David will return from holiday on Tuesday August 31st.
Commentary will be written by Eoin Treacy until August 25th.

Durable Goods rise 1.7% - This is an interesting article from Bloomberg commenting on the eagerly anticipated Durable Goods numbers out of the US this afternoon. Here is a section:

Aug. 25 (Bloomberg) -- U.S. orders for durable goods rose 1.7 percent in July, more than forecast, as bookings surged for commercial aircraft and demand increased for business equipment, a government report showed.

Orders for items made to last at least three years increased to $195.6 billion after rising a revised 1.1 percent in June, the Commerce Department said in Washington. Excluding transportation equipment, orders rose 0.1 percent last month following a 0.3 percent drop.

Businesses, flush with profits amid rising sales, are using the cash to replace aging equipment and replenish inventories. Rising capital investment may foster a pick up in production that will keep the economy growing in the second half of 2004. Orders waiting to be filled rose the most since March.

``Capital spending is proving the main thrust for the economy,’’ said Adrienne Warren, a senior economist at Scotia Capital Inc., in Toronto. ``It will be providing the impetus to growth for the second half of the year.’’

Economists had expected durable goods orders to rise 1 percent to $194 billion, based on the median of 64 forecasts in a Bloomberg News survey. Orders excluding transportation equipment were expected to increase 1.3 percent to $138.1 billion.

The Treasury’s 4 1/4 percent note fell 1/16, pushing up the yield 1 basis point to 4.28 percent at 8:40 a.m. in New York. Orders for transportation equipment rose 5.6 percent after rising 4.7 percent in June. Bookings for commercial aircraft increased 100.4 percent, the most since July 2002.

Boeing Co., the second-largest maker of commercial airplanes, took orders for 75 aircraft last month compared with 14 in June, according to figures on the Chicago-based company’s Web site. Of those, 58 came from foreign buyers, suggesting exports may be set to rebound. Total U.S. exports in June had the biggest decline since September 2000 as shipments of commercial aircraft and other capital equipment fell.

My View: These positive numbers have been anticipated in the market for the last 4 days and have been priced in. It has certainly been a case of "buy the rumour, sell the news", as equity indices have dropped on the news. In the conclusion of this story there is a caveat regarding tax breaks for capital investments before December 31st.

Still on the topic of today’s figures; New Home Sales down 1211K to 1143K today. This news may have some interesting consequences for the housing boom of recent years. One immediate consequence has been its effect on the Lumber price, which has fallen to $437.50 from a high of $460, two days ago.

Gold Market Manipulation - Thanks to Daniel Kirstein for this report from Sprott Asset Management, which has also received a degree of coverage in Mineweb today. Here is a section:

Milling-Stanley also stated:

I believe hedge-fund short sales are largely responsible for substantial increase in the supply of gold to the market-gold that has been borrowed back from central banks and sold to finance these short positions.

This is what has been depressing the price so far in 1997. There is no doubt the large speculators are taking advantage of the market’s fear of central bank sales to bully the gold price down and make huge profits.

Importantly, Milling-Stanley further confirms that speculative carry-trade borrowing was far more responsible for gold’s descent than either reported gold sales by central banks or forward sales in conjunction with producer hedging. A Lehman Brothers report from January 2000 explains why so many investment banks and hedge funds participated in the gold carry-trade:

Data from the Comex implies that, except for brief periods of time, the gold market has consistently been in a net short position since 1996. Why?

We believe that the incredibly high liquidity of the gold market suggests that a net short position is the natural equilibrium for the time being. The reason is that gold can consistently be borrowed much cheaper than money. For example, it is currently possible to borrow gold for one year at a lease rate of 1.8% while a one-year bond is yielding about 6.6%. Borrowing gold, selling it, and investing the proceeds at the risk-free rate is an attractive trade. Essentially, the price of gold could rise 4.8% or about $13 per ounce and a bearish speculator would still break even on a short position established today. Clearly, ceteris paribus, the risk/return profile of the gold market favors the short side. We expect this to continue for the foreseeable future.

My View: I agree that there hasn’t been a conspiracy. I used to talk to a gold desk when I was at Bloomberg who told me that all the way through the ’90s the "Carry Trade Game" was the only one in town. Essentially trading gold had become a one-way street and as in any market when a degree of certainty is entertained the amount of acceptable risk multiplies. Referring to the charts I’ve posted over the last couple of days we can see that gold began its upward move in mid 2001. I have no doubt that as we see further price improvements there will be further reports explaining the long bear market and using this as a means of making massive extrapolations forward.
Gold has had reserve status for centuries and will more than likely approach that status again in the future. The timing is going to be everything.

Bubbles in the Hedge Fund Industry - Thanks to Peter Twaite for this report from DRKW arguing the case for a bubble developing in the hedge fund industry. Here is a section:

We haven’t come across any surveys of investors that reveal their expected returns on hedge funds, so it is a little hard to prove that people have overly optimistic expectations. However, piling into funds that have done well is certainly consistent with simple extrapolative behaviour i.e. what has done well in the past will do well in the future.

The chart below shows the return on the S&P500 and the return on the Tremont hedge fund index. Hedge funds in aggregate haven’t exactly trounced the equity market. The risk-adjusted picture would be more favourable (in aggregate, but not individually), but even so, the hype of hedge funds seems to be running slightly ahead of their delivered performance.

Indeed one of the charges frequently levelled against hedge funds is that they are really selling repackaged beta at alpha prices. In Global Equity Strategy, 22 May 2003, we presented evidence drawn from the work of Asness et al to illustrate this point. Asness et al point out that many funds hold difficult to price OTC securities or illiquid assets. In order to account for these, they suggest using a lagged beta approach. So instead of using just the current market return, previous months’ market returns are included as well, and the beta is summed over all its current and lagged values. For the record, beta is measured against the S&P500. Their original findings are shown in the first table overleaf:

The results show an alarming lack of alpha, and a disturbing presence of beta. Indeed, when one corrects for the role of lagged beta, the risk of investing in hedge funds essentially doubles!

The Borowitz Report - Here is another entertaining instalment from Andrew Borowitz:

PARIS HILTON CALLS FOR END TO SWIFT BOAT FLAP

Distracting Attention Away From Her, Heiress Says

Hotel heiress and reality TV star Paris Hilton today called for an end to the controversy over Sen. John Kerry’s Vietnam War service, warning that the continuing swift boat flap was distracting attention away from her.

Speaking at a press conference in Washington, Ms. Hilton told reporters that the controversy "has overshadowed the issues that really matter to the American people, such as my messy break-up with Nick [singer Nick Carter of The Backstreet Boys]."

Ms. Hilton also said the she had experienced "a significant and troubling decline" in ambushes from paparazzi ever since the swift boat brouhaha began.

In an effort to blunt the controversy stoked by the group calling itself Swift Boat Veterans for Truth, Ms. Hilton announced today that she and her sister Nicky had founded a new political action committee called Hotel Heiresses Against Swift Boat Veterans For Truth.

Ms. Hilton picked up an important backer later in the day when actress Lindsay Lohan voiced her support for the tabloid princess’s decision to take on the swift boat veterans.

"Before the whole swift boat thing came up, people were obsessed with whether or not I had my breasts augmented," Ms. Lohan said. "I’m deeply concerned that the nation seems to have lost focus on that."

"If these swift boat veterans were really for truth, they’d want to know the truth about my breasts," she added.

In other political news, the Republican National Committee announced today that President George W. Bush’s acceptance speech at the convention next week would be simulcast in English.

Previous Item  Next Item  Print this Item  Email this Item   Archive September 2010 August 2010 July 2010 June 2010 May 2010 April 2010 March 2010 February 2010 January 2010 December 2009 November 2009 October 2009 September 2009 August 2009 July 2009 June 2009 May 2009 April 2009 March 2009 February 2009 January 2009 December 2008 November 2008 October 2008 September 2008 August 2008 July 2008 June 2008 May 2008 April 2008 March 2008 February 2008 January 2008 December 2007 November 2007 October 2007 September 2007 August 2007 July 2007 June 2007 May 2007 April 2007 March 2007 February 2007 January 2007 December 2006 November 2006 October 2006 September 2006 August 2006 July 2006 June 2006 May 2006 April 2006 March 2006 February 2006 January 2006 December 2005 November 2005 October 2005 September 2005 August 2005 July 2005 June 2005 May 2005 April 2005 March 2005 February 2005 January 2005 December 2004 November 2004 October 2004 September 2004 August 2004 July 2004 June 2004 May 2004 April 2004 March 2004 February 2004 January 2004 December 2003 November 2003 October 2003 September 2003 August 2003 July 2003 June 2003 May 2003 April 2003 March 2003 February 2003 January 2003 December 2002 November 2002 October 2002 September 2002 August 2002 July 2002 June 2002 May 2002