The Mad Hedge Fund Trader-Friday
Global Market Comments
December 18, 2009
Featured Trades: (DBA), (MOO), (PHO), (FIW),
(INTERNET BANKS), (BUREAU OF LABOR STATISTICS)
December 18, 2009
Featured Trades: (DBA), (MOO), (PHO), (FIW),
(INTERNET BANKS), (BUREAU OF LABOR STATISTICS)
1)I spent an evening with Lester Brown, president of the Earth Policy Institute and a winner of the coveted MacArthur Prize, for some long term thinking about the environment and its investment implications. Global warming is causing the melting of ice sheets in Greenland and Antarctica, glaciers in the Himalayas, and the Sierra snowpack. Water tables are falling and fossil aquifers are depleting. In the coming decades this will cause severe shortages of fresh water that could lead to crop failures in India, China, where one billion people depend on mountain runoff to irrigate crops, and even California, which delivers 80% of America’s fresh vegetables. . The fresh water inputs in one person’s food and materials consumption works out to some 2,000 liters a day. That is no typo. As a result, all food prices will rise. To head off the greatest threat to the global food supply in human history, we need to cut carbon emissions by 80% before 2020, not 2050, as is being discussed in Copenhagen. This can only be accomplished by redefining food and the environment as national security issues and launching a wartime mobilization. These difficult goals are achievable. Enough sunlight hits the earth in a day to power the global economy for a year. Texas alone has 20 gigawatts of wind power operating, under construction, or planned, enough to take 5% of our 250 coal fired power plants offline. Electricity demand could be cut by 90% purely through greater efficiencies, like switching from incandescent bulbs to LED’s. Europe could get its entire 300 gigawatt power supply from solar plants in North Africa at current market prices. Cars powered by wind generated electricity would bring fuel costs down to an equivalent 75 cents a gallon, as electric motors are three times more efficient than internal combustion engines. While Brown’s predictions are a little extreme for many, they mesh perfectly with my long term bullish cases for food and water plays. Take another look at the food sector ETF’s, (DBA) and (MOO), and the water space ETF’s (PHO) and (FIW).
2) Is your bank giving you the cold shoulder on your last loan application, not retuning your phone calls, or asking for interminable documentation? Just bypass them. Try an online peer to peer bank, the Internet’s answer to the financial crisis. With massively expensive branch networks, 19th century loan processing, inches of closing documents, and a boatload of regulation, banks are ripe for cannibalization by low cost predators. I had a chance to speak to several of these entrepreneurs in San Francisco. The simplest model matches a one page online loan application and FICO score with a single lender at interest rates of around 9%, plus a small fee. More advanced organizations pool borrowers and lenders, and offer secondary markets for loans, if you want to cash out before maturity. Prosper has been around the longest, and unfortunately was early enough to get sucked into the subprime debacle. They have since relaunched their product with tightened lending standards. Lending Club came next, followed by Pertuity Direct and National Retail Fund. People Capital is pursuing a niche market matching up student borrowers with lenders. We are not far off from the sector being viewed as a new alternative asset class, with the total loan book now exceeding several hundred million dollars. With online fixed overheads near zero, the potential to compete on margins is enormous. While this is purely a venture capital play at the moment, watch this space.
3) My guest on Hedge Fund Radio this week is John Brady, senior vice president for interest rate products at MF Global. You will know John well from his frequent appearances in the global business media. He will give us his surprisingly bullish views for 2010 for US and foreign stocks, bonds, commodities, and currencies. John comes to us via a career at Harris Futures, JP Morgan, and nine years as a strategist at MF Global. And no, John did not bump into Professor Barrack Obama when he was getting his MBA at the University of Chicago. Hedge Fund Radio is broadcast every Saturday morning at 12:00 pm Eastern time, 11:00 am Central time, 9:00 am Pacific Coast Time, and 5:00 pm Greenwich Mean Time. For the online link to the live show, please go to www.bizradio.com or click here , then click on “Listen Live!”, and click on “Houston 1110 AM KTEK.” For archives of past Hedge Fund Radio shows, please go to my website by clicking here .
QUOTE OF THE DAY
“Food is the weak link in the global economy,” said Lester Brown, president of the Earth Policy Institute.
“Food is the weak link in the global economy,” said Lester Brown, president of the Earth Policy Institute.
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Do you not allow comments on here? I've made several but they do not come through.
Anyway, I like most of your comments but the global warming nonsense is about believable as evolution. Yes, the earth may be warming, but this does not mean that if we cut our carbon emissions that will do anything to stop it.
Read the diaries of winegrowers in the dark ages. Glaciers were literally moving through Europe. And there were no carbon emissions.
When are real scientists going to join the debate. Are CO2 emissions accelerating the process, sure, I would guess that they are, but the question is to what extent is that happening. That is the baseline before they tax the crap out of everyone and ruin economies further.
Just my two cents.
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I'm a scientist and I can tell you that the data that CO2 emissions are increasing and that this is accelerating global warming is unequivocable. the only question is whether we can do enything about it. that's why I'm in favor of wind, solar, and nuclear. the world will go on, but it may be without us. Personally I think that bacteria and amoebas have a much better shot, and many biologists think that rats and cochroaches may be the ultimate inheritors of the earth.
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Explain why the 5000 feet of ice on the Canadian shield and the glaciers in Kansas disappeared before man discovered fire and you will have a better explanation for Global Warming than any presented in the media in the last decade.
Remember, "Correlation is not proof, only the beginning for serious investigation."
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Global warming has been going on for 20,000 years. Yosemite was under a mile of ice at one point. the problem is that it is accelerating faster than our ability to evolve. Personally, I think bacteria have a brighter future than we, and many scientists thing raats and cochroaches will be the ultimate inheritors of the earth. Living underground, they are atomic bomb proof.
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Yes, Yosemite is another excellent example of climatic change. But the true discussion begins when you use two assumptions that are not universally accepted; "accelerating" change and "ability to evolve".
Most, if not all, discussions of data and outcomes never clearly document the inherent error or measurement of error in the dataset they use, and hence it is even more difficult to document acceleration if it is present.
And the "ability to evolve" is arguable from the standpoint that the population and society still seems to be holding it's own against any rate of climate change.
But that aside, I like the concept of the longer term play in food and water. No matter what the energy source, the survival of all societies is going to rely on reliable sources of clean water and nourishing food.
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Readers interested in getting exposure to Junior mining companies should look at the GDXJ ETF issued by Market Vectors unlike its big brother GDX it focuses on smaller cap which although offer higher risk offer better value and higher chances of being taken over. currently 56 holdings so this helps to spread the risk.
Keep up the great work - Season's Greetings,Vince
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I've been reading on seekingalpha, the 'china next black swan' article by katsenelson. comparison from china now to japan late 80's. seeing as you were there, what are your opinions?
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There is no comparison at all. The chinese are investing much more intelligently than the Japanese, because it is the government making the calls , not lemming like private companies. the Japanese bought trophy golf courses and ofice buildings at market tops, and sold them at bottoms. The chinese are pouring most of their investments into oil and resource assets which they will consume.
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