THE FINTAG NEWSLETTER
@ Fri 27 June 2008 : GMT

FINTAG COMMENT

State control of the population.

Let's face it. There are too many of us. As much as nature tries to find equilibrium, whether it is via hiv aids, confirmation of the second amendment or ice caps melting, we just keep on copulating and finding ways of making us live longer.

Simple economics says more people means a greater demand for food and oil. Increase demand on existing supply and prices go up. Is that what is happening now? Well not really. A year ago, commodity prices were on the whole fine. Today, a few million people are born and the world faces subsidies, fighting on the streets for bags of rice and SUV drivers cancelling their vacations to provide for their vehicles. Authorities are trying to control speculative demand but commodity prices still keep rising.

Well I will let you into a secret. As much as analysts wrangle with stagflation and why Goldman Sachs managed to dump all its toxic positions into offshore SIVs whilst everyone else brought them onto their balance sheets, they have missed a glaring and obvious reason as to what is going on in the markets. Last year the markets were irrational as the debt-fest party defied all logic and this year it thinks its smoking dope but is really smoking dried banana skins [Editor: uh?]. Markets are as irrational as ever. Hedge funds like that. Lazy hedgies don't. Anyway, who or what is to blame?

Commodities and food prices are going up because of Mike Bloomberg.

Yes, the mayor of New York. The man is the devil in disguise. He has contributed to a world of unhappiness, soaring commodity prices and falling equity and bond markets.

Have you ever noticed when a news report comes up on Bloomberg that says “an analyst you have never heard of working at a bank you have never heard of” thinks that oil prices might go up in the future that it spikes up almost immediately. And then another non expert goes onto Bloomberg TV and spouts out utter nonsense, but looking for glory says that oil is the new gold and oil shoots up another dollar? It is a self perpetuating cycle. We all live off news from unknown sources as if they have access to information nobody else has.

Ever noticed that when a top economist from a top investment bank says oil may rise it actually falls?

Hedge Funds short on long news and go long on short news. Like Peter and the Wolf nobody believes a word analysts say, even if they say it all together they usually get it wrong. Except Goldman Sachs who always get it right once they have confirmed their beliefs with the Fed.

Bloomberg feeds scraps of news from the wires that isn't worthy of the National Inquirer onto traders desks who trade for a quick buck off short term tittle tattle gossip. Economists talk about the short, medium and long. Keynes said we are dead in the long run so only concern yourself with the short to medium term. But Keynes lived last century and cycles lasted generations. Today's internet generation sees the long term as being at most a day. Long term trends are now dead. Traders and market makers can no longer snort Coke at their desks so now get their kicks out threshold trading where the game is to break new boundaries.

The trader who gets the first USD200 oil futures contract will be a hero. Welcome to Celebrity and youtube attention spans. If you are a trader, turn off your Bloomberg for the day. Next day look at the spikes in oil prices and match them to news feeds and tv interviews. Shocking. It really is.

BANK OF IRELAND'S DAN MCLAUGHLIN FORECASTS ECB RATE RISE IN JULY

finfactsFintag says
You wouldn't expect anything else.

JAPAN REJIGS TAX RULES TO DRAW MORE FOREIGN FUNDS

yahooFintag says
And there I was in Japan and this happens ...

CITIGROUP WILL NEED TO WRITE DOWN $9BN IN SECOND QUARTER, ANALYST PREDICTS

independentFintag says
Now that isn't a surprise.

WORLD SHARES IN FURTHER DECLINE

bbcFintag says
Now that isn't a surprise.

PENSION FUNDS DRIVE GROWTH OF ALTERNATIVE ASSETS

finalternativesFintag says
20% bonds; 80% equities.

This is a typical portfolio allocation of a pension fund. But something is going wrong. Bonds and Equities are falling together and seem to be correlated. The problem is lack of diversification and investing in other uncorrelated (supposedly) assets is what they need to do. But another problem exists. The actuaries, trustees and other civil servant types are not trained in allocating assets to alternative investments. So in come the consultants like Watson Wyatt or Mercer to help these mild mannered and risk adverse asset owners to re-allocate to hedge funds. But another problem exists. The consultants are useless. Really useless. They tell them to invest in real estate instead.

Remember when the San Diego pension fund was advised by a consultant to reallocate hundreds of millions to Amaranth - and then it went bust shortly after? Not good. And so now many pension types think hedge funds are highly volatile and risky affairs. Which is completely untrue.

You might be unaware but the investment management business is pretty corrupt. With rebates, hidden fees, side pockets, side letters and other malpractices it amazes me that some of the really big managers have never been exposed. We will do anything for assets. Anything where there isn't a camera. Anyway, the consultants are hard to bribe. Almost impossible. Actually impossible. So what should I do? Yes, just sit and wait until these pension funds start to think for themselves.

Consultants. Almost as bad as Credit Rating Agencies. And don't get me started on American Airlines ...