May 11 update

It was certainly an interesting week. Today the Plunge Protection Team was working again with full power in order to bring the equity markets up again. Precious metals were brought down this week. There is a clear target not to let the gold go above the 700 USD oz. In order to keep this price under control, Central Banks sold heavily physical gold over the last 2 months. The Spanish Central Bank alone sold 80 tons of gold over the last 2 months. While the European Central Banks are selling in order to cap the price, the Indians and Chinese are buying. From the supply side we got news that South Africa gold production is down considerably and Peru as well. On the physical side it is clear gold has to go up. It seems to me that the Central Banks are desperate and really afraid to see higher gold prices. I still believe we will see a gold price above the 885 USD oz. by the end of the year. With the liquidity created by all Central Banks practically we will see higher inflation and higher prices anyway.

The FED kept the Fed rate at the same level. Must be really hard for them as on one side they should increase interests in order to fight inflation but on the other side the economy and especially the housing sector needs desperately lower interests in order to move the awakening a bit further into the future.

Oil: CEO from the Canadian oil company says we are past PEAK. Please read info on below link
http://www.canada.com/calgaryherald/news/calgarybusiness/story.html?id=681efa21-6759-40f0-bede-091009c97442
Interesting to see are in my opinion 2 things. First I find it ridiculous how the journalist who wrote this piece somehow thinks he knows more about oil discovery and production than an executive of a major oil company and secondly often when they want to use the term that Peak oil is way out in the future, they mention Daniel Yergin and whenever they mention his name indicate as well that he is Pulitzer Prize-winning. I always thought that the Pulitzer Prize is a book price for excellent work of authors. I really did not know that that fact makes somebody really an oil&gas specialist. How about the Nobel prize winners?
Well I truly believe that Peak Oil is a very important topic. Oil is everything in our live. It is not only transportation but really everything. What we will have to face is not only higher prices in all goods but especially as well higher prices of food. This will hurt a lot of people, especially the low income families. Please check my website the posts under topic Environment, Water......

Hedge Funds. Clearly not my favorites for the moment being. There are too many of them and most have not shown acceptable performances. However they are certainly champions at charging fees. That as such would be OK, if only the performances would justify it.

Private Equity: For private equity funds it is getting more and more difficult to find attractive targets at acceptable prices. In my opinion they pay too much for what they buy. The business for them is really magic. Borrowing a fortune using the assets of the business they bought, and use the money to pay themselves millions in fees. How to do it? Well as mention buy a company, borrow money using that asset, charge the company outragous advisory fees, arrange a special dividend payout to the shareholders (the private equity fund), repackage the the same old company (put some make-up) and sell it to small investors through an IPO. This works quite well, as examples such as Burger King demonstrate. I only wonder if the whole procedure really did add value to the company and not only to the pocket of the private equity managers.
Here some comments from Warren Buffet re Private Equity Funds: Buffett noted a great flaw in the scheme. Private equity firms have a "great compulsion to invest quickly." That way, they can go out and raise another fund and keep the fees coming in. Basically, private equity firms are paid for activity, not results. And the nature of the business means that we won't know who is successful until many years have passed. Buffett said the "score card is lacking."

Warren Buffet on Derivatives: On derivatives, Buffett noted how derivatives increase leverage - a "largely invisible leverage." That could make a crash or downturn even worse, like adding gasoline to a fire. This is one of the big risks in the market today - the heavy derivative use by many firms. These instruments are untested in a crisis. We really don't know how they will act or what they will cause people to do.

Well that is it for the moment.
Regards
Fritz