Archive - Dec 18, 2010

Must Read: Oaktree's Take On Gold - Howard Marks Discusses All That Glitters

The topic of Howard Marks' latest letter is gold. The Oaktree Chairman presents one the better comprehensive pieces on the precious metal, laying out both the pros and cons. Presenting the current broad schizophrenia when debating the value of of gold, Marks, in a comparative allegory to 1952 opinion of Noah "Soggy" Sweat on whiskey, Marks states: "I have no doubt: gold is the ideal investment"...yet..."Gold has no financial value other than that which people accord it, and thus it should have no role in a serious investment  program. Of this I’m certain." Arguably one of the better two-sided presentations on gold's true value, we are nonetheless surprised that Marks did not reference the opinion of Dylan Grice (and others before him), who analyzes the price of gold in terms of the global monterey supply, which can be read in its entirety here.  Nonetheless, as Marks is always one of the most thoughtful observers on markets, this piece is a must read for everyone.

Goldman's Jim O'Neill On The Consequences Of The 10 Year Hitting 5%

Here's a hint: it's all great. Just like the 10 Year hitting 0% was great for stocks, Jim explains why its round trip bacl to 5% is even gooder. In fact, it may be one of the goodest things to ever happen to the gnome underpants business that Goldman suddenly believes the US economy is: "I would guess that GDP growth could be above 3 pct, and it would not surprise me if some start forecasting close to 4 pct soon...checking my simple stats with Jan Hatzius this weekend, the US stock market would “only” need to rise by around 19 pct in order for the 168 bps rise in government bond yields to be entirely neutralized...Are 5 pct US 10-year yields and an S+P of 1475 possible in 2011? We shall see. In my opinion, a 19 pct rise in the US stock market seems quite likely. As for 5 pct bond yields, I think they are much less likely, but not impossible. If they did occur, it certainly wouldn’t have to be for negative reasons." That's all fine and great even if it is totally and utterly insane. The real win here, and it may be hidden at first, is that we now have not a phrase, but an entire essay to challenge that all time dumbest thing ever uttered: "If it weren't for my horse, I wouldn't have spent that year in college"...

FOFOA On Gold's "Focal Point", Or Is Silver Money Too?

All those who believe there is sentiment of complacency within the precious metals camp may be forgiven. After all if one likes gold, one should like silver, and/or vice versa. Today FOFOA presents a counterargument. "I don't write about silver very much. Just like I don't write about copper or pork bellies. But, in fact, I have addressed many of the standard arguments for silver over gold in various comments on this blog and others. I'm sure someone will dig them out again and post links as people pose these arguments once again in the comments. But here's a new one. One of the argument for silver that we hear often is that it is "the poor man's gold." So I guess gold is "the rich man's gold." Well, what is the main difference between rich men and poor men? Is it that the rich have an excess of wealth beyond their daily expenses? In fact, the really rich have "inter-generational wealth," that is, wealth that lies very still through generations. The poor do not have this. So what do you think is going to come of all that "poor man's gold" that the silverbugs have hoarded up? Is it going to lie very still for generations? Or will it circulate, to meet daily needs? Note that circulation velocity is the market's way of controlling the value of any currency. Faster circulation = lower value. Lying still for generations = very slow circulation." Thus today's question - is silver money too?

After BofA Escalates, Refuses To Process Wikileaks' Payments, Wiki Retaliates, Advises Americans To Put Their Money "Somewhere Safer"

Bank of America just fired the preemptive escalation shot in its duel with Wikileaks. Late on Friday, America's biggest mortgage lender, and the firm that is now getting sued left and right for various mortgage transgressions, announced it is joining MasterCard, Paypal and Visa in ceasing transactions for Wikileaks. While this decision will certainly not improve Operation Anonymous' empathy toward the North Carolina bank, it may just precipitate overt retaliation by Assange, who is now rumored to be in possession of data that could provie harmful to BAC. Which is why this sudden escalation out of left field by the bank strikes as surprisingly odd: BofA's upside is very limited while its downside could be 100% - even if Wikileaks is bluffing, why provoke them. And as expected, Wikileaks has already retaliated: in two sequential tweets it advised its 568,117 (and very rapidly growing) subscribers to pull their money out of Bank of America, and also to close all their accounts with the firm, urging them to put their money "somewhere safer." What is curious is to see whether this sudden escalation, in what has now become synonymous with a quest for preserving the first amendment for a substantial deal of people (and freedom of speech globally), will have a far broader impact than the comparable "Pull Your Money" out of the Big Banks venture that was attempted by Huffington Post over a year ago, with unsatisfactory results. If people suddenly personify Bank of America with a First Amendment threat, arguably the one freedom most cherished in America, which is precisely what Assange is trying to do, all bets for the Countrywide acquirer may soon be off.