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Prior to returning to self-employment, Tim ran International Investment Conferences, a producer of mining investment networking events. He came into the position thanks to a blend of experience in the media and mining industries. He gained a working knowledge of the mining industry as well as... More
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  • The three worst investment calls of the decade
     ST. LOUIS (Alpha Found) — Time is a nasty opponent of investment prophets and prognosticators. We pick three calls that were hyped-to-the-hilt, but failed-to-the-fullest.

    August 2003: Natural gas production will fall off a cliff

    Matt Simmons, CEO of the “world’s largest Energy Investment Bank”, Simmons & Company International, is a fantastic self-promoter, but his energy calls have been of little use to investors. His 2003 statements about American natural gas production falling off a cliff were a complete bust.

    Mr Simmons is a nice guy, and we interviewed him back in 2005 following the publication of his book, Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy. But wrong is wrong.

    Here are the key excerpts from a 2003 interview with Simmons:

    Simmons: As you know, I have been talking for some time about the natural gas cliff we are experiencing. …

    Well, I know you understand it, but people need to understand the concept of peaking and irreversible decline. It’s a sharper issue with gas, which doesn’t follow a bell curve but tends to fall off a cliff. …

    Someone’s going to be left holding the bag big time. If natural gas consumption surges in ten days of excessive heat then it would require almost a complete shutdown of industrial consumption to compensate and protect the grid. As I have been reporting for years now, there isn’t going to be enough gas to run those plants, let alone new ones. …

    Pray for no hurricanes and to stop the erosion of natural gas supplies. Under the best of circumstances, if all prayers are answered there will be no crisis for maybe two years. After that it’s a certainty.

    Just one chart is needed to put Simmons’ prediction on the ash heap of history:

    As Daniel Yergin and Robert Ineson point out in a fantastic article from November, Mr Simmons failed to see what was happening with the ’shale gale’, otherwise known as unconventional gas.

    Yet the natural gas revolution has unfolded with no great fanfare, no grand opening ceremony, no ribbon cutting. It just crept up. In 1990, unconventional gas—from shales, coal-bed methane and so-called “tight” formations—was about 10% of total U.S. production. Today it is around 40%, and growing fast, with shale gas by far the biggest part.

    Horizontal drilling and fraccing have driven the surge in unconventional gas, driving down prices as a consequence. Granted there are many shale skeptics, but the production speaks against the skepticism for now. Peak oilers beware…

    The ramp in production has had a profound effect on reserves:

    Proven reserves have risen to 245 trillion cubic feet (Tcf) in 2008 from 177 Tcf in 2000,despite having produced nearly 165 Tcf during those years. The recent increase in estimated U.S. gas reserves by the Potential Gas Committee, representing both academic and industry experts, is in itself equivalent to more than half of the total proved reserves of Qatar, the new LNG powerhouse. With more drilling experience, U.S. estimates are likely to rise dramatically in the next few years. At current levels of demand, the U.S. has about 90 years of proven and potential supply—a number that is bound to go up as more and more shale gas is found.

    Conclusion: Matt Simmons was exactly wrong. And he does not help his case by trying to justify the “off a cliff” scenario as merely interrupted by shale gas.

    May 2000: “We also told [Speaker Dennis Hastert] that if his Republican friends won the 2000 Presidential elections, the gold market nightmare would blow up on their watch”.

    GATA and its windmill tilting leader, Bill Murphy, have made any number of bad predictions in the course of peddling the gold price suppression conspiracy over the course of a decade. For example, they have repeatedly and repetitively predicted:

    You get the picture; GATA has been wrong over and over and over. But it deserves special mention for the unequivocal prediction that the “gold market nightmare” would blow up on the Republican watch (i.e. Jan 2001 – Jan 2009). Given GATA’s love of politicking, the failure is even more pronounced. Imagine losing a bet with Dennis Hastert!

    November 2008: Citigroup would collapse because of the Mumbai terrorist attack

    How could we resist adding Ruppert to the mix! Easy now, fellas.

    With fires and shooting still blazing across Mumbai a year ago, Ruppert fired off the hip with this:

    The Achilles tendon of globalization has just been severed.

    Ordinarily, I would go out and start researching to see how bad the exposure is but I already know that it is catastrophic. The markets will do all our research and reporting very quickly for us. Citigroup will be devastated. Its CEO Vikram Pandit, is Indian.

    So let’s see. Citigroup closed at $32.29 on November, 28 2008. The stock continued to rise until December 10, 2008 when it hit $34.77.

    What’s more Pandit is still there.

    Lest we forget, Ruppert’s pessimism was driven by a call on Citi a few days earlier. Mumbai was just accelerant for him. Oops.

    While we’re there, let’s look at Ruppert’s other failed predictions in that same article:

    • “The economy is finished.”
    • “The United States government has committed to bailouts of financial institutions until everything shuts down or there is no more money to”create”. That’s what happens when paradigms end.”
    • By March or April 2009, oil would be $100/bbl and gasoline would cost $3/gal.
    • “J. P. Morgan is the next domino in line”
    • Gold would hit $2,000/oz by March 2009.
    • “I would say that by the end of next summer, as the corn comes in, this nation will be sensing that it is in the grips of something ten times worse than the Great Depression… Shock and Awe. By then you can forget about ethanol. People will be screaming for food. Perhaps Monsanto and Archer Daniels Midland will start to receive some long overdue karmic payback.”

    Nothing holds Ruppert back though. Here’s his doccie trailer. Watch and then start hiking to the seed bank (don’t forget you’ll need a mule an plough because the tractor won’t have gas…).


    Today’s investment pundits can be glad the biblical injunction to stone false prophets isn’t held to.

    Disclosure: No Postions

    Disclosure: No positions.
    Dec 11 4:57 PM | Link | Comment!
  • PIMCO hires Neel Kashkari & sends a bad signal
    Deal Breaker has the full text of a memo from bond giant PIMCO saying it has hired Neel Kashkari to help it venture into active equity management and other ventures.

    Kashkari, aka ‘Cash-n-Carry’, was hand-picked by for U.S. Treasury Secretary, Hank Paulson, to run the TARP slush fund.

    And a boondoggle it was from its genesis when Kashkari invented the $700 billion sum required to “urgently” prevent a systemic collapse of the American and global financial system.

    Think we’re being too harsh? Well, here’s some juice from the man himself (be warned, the photo essay is so fawning as to be embarrassing):

    “In Washington, he used his BlackBerry to determine the bailout sum presented to Congress. His arithmetic: “We have $11 trillion residential mortgages, $3 trillion commercial mortgages. Total $14 trillion. Five percent of that is $700 billion. A nice round number.”

    “Seven hundred billion was a number out of the air,” Kashkari recalls….”It was a political calculus. I said, ‘We don’t know how much is enough. We need as much as we can get [from Congress]. What about a trillion?’ ‘No way,’ Hank shook his head. I said, ‘Okay, what about 700 billion?’ We didn’t know if it would work. We had to project confidence, hold up the world. We couldn’t admit how scared we were, or how uncertain.”

    How comforting will that be to PIMCO investors? The company has hired a guy who was instrumental in getting government to print $700 billion for a program that was a case study in non transparent fear-mongering. And the $700 billion was just a reckless guess that proves to be more reckless with each passing month.

    It’s quite pathetic how Kashkari whines in the WaPo article about being ambushed in Congressional hearings on TARP.

    Anyway, we have to wonder about PIMCO. It’s not as though Kashkari is unusual.

    Mohamed A. El-Erian is a great guy by all accounts, and super bright. But he was also the architect of Harvard’s endowment which proved to be good only for certain seasons. And he’s now a very big wheel at PIMCO too.

    Is PIMCO going to become a refuge for these sort of careers? We hope not, and at least the hiring of Franklin Resources Inc.’s Anne Gudefin and Charles Lahr as global equities portfolio managerscounters the Kashkari announcement. A little.

    Disclosure: No Position
    Dec 08 9:16 AM | Link | Comment!
  • Gold ETF turns five. A mountain of fees & a warning sign?
    Hedge fund manager John Paulson is opening a new gold fund seeded with a quarter billion of his own wealth. With Paulson the largest shareholder in the SPDR Gold Shares, it’s a timely reminder that the gold ETF turned five today. Happy Birthday, GLD!


    Reuters provided some detail on the Wall Street Journal story, which cited three investors who had attended a meeting about the new Paulson fund. The fund will apparently open on 1 January.

    We noted last month that Paulson had scored $500 million on his AngloGoldAshanti [AU | ANG] deal.

    SPDR Gold Shares took a while to lift off with law suits, SEC nitpicking, and backbiting galore, but it has been a profound success since. Perhaps the greatest success is in the fees the managers are raking off especially as gold prices climb.

    Managed by State Street Global Advisors on behalf of the World Gold Council, the fund todayreported an inventory of 35.8 million ounces (1,114 tonnes) worth $41.1 billion.

    The fund is currently skimming the equivalent to $15 per ounce in fees and expenses. Obviously that would have to be weighted, but it provides an indication of how rich the fee flow is.

    The fund reports selling $0.03466 of gold per share to fund its expenses and fees. That translates to some $13 million a month, or a handy $150 million a year at current levels.

    The question for gold bugs now is if the ETF is signaling trouble ahead?

    Have a look at the chart below and see how little accumulation has occurred since June when the gold price commenced its recent upward phase.  It’s a very different response from the market compared with the heavy accumulation of GLD between November 2008 and April 2009.

    That looks like reason for some caution.

    Disclosure: No Position

    Tags: GLD, Gold, Dollar
    Nov 18 5:02 PM | Link | Comment!
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