Indulge Me

I know what I wrote about 8 hours ago.  But my Knicks have won 7 straight.  They have 11 games left.  To win the title, it's the first to get 16 games in the playoffs.  Add that up and you have 34, one more than the relevant number that was recently threatened by Miami (and, yes, I know it only applies to the regular season, but, remember, you're indulging me right now).

I don't really expect them to win 34 straight, but that's the thing about sports.  It's a child's game, played by multimillionaires, and you're basically rooting for laundry.  Yet it gives you something to get excited about, even if it ultimately has no real impact on your life.  I have been a Knicks fan from the beginning.  They have not won a title in my time on this ball of dirt.  They have generally fielded competitive teams, but you always kind of knew that they weren't good enough.  There was the heartbreak of Game 5 of the 1993 Eastern Conference Finals (I remember having tears after that one, and feeling wounded for days afterwards).  There was being shot out of a title in Game 7 of the '94 Finals.  The brawl in the 1997 playoffs with the Heat, and all the suspensions that came afterwards that derailed a pretty good team.  The exciting run in '99, only to realize that they had no shot against the Spurs without Ewing.  There was the Jordan roadblock.  Now there is Lebron.  There was Isiah, and Dolan before, during and after.  The atrocious Allan Houston contract.  Then there was $100 million for Amar'e after Lebron turned us down, only to see D'Antoni run him into the ground in half a season (he has been injury prone ever since).  A tough road, and clearly Lebron has elevated himself to another level which makes the prospect of beating him 4 times in May (in fact, any May going forward) fairly dim.

So, while the commentary doesn't totally fit for Knicks fans (we haven't suffered quite so much), Bill Simmons offered some profound words to his friend Marc Stein, a long-suffering Manchester City fan a few years back that felt appropriate right now:

"Yeah, I get it. You're not even that mad. You just feel empty inside. You head into every big game assuming you will lose, and when it happens, it's a self-fulfilling prophecy. You claim that you have your guard up, only deep down, that guard is lowered just enough that you're hoping against hope that THIS game will be different. Only it never is. "I get it," I said. I tried to explain to Steiny Mo that these things can turn only in the most dramatic of ways. It will never be a typical win. It will be a life experience. It will break you down in sections. It will take you to the abyss and back. You will have to be stripped of any and all hope, and then — and only then — will you see a light. That's the way these things work."

Anyway, time to wake up.

Curse of the Billy Goat

27 straight wins. Not much to add there. As a Knicks fan, I'm starting to feel like a Cubs fan. First it was Jordan, now it will be Lebron.

The King Of Oil

The enjoyable biography of Marc Rich written by Daniel Ammann (2009).  Rich is often viewed as the most successful commodity trader of all time, but remembered for the charges of tax evasion and dealings with Iran that sent him into hiding in Switzerland as a fugitive in the early 1980s.  Ultimately he was pardoned by President Clinton in 2001.  His life is nothing if not interesting.  Born in Europe and fled when the Nazis came to power.  Had dealings with every backwards country with oil in the ground.  Played important, but unreported, roles in significant geopolitical events (particularly in assisting Mossad).  The book definitely treats the U.S. federal prosecutors who pursued him, Rudy Giuliani and Sandy Weinberg, as overzealous and politically motivated.  Certainly a life worth documenting.

Buying Time

In the aftermath of being so completely wrong lately with my shorter term forecasts, I hesitate to write this post. But, without putting myself out there on occasion, there would be little thrill in following the markets, nor in writing this blog. So, here goes.

In continuing to monitor gold and the mining stocks, I think we have found a bottom in the former (I made my first purchase since 2010 recently), and in checking in on the latter, they also look like they are bottoming and starting to turn up, signaling the moment to dip a toe. All of this pretense of knowledge based on the shorter, daily charts.

But, from a longer term perspective, the set-up is even more compelling. Here is a 10-year monthly chart for Newmont Mining (NEM), one of the biggest gold miners out there. While the fundamentals are the most important in my book, the squiggles can still help to guide you on when to buy. And, right now, this chart is a buy to me.

Treasury Update

Below is the past year and a half of price action for the 30-year U.S. bond. After hitting what many have called a secular low at about 2.45% in late July of 2012, it has been in a steady upward channel ever since, making higher highs and higher lows along the way. In making its most recent high (at 3.28%), it is running into overhead resistance at an important level over the time period covered.

And here’s where it gets amusing to me. I have suggested before my skepticism of relying on the charts to guide investment decisions. If the fundamentals are well-understood, certainly technicals can help with the timing of entry into a position. Still, what sometimes can happen is that an exogenous shock helps to trigger price action that seems entirely consistent with what the chart was telling you anyway. In this instance, we have the depositor levy in Cyprus – an event that, not surprisingly, drove people back into treasuries for the time being – coinciding with a resistance level. It’s uncanny.

As to the longer term implications, I will draw from Kyle Bass’ recent speech at the University of Chicago. In imagining an eventual crisis in Japan, he thinks people will flock to Treasuries and German bonds for safety, as a type of Pavlovian response, driving those rates negative. That’s probably what we see happening now in a less dramatic fashion. So, the next few weeks will be interesting, and telling, with regards to whether a real change in trend has occurred with interest rates in the U.S.

The Big Win

I flew through this book by Stephen Weiss (2012) because it was an easy read...and because there wasn't really a whole lot to it, despite the driving premise.  The author, an investment manager himself, profiles a group of "successful" investors -- that term intentionally in quotes because I'm not so sure I agree with his assessment that all of the subjects are worth talking about.  Nevertheless, the characteristics and practices that are consistent in each are intellectual curiosity, a passion for research and the desire to learn everything they can about a potential investment (and by that, it includes a real understanding of the contrary view), an ability to take ego out of the investment process and to admit mistakes (with a subsequent effort to learn from those mistakes), and finally a real focus on risk management.  Otherwise, not much more to say here.

Quote of the Day

"Like all bubbles, the suppression of volatility and suspension of disbelief is strongest right before the reversal of fortune."

-From Hayman Capital Management investor letter, 11/15/12

On Saudi Arabia

The Middle East fascinates me, so this book by Karen Elliott House (2012) kept me interested throughout.  I posted a couple of short excerpts recently which highlight the various topics that are examined.  My main takeaway is that the country is headed for trouble.  The Al Saud dynasty has been holding on for a great long time, but will eventually succumb to the contradictions at play.  From trying to be the main propagator and global center of Islam on the one hand, yet corrupting the practice to protect the Al Saud on the other (by being a historical benefactor to terrorists, until those groups turned on the Kingdom), to still having thoughts of societal reform (for women, for education, etc.) that fly in the face of the fundamentalists who still largely rule the roost on the third hand.  It is a backward society in many respects.  And if people in the United States think we have a problem of those with a lot and many more with very little, Saudi Arabia takes that dynamic to its irrational extreme.  So, in a world with great difficulties, I think the chaos could get even greater when the "swing producer" of oil finally faces its own version of the Arab Spring, whatever form it takes.

Overall, well-written and useful.

Problems to come...

"High birthrates, poor education, a male aversion to manual labor or service roles, social strictures against women working, low wages accepted by foreign labor, and deep structural rigidities in the economy, compounded by pervasive corruption, all have led to a decline in living standards and to the toxic and intransigent unemployment problem among young Saudis."

-From On Saudi Arabia (p. 160)

Just what the world needs right now, a supply shock when it comes to the biggest producer and exporter of its most important commodity.

Cutting the Fat

I mentioned it briefly the other day when discussing his book, but Jim Rogers believes that concentration (rather than diversification) is key to making boatloads of money as an investor. Find the investment idea that you know a lot about, and have developed confidence in, and then invest in it with conviction (i.e., heavily). Along a similar line of thinking, as an investor, Rogers believes that you should operate as if you were only going to make 25 trades in your lifetime. If that were the case, you would be much more careful and prudent, and would not feel any compulsion to always be doing something. Just identify and learn about what you think are the very best ideas, put your money to work, and then wait.  After all, secular cyclical trends don’t happen in days, weeks or months, but over years and decades.

Today I have been spending some time looking at my portfolio, figuring out which ideas are the long-termers, and which ones are peripheral and should probably be sold (regardless of whether they are up, down, or sideways). Feels healthy to do.

Sage Advice

At a recent presentation, Kyle Bass was asked what he thinks the best trade is right now.  For retail investors (since he thinks some of the other stuff that he would consider isn't accessible) is to be long gold / short yen.  Put that on, go to the beach for 10 years, and you'll have nothing to worry about.

Swimming Time Away

I’m not gonna lie, I miss running. And to say that I’ve easily transitioned to life as a swimmer would be wee-bit of an exaggeration. I have had a few swim lessons and realize that I pretty much have no idea what I’m doing. That, and the pool I swim in is always really crowded, with people totally ignoring how fast they are going relative to anyone else in the lane.

Nevertheless (I think I use that word a lot), I have been scouring the internet for suggested workouts. Because, as it turns out, when I just turn up at the pool with no game plan, my workouts kind of suck. Here’s one I am going to try:

-10 minutes easy
-4 sets of 100m, hard pace (recover between each set)
-10 minutes easy
-250m (alternating 25 hard, 25 easier, with no breaks)
-10 minutes easy

All told, that probably keeps me in the pool for about 45 minutes, which seems decent. I will probably wear my short fins to remind me to keep my legs engaged. It’s hard to get as much out of swimming as a good run, but only more time in the water will help me to get there.

I have a follow-up appointment with the doctor this week. My leg was feeling better, but then started to hurt again. I’m hoping this break (pun intended) won’t be another 4 or 5 month production like last year. Which is why I need to figure out this swimming thing, just in case.

Cultural Oddities

"Muslims believe that each human is flanked by two angels who record good and bad deeds.  If a believer even thinks of doing something good, the angel records the thought as a single good deed.  If the believer actually does what he or she says, God gives credit for ten good deeds.  So perhaps this is why Saudis so often make promises even if they have no intention of keeping them.  Partial credit is better than none at all."

-From On Saudi Arabia by Karen Elliott House (p. 42)

Reed'n

-Winner Take All by Dambisa Moyo (2012). The author examines how China has been making a resource-grab globally in recent times, while the rest of the world seems to be sitting on its collective hands. It would appear that everyone is simply ignoring that it is a resource-scarce world, with only Red China acknowledging this reality and preparing accordingly. To make matters worse for the West, its various policy regimes which seek to inhibit behavior or protect local producers by preventing access to foreign producers, only force those growers in Africa and elsewhere even more into China’s waiting arms.

The criticism often volleyed against China is that its effort to gather resources, particularly in the less-developed areas of the world, resembles a form of neo-colonialism. But, as the author (and others) point out, they are not coming to these countries trying to impose religion, government or culture – they are there for the resources, and are willing to build needed infrastructure and schools in order to get it. In fact, the Chinese often have a much more favorable standing in the eyes of the local population than the United States or European countries who take a much different tact in these lands. In general, the argument put forth in the book does seem to confirm that commodity prices only have one direction in which to move: higher.

-Street Smarts by Jim Rogers (2013). More of a memoir than anything I’ve seen him write before. I think he espouses a couple of things that my dad would endorse. To find your passion and the money will follow. Bouncing back from failure will probably make you more successful in the long term. To make a lot of money, resist diversification and concentrate in the ideas that you know and have strong belief about. Business school is a waste of time and money.

Overall, I enjoyed it.

Convenient Theories

The other day, Paul Krugman commented on the recent Stan Druckenmiller interview circuit, in which the hedge fund legend has been blaming Fed interest rate policy over the past 20 years for the boom/bust cycles that we've experienced.  Krugman basically says that financial regulation (or rather, deregulation) was the much more important input in this whole mess -- then proceeds to take a moralistic stance about how it seems incredibly unfair that the majority should suffer a deeper recession (i.e., the "automatic" result without monetary and fiscal accommodation) because the yahoos on Wall Street are so reckless.  We've heard this story from Krugman before.

But, he had one throwaway line at the beginning that caught my attention, and which speaks to his glossing over of the facts when they don't fit his preferred narrative (my bolding for emphasis):

"Druckenmiller blames Alan Greenspan’s loose-money policies for the whole disaster; that’s a highly dubious proposition, in fact rejected by all the serious studies I’ve seen. (Remember, the ECB was much less expansionary, but Europe had just as big a housing bubble; I vote for Minsky’s notion that financial systems run amok when people forget about risk, not because central bankers are a bit too liberal)."

As someone who has read some Minsky, my objection always has been that he never identified the mechanism that encouraged greater risk taking over time, it just seemed to happen -- a very convenient assumption given the outcome that he was solving for.  From my seat, when the ability to borrow is easy and rates are cheap, people are more apt to speculate and bid up asset prices to unsustainable levels.  And, the primary driver of low interest rates is the Fed.  So, Krugman (channelling Minsky) makes a statement that sounds good and certain, but is anything but, and then finds it better not to discuss the nuance and counter-points that exist.

Krugman, convenience is thy name.

Re-assessing My Model

About two and a half years ago, I wrote that the team assembled in Miami would be good and win a few titles, but not as many as people thought.  Well, I was wrong (it's been that way a lot lately).  Lebron James is the second best player of my lifetime, and if he doesn't get injured, his team will probably win the title every year for the foreseeable future.