Weekend Edition
The Best of The S&A Digest
October 6, 2007
Currently, the richest 0.1% – those with $5 million of assets under management – control 17.5% of the world's wealth. Is this good? Or bad? I don't know... but the recommended political solutions to the "problem" seem worse than the symptoms to me.
What would I do? I'd get rid of inflation. Most people don't think about the role inflation plays in widening wealth disparities... but I believe it's the root cause. The rich, who own assets, see their balance sheet inflated, while their debts become cheaper to repay. The poor, who don't own assets, see their wages – in real terms – plummet. And the poor can't borrow enough money to effectively "short" the dollar.
Look through American history and look around the world: During periods of inflation, the so-called "wealth gap" soars.
Homebuilder stocks jumped this week after a Citigroup analyst upgraded the sector. Stephen Kim said he does not expect industry conditions to improve anytime soon, but he does not see the stocks falling any further.
Our own Steve Sjuggerud beat Kim to the punch. We all thought Steve was crazy when he was toying with recommending a homebuilder stock, but then we remembered... Steve's usually right. His latest True Wealth recommendation, a homebuilder play, has gone up 13% in the last five trading sessions.
A new detail emerged from the GM-UAW agreement. A major source of funding for the $30 billion health care slush fund... I mean trust fund... will come from new GM convertible shares. So, who will pay for unlimited union health care expenses? Shareholders!
Remember the good old days, when employees and corporations worked for the benefit of shareholders? That's so old-fashioned now. Today, shareholders exist for the benefit of union members, the IRS, and richly paid senior executives...
Despite the underperformance... and disappearance... of many hedge funds, the money keeps pouring in. Hedge-fund assets climbed to $2.48 trillion in the first half of 2007, up 19% since the beginning of the year.
12% Letter pick Citigroup (C) bought a 5% stake in India's top commodities exchange, valuing it at up to $1.1 billion, more than the Bombay Stock Exchange.
Carl Icahn boosted his stake in the software company BEA Systems (BEAS) to 13.22%, according to documents filed Thursday with the SEC. This marks the fourth time in less than a month that Icahn has increased his position in BEAS. In fact, Icahn increased his stake to 11.05% in forms filed Wednesday.
Not surprisingly, Icahn is pushing for a sale of the company. He says it is increasingly difficult for a stand-alone technology company, such as BEA, to profit in the current competitive environment.
Are you having a tough year in the market? You're not alone. Bill Miller, famed manager of the $19.2 billion Legg Mason Value Trust, is only up 3.1% this year – behind 96% of his competition.
Most of the underperformance stems from his ownership of homebuilders and mortgage companies (sounds familiar). Miller is still bullish: "If we didn't own them now, we would be buying them like crazy."
"I'm almost sure that there's going to be a cut [at the Fed's October 31 meeting]. We're well on our way in a bull market that continues as the Fed drops interest rates. This is the last bull-market run that I'm going to experience in my career and lifetime." – Bill Gross, PIMCO's 63-year-old Bond King, as quoted on Bloomberg.
An interesting observation on gold: Large commercial gold traders (big mining and jewelry companies) are holding their highest short positions in the futures markets in more than five years, while hedge funds have the highest net long position.
While you can't necessarily trade on this news, it is worth noting that gold miners are cashing in on the high price of gold, and hedge funds continue piling into the long trade. With gold running from $680 to $740 in a month, we wouldn't be surprised to see a big shakeout in the next few weeks.
Regards,
Porter Stansberry
