INSIGHTS: The Way Of The Wizards
Thursday, November 5th, 2009I had the pleasure of working with Jack Schwager from 1980 to 1983. At the time Jack was the Director of Commodity research at Paine Webber Jackson Curtis, Inc., and the author of the famous book “Market Wizards,” Interviews with top traders.
In the Wizards Jack interviewed successful traders like Michael Marcus, Paul Tudor Jones and Bruce Kovner in the futures markets, as well as Jim Rogers, Michael Steinhardt and William O’Neil in the stock market. He also interviewed some floor traders like Tom Baldwin and Tony Saliba.
Robert Prechter of Elliott Wave fame said it best, “It’s difficult enough to develop a method that works. It then takes experience to believe what your method is telling you. But the toughest task of all is turning analysis into making money. If you don’t believe it, try it. These guys have it all: a method, the conviction and discipline to act decisively time after time, regardless of distractions and pressures.”
Here is what a few of the Wizards are thinking now, plus some comments from George Soros, Jimmy Rogers’s former partner.
PAUL TUDOR JONES ON GOLD: In a letter to his clients, Jones said that the time to hold gold is now, as faster inflation and increased purchases through exchange-traded funds and by central banks, boost demand amid stagnant mine output. “I have never been a gold bug,” Jones told investors in the October 15 letter, “It is just an asset that, like everything else in life, has its time and place. And now is that time.” “As one would expect, rising inflation suggests higher gold prices, especially when the Fed is perceived to be behind the curve.” “Gold appears to be cheap. In our view, gold’s value should increase as its scarcity relative to printed currencies increases.”
He points out where Central banks were net buyers of gold in the second quarter, for the first time since at least 2000. He goes on to say that although the cost of mine exploration has increased, mine production has been “stagnant” the past decade, and new output is “marginal” in terms of available supplies. He also likes emerging market equities in local currencies and commodity related stocks.
JIM ROGERS ON BONDS: “The next bubble that I see developing is in the United States government bond market. It is inconceivable to me that anybody would lend money to the U.S. government for 30 years in U.S. dollars at 3 to 6 percent interest rate,” he said, “So, somewhere along the line, this bubble is going to pop. If any of you own bonds, I’d be terribly worried, I would think about getting out of bonds.”
JIM ROGERS ON AGRICULTURE: “I know that inventories of agricultural products are the lowest they have been in decades. We have shortages of everything developing in agriculture,” he said. He also said sugar, which recently hit a 28-1/2-year high, could go much higher in the next decade.
Jim also mentioned that he felt oil would trade as high as $200 per barrel and gold at $2000 before the bull market in commodities was over.
GEORGE SOROS ON THE STOCK MARKET: Soros said that he thinks the market is “overextended and at substantial risk of another downturn,” but that doesn’t mean the market will turn down right now. Soros says the market is likely to remain firm for the remainder of 2009 and will likely face its reality of weak global growth in 2010. He says the rally has been driven by the government stimulus and little else. The recent uptick in bank earnings is nonsense: “Those earnings are not the achievement of risk-takers. These are gifts, hidden gifts, from the government.”
Soros also noted where he thought the move down in the dollar was unsustainable. Even though he doesn’t see a much weaker dollar in the short term he is betting big on all things “real.” In particular, Soros is betting big on oil related stocks. Soros has over 33% of his funds invested in energy related names. He recently announced large positions in InterOil (IOC) and Headwaters (HW). Soros’ largest positions remain Petro Brasileiro (PBR) and Hess (HES) which both represent over 5% of his portfolio.
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