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"Luck is not chance, it’s toil; fortune’s expensive smile is earned.”

Monday, November 26, 2007

Stories and Charts for Monday

10 Stories You Should Read This Morning …

1) 1000% hedge fund wins subprime bet

The decision to use derivatives to short, or bet against, low-quality US home loans taken by a select group of hedge funds last year appears to have become the most profitable single trade of all time, making well over $20bn in total so far this year. John Paulson’s New York-based Paulson & Co, the biggest of the group with $28bn under management, is said by investors to have made $12bn profit from the trade already.

However, Mr Lahde, whose fund is one of the smallest specialists shorting subprime, has now begun to return money to investors, telling them in a letter: “The risk/return characteristics are far less attractive than in the past.”

In his letter, Mr Lahde said he expected the collapse in value of subprime mortgage-linked securities to be repeated for bonds backed by commercial property loans in a deep recession – which he also predicts.

“Our entire banking system is a complete disaster,” he wrote. “In my opinion, nearly every major bank would be insolvent if they marked their assets to market.” He also said he would be putting some of his own profits into gold and other precious metals.

2) Sovereign wealth funds on Monday indicated a hunger for Asian assets, with China’s state investment agency hiring Japanese market strategists and Dubai International Capital kicking off its Asian shopping trip with a small stake in Sony Corp.

Oil exporters, including Norway, Russia and the Middle East, held up to $3,800bn in foreign financial assets through sovereign wealth funds, central banks and wealthy individuals at the end of 2006, according to McKinsey Global Institute. Asian central banks, part of whose foreign exchange reserves have been split off into more actively managed vehicles, held a total of $3,100bn. That is more than double the total assets managed by hedge funds and roughly quadruple that held by global private equity. These numbers, measured at the end of last year, already look out of date. So far this year, Asian FX reserves are up 20 per cent to $3,700bn. As for petrodollars, MGI calculates that if oil prices remain above $70 a barrel, nearly $2bn of new petrodollars will enter global financial markets every day.

3) While the news for Detroit gets worse and worse, there are plenty of American car makers who are working on the next big thing. Here are some of the cars you may be driving 10 years from now

4) Holiday Sales in U.S. Climb on Discounts; Individual Shoppers Cut Spending Sales gained in the days after the U.S. Thanksgiving holiday as retailers lured more customers with discounts even as individual shoppers spent less on average.

5) Worst Month for Stocks Since 2002 Shows Smallest Companies May Be Cheapest The cheapest small-cap stocks in four years are luring equity investors battered by the biggest monthly losses since 2002.

6) BHP Billiton Bid for Rio Tinto Loses Confidence of Investors, Steelmakers BHP Billiton Ltd., the world's largest mining company, is losing the support of investors and steelmakers for its proposed $128 billion takeover of Rio Tinto Group.

Also … Australia's S&P/ASX 200 Index rose the most for more than two months, led by Rio Tinto Group on reports China Investment Corp. may counter BHP Billiton Ltd.'s takeover bid for the world's third biggest mining company.

7) Dollar Displaces Yen, Franc as Favorite for Carry Trades With Rand, Real Using the dollar to pay for purchases of currencies with higher yields is proving to be the most profitable trade in the foreign-exchange market.

8) Areva Wins Record $11.9 Billion in Nuclear Reactor Contracts From China Areva SA won an 8 billion euro ($11.9 billion) agreement from China to build nuclear reactors, a record for the French company, as the fastest-growing major economy diversifies energy supplies.

XX Sean’s note – Areva often sells reactors with the agreement that if you buy their reactor, they’ll supply you the fuel. Look for Areva to make more mining acquisitions.

9) Gold Gains for Third Consecutive Day on Weaker Dollar, Stronger Crude Oil Gold climbed for a third consecutive day in London as oil rose and the dollar declined against the euro, spurring demand for the metal as an alternative investment.

10) Soybeans Rise to 34-Year High in Chicago on Demand Outlook; Soy Oil Gains Soybeans in Chicago rose to the highest in 34 years on speculation a weaker dollar and rising oil prices may compound surging Chinese demand.

Here's a note, from currency analyst Boris Schlossberg: “Tuesday could prove to be a more exciting day for dollar traders, as the Conference Board’s consumer confidence survey for the month of November is expected to support more cynical retail sales predictions, as the index may drop for the fourth consecutive month to a two-year low of 91.0 in the face of record high gasoline prices and declines in the stock markets. If this is indeed the case, fed fund futures will likely continue to suggest that investors are ramping up speculation of a December rate cut by the Federal Reserve, leaving the US dollar open to further declines.”

On a holiday note: The cost of 5 golden rings, bought over the internet, is up 20% year over year.

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