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Markets - Commentary from an algorithm driven investment manager.

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The Financialization of Precious Metals

  Disclaimer - I am not a gold investor, nor a gold bug. I am merely curious about the price behavior of precious metals ETFS like GLD and SLV. If you follow precious metals, eventually you stumble upon, "The Case for Silver". If you look at the numbers, there is about 10-20x the amount of silver versus gold currently available. The variations are the result of mined vs not mined, do we count jewelry, etc. But historically it has been about 20x. Now however, it is close to 50x. Why would this be? Gold, and by this I mean physical gold, has seen an explosion of interest recently. All manner of investors, including many professionals, make it a cornerstone of thier portfolios. John Paulson has a class of funds denominated in gold. GLD is one of the largest and most actively traded ETFs in the world now, as well as being... Continue reading
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If the SEC Cannot Send Corzine to the Slammer, then "Securities Enforcement" Joins the Ranks of Phrases like "Military Intelligence"

  Seriously....What he has done is a crime. The shareholders lost everything, the bond holders will probably lose, the employees lost, and the customers may or may not escape unscathed. This guy is testifying that he has, "Done nothing wrong", and in the strictest sense, perhaps he has not. But they sent Kozlowski to jail for 20 years, and Tyco is still up and running.A risk manager is the equivalent of your mother, telling you to come in for dinner. They have a broad range of control, and their control of traders is central to the whole idea of "risk management". You can kick and scream and cry, but when they say, "cut", you have to close your position. When your boss is also the trader you are trying to control, and the one person in the firm who can over-ride you, then all the safeguards of risk management go right... Continue reading
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What does it take to run (and possibly save) huge institutions? ....EGO

A PBS documentary about the Merrill- Bank of America merger. Its interesting, and dramatic, but the backdrop to it is.....ego. Thain - "I demand to get paid...and I want my buddies to get paid as well....or no deal...even though I have no leverage" Lewis - "I want to run the largest financial entity in the world" Thain was guilty of plain hubris. Lewis the same. We saw it with Citi and Sandy Weill. We saw it with Japanese banks in the 80s. We have seen it with various hedge funds. ....It will never end.... Continue reading
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Funds of Funds to start buying closed HFs in 2ndary market

From a story about how some Funds of Funds are being formed to specifically bid for locked up Hedge Fund portfolios. This warms my cynical heart. The premise of a functioning capital market is there will be bids. The reasons for our current debacle relate in part to the lack of bids for what was AAA collateral in the form of CDOs, CLOs, RMBS etc. Now some prescient fiduciaries are raising money to bid on funds w/ long lockups, or that have otherwise halted redemptions. 15-20% discounts? than the closed end fund situation. This will persist. Who was buying Hedge Funds? Well.....people with either very poor memories, or those too young to remember what happens when asset markets turn into a self-liquidating tailspin. We might have staved off the collapse of banks, but they are all behaving now as if it were 1958, and everybody is Mr.  & Mrs. Jones,... Continue reading
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California - Arnold Playing with Fire?

...bankrupt. So says Ed @ And after reading the article in the Economist, and the mess that is the upcoming vote on the budget, I am inclined to believe things could get very ugly. California has the lowest bond rating of any state. The shortfall will be $21.3bn if the current raft of measures does not pass (and it is unlikely they will) The Governor is on TV saying, "If this budget does not pass, I will have to start releasing prisoners and cutting teachers". Scary stuff in a state w/ scary gangs and scary schools. So what the hell is the Gubernator doing? Rolling the political dice. If it passes, he looks like a rain maker, and pulls the Republican Party towards the center, and away from Rush Limbaugh. He could form a party with Mike Bloomberg and Mitt Romney, and present himself as a real political heavy-weight. If... Continue reading
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