recession based on the latest drop in the ECRI WLI (economic leading indicators).

Meanwhile, Sir Alan weighs in via the most read finance piece on the Telegraph website: “Alan Greenspan is making UK weatherman Michael Fish look like a good forecaster”.

Never underestimate the power of a really good headline.

Interview: Greg Zuckerman (Greatest Trade Ever)

Matt Davio at MissTrade recently interviewed Gregory Zuckerman, writer and author of, The Greatest Trade Ever, a new book about the “short” subprime real estate trade and the fortunes made by speculators and investors like hedge fund manager John Paulson through their persistent effort in carrying out that trade.

After watching this interview and hearing all the great insights on what made John Paulson’s trade a breakthrough winner for his firm & for his investors, I decided that Zuckerman’s book should be at the top of my reading list. Can’t wait to check it out.

Related articles and posts:

1. Lessons from John Paulson – Finance Trends.

2. ‘Greatest Trade Ever’ podcast w/ Gregory Zuckerman – Slate.

3. MissTrade “Trader Talk” interviews – Vimeo.

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War on savings continues: bank fees and zero rates

Bank fees and ultra low interest rates continue to hit US savers hard. Bloomberg has the story in, “Savers Pay Banks to Keep Cash as Rates Dip, Fees Rise”:

It’s getting tougher for U.S. savers to find a bank where they won’t end up paying to keep their money safe.

The average interest paid on savings, checking, money-market and certificate of deposit accounts fell to 0.99 percent in July, the first dip below 1 percent in a decade, according to researcher Market Rates Insight. Banks also have been raising fees and adding new ones, most recently in response to the financial-services overhaul bill that became law July 21.

The result is that an increasing number of savers are seeing their deposit earnings eaten up by charges. That’s frustrating people like Ken Ward, who recently passed on a savings account with a 0.01 percent interest rate at the Chase bank branch near his home in Wantagh, New York…”

As if years of hyper-spending and living beyond our means consumption haven’t hurt the average American family’s balance sheet enough, we continue to struggle through a period in which near zero rates and real world inflation take their toll on savers.

Here’s an interesting (and depressing) little fact from Tradefast: “if you need/want $100,000 of income in retirement, you only need to buy $26.7 million of US Treasury 2 year notes to reach your goal“.

Of course, if you go out 10 years at 2.51% (current yield on 10 year US Treasury), you’ll probably only need about $4 million worth of Treasury bonds to reach the same income goal.

It’s interesting to note that many retail investors seem to have abandoned the stock market over the past 30 months, taking $209 billion out of domestic stock funds while $559 billion flowed into bond funds during that time. If these ultra low rates can’t spur investors into the stock market, it seems that nothing (short of an incredible, longer-term rally) can.

One of the big investing themes in recent months has been the search for yield, as US savers and investors reach to grab any interest income that they can. Meanwhile, as mainstream news outlets tout vehicles such as junk bond funds and ETFs to yield starved investors, onlookers such as John Rubino warn this trend will only end badly for savers and investors.

Low to negative real interest rates continue to greet savers and investors; it seems the war on thrift and savings continues unabated.

Related articles and posts:

1. The Low-Interest Rate Trap – Dollar Collapse.

2. Investors Shake Up Funds w/ Record Bond Love Affair – Bloomberg.

Marty Schwartz (“Pit Bull”, trader) speaks at Amherst College

Trader and Pit Bull author, Marty Schwartz speaks at Amherst College and shares lessons on markets and life in a rare, hour-long video session (Hat Tip: Tischendorf Letter). 

You may also know Schwartz from his interview in Jack Schwager’s Market Wizards, a chapter which I will revisit in a follow-up post. 

For now, let’s absorb some of the wisdom and life lessons he imparts to the students at Amherst. Those of us who are students of trading and life may find a few pearls in the highlights below: 

Marty Schwartz begins his talk by relating some of his experiences as an Amherst student back in the 1960s (a technological “stone age” by comparison to today). He was decked early on with some pretty poor grades, but he fought to get back on track and completed his studies successfully. One recurring theme from the early portion of his talk is, “it didn’t kill me so it made me stronger.”.

Schwartz tells students, “I’m here to tell you that you can achieve anything you want, if you put the work in.”. Dreams are accomplished with persistence and hard work. 

He began his Wall Street career as a securities analyst. There, he focused on company fundamentals and was paid a salary. However, he had a “penchant for gambling” and longed to work for himself as a speculator.

Credits his wife with giving him the confidence to stop being a loser and to become a winner. 

Realized at age 33 that he needed a methodology to succeed in the markets. He began using a technical approach to trading and he synthesized elements of other people’s styles to form his own trading method. His career began to take off in the early ’80s, especially with the launch of the S&P futures contract in 1982.

Marty says the S&P contract was “made for me, as I’m a market timer.”. He looked for change in velocity in the market when making a trade, with the goal of selling at the top of a sine curve and buying the bottom of the curve. He equates these moves, or curves, in the markets to the changing ocean tides. Marty’s approach was to find parallels to the markets in natural phenomena and “to try to replicate [these events] in the markets.” 

“I like to compare markets to natural events… markets are living, breathing organisms. You have to adjust with them and continually change your methods.” 

Investing is a lot different than trading, given the objectives and time horizons. Since Schwartz used leverage as a short-term trader, he realized that he needed to control his risk to prevent a blowup. “You need to use stops [a stop loss]… define an ‘uncle point’ to limit your risk. If you let large losses occur, it’s much harder to climb up the mountain [or get back to even] and your emotional state is rattled.”.

Schwartz went from being a fundamental analyst to trading with technical analysis, since he was more comfortable with this approach. “You have to look into your own personality and choose something [a trading style] that fits who you are, truthfully.”. 

Money management is critical. “Why do most traders lose money? Because they’d rather lose money than admit they’re wrong.”. 

More from Marty Schwartz in the Q+A session and video above. You’ll find more on trading and psychology in the related posts below. 

Check back with us next week for a follow-up post featuring highlights from Marty Schwartz’s Market Wizards interview. See you then!

Related posts:

1. Why Traders Fail: Mark Minervini Interview – Finance Trends

2. SMB Capital at Indiana U: Aspiring Traders Take Note – Finance Trends

3. Trading Psychology – Martin Schwartz Quotes – Tischendorf 

Marc Faber on investment strategy (Bloomberg)

Famed investor and market commentator, Marc Faber joins Blooomberg TV to talk investment strategy.

There is an interesting and lengthy discussion of the inherent worth of the US dollar and other fiat currencies, and why paper currencies are losing their purchasing power against most asset prices, especially gold.

You’ll also find an update on Marc’s view of Intel shares and technology, along with his views on natural resource shares and why you should try to focus on buying assets and shares when prices are depressed.

Related articles and posts:

1. Marc Faber on Lateline Business – Finance Trends.

2. Marc Faber: Another Case for Inflation – Financial Sense Newshour.

LTCM and the lessons of failure

Earlier this week we heard the news that John Meriwether, he of the infamous Long Term Capital Management collapse and bailout, would be starting his third hedge fund

It turns out his JM Advisors Mgmt. will be launching two new global macro funds, a switch from Meriwether’s tried and true (not really though) relative value arbitrage juiced on leverage approach. 

The idea of Meriwether launching yet another fund, while pursuing a new strategy in the now-hot global macro arena, led me to these thoughts: 

More importantly, it led me to think back to the LTCM crisis and wonder how a once legendary Salomon Brothers trader could find himself at the center of such a disastrous fund blowup. Were there risk controls in place at Salomon that curbed the sort of disastrous, leveraged-fueled strategies favored at LTCM?

Were JM and Co. simply overcome by the hubris of their early success or lulled into assurance by their sophisticated mathematical models? What can we learn from the disastrous failure of LTCM? 

Soon after, I came across a great article that addressed exactly this topic. From the Mercenary Trader blog, here’s an excerpt from “Long Term Capital Management and the Lessons of Failure”: 

“…For a few good years, LTCM snatched up nickels in front of bulldozers with huge leverage, while the fund’s Nobel laureates got high on their own supply with seriously addle-brained concepts like “Continuous-Time Finance.” Then it all went wrong, in accordance with the “100 year storms” that actually seem to occur every five or six years. 

LTCM, and later vehicles of its ilk such as the Bear Stearns High-Grade Structured Credit funds — which had positive returns 40 months in a row before going Kaboom — became living proof of Michael Milken’s admonition that “leverage is not a business model.”

But Meriwether didn’t get the memo, and blew up with the same approach a second time. To be clear, past failure is not always cause to dismiss future success. As most entrepreneurs and traders know, failure can have an upside — IF the result is knowledge, humility and, above all, wisdom gained from one’s mistakes….”

This article is a must read for anyone trading or investing in markets. It’s a quick read, but it not only addresses the problems faced by Meriwether and LTCM, it also takes on the disastrous losses faced by some other high-profile investment managers and the lessons that need to be absorbed by every trader or risk-taking entrepreneur. 

Hope this helps you improve your trading. 

Related articles and posts: 

1. What Makes a Great Trader? Managing Risk – Finance Trends.

2. The Danger of Overconfidence – Janice Dorn. 

Commodities update: May futures performance

An infographic look into the dark heart of the commodities complex, via Finviz‘ 1 month futures performance chart (period ending June 1, 2011). 

As you can see, May has been no picnic for much of the commodities world. We saw a notable sell-off in crude oil in early May, coinciding with the reported killing of Osama bin Laden. 

Speaking of energy, natural gas has shown some strength in recent days. While it was slightly down on the month, the relatively clean energy option for electricity, heating, and transport has moved higher since the recent nuclear catastrophe in Japan.

Some soft commodities, such as cocoa and coffee, sold off or remained depressed. 

However, orange juice futures were able to post some nice gains for the month. In fact, along with oats, OJ was one of the top performers among the Finviz-tracked futures performers (up 8.7% for the month).

Of course, anyone keeping up with the markets knows of silver’s recent plunge off its April highs. While silver may have to consolidate a bit more before resuming its long-term upward trend, gold weathered the early May rout quite well, and is now within striking distance of its early May high of $1,577.40 an ounce. 




That’s a wrap. Thanks for checking in. You can follow Finance Trends on Twitter and StockTwits for more real-time info on the precious metals and investment markets.

Is sovereign debt the new subprime?

Will sovereign debt be the new subprime? This the question posed by Gillian Tett in today’s FT:

A few weeks ago, Claudio Borio, head of research at the Bank for International Settlements, warned in a solemn note to Group of 20 leaders that modern financial policymakers are “driving while just looking in the rear-view mirror”: western finance officials have focused so much on past risks that they fail to spot new dangers.

Worse still, as policymakers rush to implement reforms in response to one financial calamity, they are apt to create distortions that pave the way for the next disaster. Just such an unintended consequence could now be festering in the banking sector, as its balance sheets are increasingly stuffed with government bonds.

These days, there is a near-unanimous belief among western regulators that one way to prevent a repeat of the 2007-08 crisis is to stop banks taking crazy risks with subprime mortgage bonds or complex instruments such as collateralised debt obligations (CDOs). Instead, banks are being urged to hold a higher proportion of their assets in the form of “safe” instruments, most notably sovereign or quasi-sovereign debt…

Read on at the link above for Tett’s explanation of why government bonds may prove to be more of a risky trap (a la subprime MBS) than a “risk-free” investment.

Speaking of subprime and the problems it hath wrought: if you want to take a quick jog down memory lane to the (relatively) innocent days of summer 2007, check out our post, “Asset backs, subprime: shades of 1990?”.

You may also find some additional worthwhile reading on the subject of looming sovereign risk in our related articles section below.

Related articles and posts:

1. Sovereign risk and UK credit ratings – Finance Trends.

2. Sovereign bankruptcies will rise – Puru Saxena at FSO.

3. Marc Faber on sovereign risk (Bloomberg) – Finance Trends.

4. Jim Rogers agrees with Marc Faber (CNBC) – Fund My Mutual Fund.

Banks are bigger problem now: Niall Ferguson

Niall Ferguson joined Bloomberg TV this week to discuss everyone’s favorite “too big to fail” firms, the major US banks.

Key takeaways from this interview? The government bailouts and rescue interventions have resulted in an even greater concentration of assets in the banking sector, while leaving us with the larger problem of moral hazard, as the large banking firms are even more “too big to fail” now.

Lots more to hear from Niall in this interview; see especially his comments on the taxpayer guaranteed backstop provided to the “too big to fails” (“TBTFs”) and the problems this will present down the road.

Related articles and posts:

1. Why a Lehman deal would not have saved us – Niall Ferguson.

2. Jim Rogers: more banks should have failed – Finance Trends.