Posts filed under “Analysts”
A technical break in oil and silver, increased margin requirements by the CME, and a fast exit by speculators have combined to whack the commodities complex by more than $100 billion in a week. The value of the 24 commodities tracked by S&P GSCI index fell almost $90 billion dollars. Add to that the precious metals ETFs fall of another $13 billion dollars, and you have the makings of $100 billion rout.
That the huge drop in market value was correctly forecast by Goldman Sachs Group. Goldman’s commodity analysts now believe “a possible recovery” may be in the works.
Here is Bloomberg:
The combination of slower growth in U.S. service industries and fewer German manufacturing orders helped drive the Standard & Poor’s GSCI Index of 24 commodities down 11 percent in five days, the most since December 2008, and erased all the gains since mid-March. Wheat, zinc and gold rebounded at the end of the week as U.S. payrolls exceeded economists’ forecasts, reducing concern that demand will weaken.
“Given the magnitude of the pullback, it does create an opportunity for more upside potential, particularly in the second half of this year, when fundamentals are expected to tighten,” Jeffrey Currie, the London-based head of commodity research at Goldman, said in a May 6 interview. A month ago, Currie told investors they should be “underweight” in commodities. “In the very near-term, we’d be a little cautious,” he says now.
It is way too early to say the commodity bull market is over, but it bears watching to see how metals and energy trade over the next few weeks.
Given the changes in margin rules from the CME, I would be looking closely at China’s growth for any insight into near term commodity demand.
I am less convinced than Goldie that this is only temporary — but that is because I have yet to find a reliable metric for valuing commodities other than the last price paid. Hence, of all the traded assets out there, Commodities seem to have the strongest adherence to the greater fool theorem.
The rout in the dollar added much to the strength of commodities. The key question for commodity bulls is will the Fed follow QE2 with QE3?
Up until last week, commodities have been a runway train. Trend followers know not to step in front of a locomotive. The future of commodities may be written not so much by the CME or China or ever the weather, but the Federal Reserve.
Goldman Sees Commodity Recovery as Slump Erases $99 Billion
Maria Kolesnikova and Yi Tian
Bloomberg, May 9 2011
Attention Accountants: You are on the hook for what CEOs/CFOs do if their aggressive accounting tactics bring the firm down and you certified their books. That seems to be the latest twist in the Lehman Brothers saga. From Repo 105s to false loans made to themselves, the green visor crowd are catching heat. By helping…Read More
Stock: OTC Nasdaq Spring (SPRNG) Recommendation: Strong Buy from 40-50; Add from 50-60 Price Target: 85 > I put a new trade on yesterday — we are now long Spring SPRNG), and expect to maintain this position for a quarter or two. Recall that we dumped our holdings of Winter (WNTR) late February; that is…Read More
OK, kids, listen up: There ain’t no such thing as NFP whisper numbers. This oddity seems to come up now and again by the usual tin foil hat types. Let’s explain what a whisper number actually is, and why an Employment whisper # is nonsense. Back in the bad old days before Reg FD and…Read More
We have decided to change our stock ranking to reflect current sensibilities more closely. Rankings formerly known as “Buy” “Neutral” “Sell” and “Sell Short” have been given more descriptive terms. Buy is now WINNING, Neutral has been changed to GODDESSES, Sell is TURD and Sell Short is AT WAR. Also please be aware that our…Read More
Tim du Toit is the editor and founder of Eurosharelab. He has more than 20 year of institutional and personal investing experience in emerging and developed markets. He previously published the terrific James Montier Resource page. Tim is based in Hamburg,. Germany. More of his articles can be found at Eurosharelab (www.eurosharelab.com).
Republished here with permission.
I have been an avid reader of Michael Mauboussin’s research since about 2004 when he started working for Legg-Mason.
If you want to learn what successful investing is really about, along with the research to back it up you cannot do better than read Michael’s work.
I have unfortunately not had the pleasure of meeting Michael but it is something I would really like to do.
To get to know his work I have put together this resource page, a listing of all Michael’s articles I could find on the internet along with a short description.
First something on Michael’s background.
Michael Mauboussin Bio
Michael Jacques Mauboussin is the Chief Investment Strategist at Legg-Mason Capital Management Inc. He joined the firm in 2004.
He is also Chief Investment Strategist and Senior Vice President at Legg Mason Funds Management Inc.
Prior to joining Legg-Mason he was a Managing Director and Chief U.S. Investment Strategist at Credit Suisse First Boston (CSFB). He joined CSFB in 1992 as a packaged food industry Analyst.
Michael is the former President of the Consumer Analyst Group of New York and was repeatedly named to Institutional Investor’s All-America Research Team and the Wall Street Journal All-Star survey in the food industry group.
His latest book, Think Twice: Harnessing the Power of Counter intuition was published in the fall of 2009.
He has also written “More Than You Know: Finding Financial Wisdom in Unconventional Places” and was co-author of “Expectations Investing: Reading Stock Prices for Better Returns”.
He has also been an Adjunct Professor of Finance at the Columbia Business School since 1993.
Business Week’s Guide to the Best Business Schools (2001) highlighted Michael Mauboussin as one of the school’s “Outstanding Faculty,” a distinction received by only seven professors.
In 2004, SmartMoney magazine named him as one of its Power 30, a list of “the most influential people on Wall Street”.
Mr. Mauboussin is on the Board of Trustees at the Santa Fe Institute. He holds a B.A. in Government from the Georgetown University.
Now on to Michael’s research
In the article, “The Real Role of Dividends in Building Wealth” dated January 25, 2011, Michael Mauboussin argues that for dividends to be included as a source in accumulating capital, the investor must reinvest dividends. Research has shown that this is unfortunately not the case with the majority of private investors.
In this January 12, 2011 article called “Blaming the Rat” Michael Mauboussin talks about the relationship between incentives and behaviour.
Social scientists often assume that poor behaviour is a result of faulty incentives and that good behaviour reflects well-structured incentives.
Ironically, management literature shows that the relationship between incentives and behaviour is more complex that what these scientists originally thought. In most cases, drive and mindset are more important than the incentive program.
For investors, the objective is to find driven leaders who have good capital allocation skills and have a substantial stake in the company. A good example is Warren Buffett who receives a relatively modest compensation as CEO. Since nearly all of his net worth is invested in Berkshire Hathaway, he has the motivation and incentive to perform well.
In the July 15, 2010 article called, “Untangling Skill and Luck” Michael Mauboussin provides framework on how to differentiate between skill and luck. One of the most difficult things a fund investor has to do. And something you have to test your own performance against all the time. Was the return you generated based on luck or was it skill?
In this article, Michael Mauboussin discusses what comprises a good investment process – finding gaps between expectations and fundamentals and gives guidelines as to the correct sizing of investments.
In a presentation at the CFO Executive Summit titled “It’s all about Managing for Value” dated June 11, 2010, Michael Mauboussin discusses that the primary goal of a corporation is to maximize its long-term shareholder value.
In corporate strategy, the litmus test is whether the strategy will ultimately increase shareholder value.
In this article on “The Colonel Blotto Game” dated May 12, 2010 Michael Mauboussin draws lessons from the Colonel Blotto game on how to compete when you are the underdog.
For a company with fewer resources than its competitor, the best strategy is to compete in a non-traditional way in order to expand the number of battlefields thus changing the basis of competition.
Another lesson from the game is that the “best” team does not necessarily win the game. The winner is usually the one who has effectively played to its strengths and weaknesses.
In “A Surge in the Urge to Merge” Michael Mauboussin writes in January 12, 2010 that a Mergers and Acquisitions (M&A) wave is currently brewing.
While research shows that company making acquisitions in the early part of the cycle deliver the best returns the focus of any investor in evaluating M&A deals is whether the acquiring company adds shareholder value from the acquisition. In economic terms (do the synergies exceed the premium paid) not just looking at accounting based measures.
Invictus here. I have been reviewing a variety of assorted miscellaneous items: Likely flat-earther/creationist Peter Wallison continues to believe that if he blames Fannie, Freddie, and CRA enough times, eventually it will be true that they — and they alone — were the sole causes of the financial crisis. His inability to back down in…Read More
Get your geek on: We study a model where investment decisions are based on investors’ information about the unknown and endogenous return of the investment. The information of investors consists of endogenously determined messages sold by financial analysts who have access to both public and private information on the return of the investment. We assume…Read More