Mid August musings

Wow, what a week. Stock markets were down considerably until Thursday 40 minutes before closing in NY. Seemed that everybody was just hitting the sell bottom. There was definitely no confidence at all. Commodities were sold alongside. It seemed that some fund who had to cover margin calls were selling the only liquid investments that still were in the interest of some buyers. There was as well a huge movement of unwinding the carry trade, which made the Yen go up and some currencies like AUD go down.
Although we saw a lot of selling and liquidating of positions until Thursday there are still too many speculative positions outstanding. The derivative market is huge and still is several times world GDP.
What do I expect? Well the reaction of the market in the last 40minutes on Thursday and the follow up on Friday is no surprise at all. The Plunge Protection Team had to bring the markets back to almost positive on Thursday. They have a clear target to have at least the week on a positive side. Not reacting on Thursday would have meant that they would have had to spend a lot more money to bring markets back to positive territory on Friday as the psychological impact would have been extremely negative because all the European markets would have followed NY and would have been a lot more negative on Friday. Well so far they were successful with their efforts. Anyway these interventions do cost loads of money. Money someone has to pay for sooner or later. Guess who will pay? We will see much higher inflation soon. As you certainly know the official inflation is not the real inflation. Inflation in the US has been above 10% for some time now. (if you are interested in the exact numbers check http://www.shadowstats.com/cgi-bin/sgs?, a site I can recommend).
So we have the PPT still on the successful path but markets/participants that are still worried.
Has the movement on Friday achieved that we are back to positive psychology? I do seriously doubt it. Maybe we will see the markets calmer for a few days. However there are still positions to be unwound.
Banks have now stricter credit guidelines and a lot of hedge funds, investors, investment funds, private equity funds and so on, will not meet this stricter guidelines. That will mean some will have to go out of there positions. So expect an ongoing sell pressure.
Furthermore we will see the PPT doing there best to have the week closings in the positive area. For how long they will succeed? That is the big question.

Hedge Funds: we got news of more hedge funds stopping redemption. Even a cash fund (Sentinel see http://www.minyanville.com/articles/sentinel-gs-equity-cash-market-money-fund/index/a/13704 ) stopped redemption's. Well most of the hedge funds do only allow redemption on a quarterly basis. Redemption for quarter 3, 2007 would have been noticed until August 15th. I do expect that a lot of hedge funds did receive very high numbers of notices for redemption end quarter 3, 2007. That means I do expect several hedge funds letting us know towards the end of this quarter, that they too will not allow any redemption. Most will claim that it is impossible to get fair prices and thus that selling now would not be in the advantage of the investor. This of course is complete nonsense and shows an enormous arrogance from the side of those who use these sentences. First of all the fair price is defined by the market. The fair price is the price someone is willing to pay for something. It does not help if a seller believes that the fair price should be higher you still need a buyer. So finally it is the buyer or the buyers who define the fair prices. Secondly the funds that used this argument are those funds where the fund managers did not do their jobs correctly. Those who are in trouble are those who did speculate too much, speculate by either (and in most cases) using irresponsible leverage or mismatching maturities and having illiquid investments. There was just to much greed in the market. These fund managers should be demanded. They are part of the mass destruction of financial wealth that is going on right now.

Private Equity Funds. They private equity funds did not feel the heat yet. However there were clearly visible lots of exaggerations in this segment as well (please check my previous posts). There are certainly some serious private equity funds in the market. However I do not trust these well know big private equity funds, like Blackstone, who are basically only generating wealth for their partners but not for the market as such. If investing in Private Equity Funds, I think it is important to know their policies. Personally I would be willing to invest in a private equity fund that invest purely in energy, preferably in alternative energy. Furthermore I would consider an investment in a private equity fund investing in the sectors I do like. As you now know these sectors mainly are related to tangible assets (timber, land, commodities).

Commodities.
We saw a sell out of commodities too. However at these prices I do believe that several commodities are at a bargain. Of course if we would go into a world depression, commodity prices would come down. However in order to see much lower commodity prices we would need the Central Banks to withdraw liquidity from the market and that is something we clearly have not seen over the last 2 weeks, on the contrary there is much more money floating around now.

Gold/Silver
I certainly was surprised that Silver was bashed that much. I was not surprised that the PPT was trying to bring down prices of precious metals (increasing prices would have been one more indicator of deep problems) and they succeeded. Anyway although there was a huge sell pressure, Gold especially did hold quite well. I still believe that we will see much higher prices in both, Gold and Silver towards the end of the year. By the way the price of Gold in Euros went almost above the strong resistance level. Gold in fact is strong when gold prices to go up against all currencies. This I believe is something we will see soon. Personally almost all of my bankable assets are in precious metals.

Gold/Silver stocks
Mining stocks saw huger downside pressure, especially on Thursday. Some of the Juniors lost up to more than 20% in one single day. Of course, investing in Juniors is very risky and those that do invest in Juniors do very well know that heavy losses are possible, however the reaction on Thursday seems to me a exaggerated. If you are interested in Juniors I recommend to visit websites with more information (e.g. http://www.grandich.com/ or http://www.caseyresearch.com/)

Regarding Casey research, they have a free information called "What We Now Know" http://www.caseyresearch.com/wwnk.php. I have been reading this information for months now and I have enjoyed it very much. Excellent information. I therefore recommend you register.