E.D. Hart

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  • Is Oil a Bubble? Part One
    Learn to distinguish between trends and bubbles. Oil is in a trend. Not everything that increases rapidly is a bubble. Oil was $2 a barrel in the 1940s--now its $135. Do we revert to the mean? Or does the worlds diminishing supply and rising demand portend a rising trend?
    May 23 19:09 pm |Rating: 0 0 |Link to Comment |View article
  • Get Out of Commodities - Barron's
    see also:www.financialpost.com/...
    Apr 01 22:08 pm |Rating: 0 0 |Link to Comment |View article
  • Did Barron's Really Pan All Commodity Investing?
    see also: www.financialpost.com/...
    Apr 01 22:06 pm |Rating: 0 0 |Link to Comment |View article
  • Did Barron's Really Pan All Commodity Investing?
    The Barrons article equates ETF money with "dumb money", but many of the ETF buyers are strong hands, unleveraged, and long term investors. This is the opposite of "speculative"...

    I know because this is what clients say they want.

    Then, it makes the erroneous connection that commercials are "smart money".

    Keep in mind that Citigroup's purchase of MBS and other derivatives was "smart money", as was the idea of off balance sheet investments. Thats "smart money" taking more risk than the "dumb money".

    But many of these commercials are more "speculative"... (i.e.--short term and leveraged) than the ETF holders.The short term, and leveraged positions of the commercials shorts in particular is the opposite of "non-speculative&...

    The evidence that the article uses would better used to make the opposite conclusion of the one it comes to.

    Moreover, The word "bubble" is overused, and in fact, a linguistic bubble has developed in its use. The contrarian linguistic sentiment indicator I use tell me that as the use of the word Bubble increases in the press...the overall level of actual financial bubble declines. (ok, not really, but it amuses me).

    Bubble should include--increasing financial leverage, short term traders taking more and more of the trades, and a subjective sense that the assett price cant decline,

    Therefore: belief that Houses cant decline+excessive leverage+ house flipping= bubble.

    lets look at commodities: overwhelming belief that they will decline+little leverage on long side (but excessive leverage on short side in some commodities+little evidence (at least in most of ETF's) that traders are DOMINATING the markets. What does this spell?

    Not a bubble...a short term correction perhaps. Lets not contribute to the linguistic bubble by overusing the word "bubble".

    Its a misuse of language and non-analytical.
    Apr 01 16:23 pm |Rating: 0 0 |Link to Comment |View article
  • Get Out of Commodities - Barron's
    A few thoughts:
    1) Commodities are increasing in US dollar terms, but in other currencies as well...so it is not merely a US dollar play, and over the long term, commodities can rally with an increasing dollar (but not short term).

    2) Commodities are an asset class, simple as that, although under owned. Most people, by far, have little or no exposure.

    3) Commodities do well in a rising inflation environment, but tend to under perform in stable or falling price environments.

    4) Why no mention of the "bond bubble"? Bonds are ridiculously overpriced and under yielding. Why isn't the smart money rushing for the exits from bond exposure, including treasuries? Answer: There is hope of another rate cut, and inflation expectations are for moderating prices going forward.

    5) Keep your exposure to commodities to a reasonable level--say 5-30% depending on your inflation expectations, and then don't worry about it. Diversify across the four mega classes of assets and the markets will take care of themselves--real estate, stocks, bonds, commodities. Then it doesn't matter if Barron's is correct or not--going forward, you are protected.

    Mar 31 16:08 pm |Rating: 0 0 |Link to Comment |View article
  • Commodities: Is It All Over?
    A few ideas to consider:
    1) Most major industrial countries are growing their money supply at between 12-21% per year. This is not only a US dollar story.

    2) Growth in money supply at a higher rate than productivity and economic growth is inflationary.

    3) We are in a rising inflationary environment that is global in scale, and likely to continue for ten to fifteen years.

    4) Commodities are a proven asset class in a rising inflationary environment. (but tend to do poorly in a stable or falling inflationary environment)

    5) The average of assets allocated to commodities in major accounts of high net worth individuals (according to a recent survey) was 3%.

    6) The asset allocation recommendation by a recent (2006) PIMCO study (analysis done by Ibbotson and Associates) recommends between 12-29% of assets in a portfolio should be allocated to commodities for minimizing risk, and maximizing return.

    7) Assets allocated to commodities in portfolios invested globally are likely far from 12%, and much closer to 3%. Most people I talk to have 0% allocated to commodities.

    8) The past is not the future. The future is not the past. We are over and through the tipping point and a tectonic change has occurred that has changed the economic landscape. People worldwide will be experiencing higher inflation going forward--and they will seek protection with commodities. 1980-2002 was a bad time to be a gold investor, in general due to stable or falling inflation. Going forward, its a different story for commodities.

    9) The popular press has the story wrong--they report "the bursting of the commodity bubble", but completely ignore the change in economic fundamentals--which drive the investment returns. The story should be: "Correction in commodities presents investment opportunity"

    10) Think for yourself.
    Mar 21 14:12 pm |Rating: 0 0 |Link to Comment |View article
  • Too Much Money Chasing Too Few Commodities
    Its worth noting that the president and his administration has been very, very confident about a lot of things.
    Feb 27 15:11 pm |Rating: 0 0 |Link to Comment |View article
  • Commodity Analysts Believe the Party's Over
    When Apple, Google, RIM and others soar year after year, traders, and even investors believe that they must be good investments.

    When asked why, people usually say something about expectations for future earnings growth and a confidence based on the fact that they have gone up in the past. (look at that chart!)

    People often ignore that technology earnings growth rates are priced for higher and higher expectations, until they are priced for perfection, and then a disapointing earnings report sends the stock back to earth. That, and the fact that technology earnings are very cyclical.

    But, when investing in stocks, its a good thing to see a rising upward line.

    However,when commodities soar, people see a correction looming and look for them to fall. (oh my gawd, gold topping at $800, time to sell!)

    I bought gold in every year from 1997 to present, and early on, people everywhere pointed to golds low price as an indicator that gold was a rotten investment, BECAUSE OF ITS LOW PRICE.

    And because it hadnt kept pace with inflation (never that it was undervalued).

    Fast forward to a decade later and the same magazines newsletters and commentators are saying that gold in a bad investment, BECAUSE OF ITS HIGH PRICE. (never that the trend is intact, and its still undervalued)

    Finally, its true there is no published calculation (that Ive seen) exists that can tell you how to compute a given commodities value (unlike stocks where you can compute intrinsic value)--there is nevertheless a pent up demand and a supply that isnt keeping pace, ergo higher prices.

    Look at palladuim and natural gas as two great examples--I dont need to be able to calculate their present intrinsic value, because I cant.

    Everything I know and read points in the same direction---that the current and forseeable future supply isnt sufficient for current and future demand.

    But, its all very imprecise.
    I would rather be roughly right than precisely wrong.
    Feb 24 02:55 am |Rating: 0 0 |Link to Comment |View article
  • Commodity Analysts Believe the Party's Over
    "Expectations arbitrage" is the way to make money here.

    Furthermore: the fact that markets act to substitute commodities keeps some rising when others drop. (that is some commodities are undervalued with respect to others)

    If oil does drop to $ 80, I would still expect natural gast to rise north of $12 mmbtu based on equivalent heat value. (not drop)

    or look at the substitution of palladium for platinum...if platinum falls 10% (possible) from $2200 to $1980 (roughly), I would expect palladium to increase from its current $510 per ounce or so (havent checked today) to between $700 and $900 per ounce.

    The expectations are just that...expectations..a... a wonderful way to arbitrage what the market expects and is signaling in todays prices, with what is a likely future outcome, based on substitutions and historical patterns, that results in higher prices, given a sufficiently long time horizon.
    Feb 23 04:30 am |Rating: 0 0 |Link to Comment |View article
  • Thursday Outlook: The Inflation Con Game
    I'll stay away from the political banter and focus on something else the media almost all get wrong.

    For the record: Shadow stats is a legitimate and respectable website that I have much confidence in. In the governments cpi figures:none

    Humor me and estimate something: how much have prices increased--for real--since 1980? Then apply this back of the envelope calculation to gold, oil, silver.

    First: Look at the shadow stats graph of inflation for 1980 through 2008. Look at the SGS alternate line blue) and estimate inflation over that 28 years.

    I get 7% if I'm generous,(give or take, no?)

    That means, roughly, that prices double every 10 years.

    Second, take the high for Gold in 1980 ( chose 850, or 875).

    Third, project, (always dangerous) to the end of 2009. Thats 30 years from 1980 to 2009.

    30 years divided by 10 years to double and you have three doublings which equals--up by a factor of 8. Yikes!

    Fourth, take 8 times 850 and you get $6800 for gold/ounce or if you prefer 8 times 50/ ounce for silver and you get $400.

    I don't pretend to predict what will happen--I'm aware of multiple faults in my methodology--I'm merely stating what is possible, given the current environment. People aren't panicked because theyve been lied to, and the media isn't savvy or courageous enough to report it.

    But the tsunami of dollars that are circulating in the world will eventually hit our shores (as US Dollar loses its reserve status ever so gradually) and we will see much higher inflation for a decade or more. That is a prediction.

    Interesting eh?
    Feb 21 19:30 pm |Rating: 0 0 |Link to Comment |View article

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