Greenspan’s reputation – like AIG’s share price – is already in shambles. In fact a move to zero might be an uptick. Warren Buffett, on the other hand, still boasts a rabid following, as well as a few billion dollars in the bank. So let’s weep not for Warren.

Even so, this formerly glistening icon of “buy and hold” has become a bit tarnished. Buffett’s genius, we are now discovering, correlates quite highly with the S&P 500 Index. His genius is not quite as highly correlated with the S&P 500 as, say, Bill Miller’s, the former investment genius at the Legg Mason Value Fund. (For a little background, please click here). But an observable relationship exists, nonetheless.

Your editor would not dare to minimize Buffett’s investment acumen, nor to detract from the man’s considerable financial achievements – that’s Mr. Market’s job. Your editor would only point out that “buy and hold” works brilliantly in rising stock markets, and works particularly brilliantly in the rising stock markets of post-World War II Superpowers in the midst of a once-in-a-lifetime economic boom.

By contrast, “buy and hold” works poorly in falling stock markets, and works particularly poorly in the falling stock markets of pre-Great Depression Superpowers in the midst of a once-in-a-lifetime economic collapse.

We would remind our readers that Warren Buffett, an investment genius, learned his craft at the feet of Benjamin Graham, also an investment genius. Warren Buffett applied Graham’s principles during the greatest economic boom in American history and became a multi-billionaire. Benjamin Graham applied Graham’s principles during the greatest economic disaster in American history and became bankrupt.

Look behind almost any investment genius, dear investor, and you would be likely to find one or two coins that came up heads. That’s why your editors here at the Rude Awakening tend to distrust genius, especially their own. But they do trust the potential for adverse outcomes…and therefore, attempt to make money by not losing it. We have never been fans of buy-and-hold, even when it appeared to be working during the last 15 years.

Buy-and-hold worked well for most Japanese investors until 1989, when the Nikkei reached its all-time high. Since then, however, buy-and-hold has produced a loss of 81% – that’s a return of MINUS 8% per year…for 20 years!.

Buy-and-hold also worked quite nicely for Warren Buffett, at least until last September. Since then, this tactic has produced less than optimal results. Berkshire Hathaway’s stock has lost more than half its value since then. But more to the point, the stocks that Berkshire Hathaway owns have also tumbled in value.

In fact, according to blogger Jeff Matthews, Buffett’s massive investment portfolio, accumulated over more than two decades, is nursing a loss. That’s right, Buffett is posting a “down number.”

Publicly, Buffett claims not to care about the daily [or weekly, or monthly, or yearly, or decadely] fluctuations of Berkshire’s investment portfolio. “The market value of the bonds and stocks that we continue to hold suffered a significant decline along with the general market,” writes the Oracle of Omaha in this year’s annual letter to shareholders. “This does not bother Charlie and me.”

Ummm…right. We would guess that Buffett, in private, might be a wee bit annoyed that his net worth just dropped by more than $34 billion.

Not so, says he!

“We enjoy such price declines,” Buffett claims, “[assuming] we have funds available to increase our positions. Long ago, Ben Graham taught me that ‘Price is what you pay; value is what you get.’”

Cute phrase. Marginally delusional.

Value is a moving target, determined by millions of investors in dozens of countries. Furthermore, value is influenced by booms, busts, wars and government caprice. Admittedly, share prices tend to fluctuate more than underlying economic values. But an investor who buys “value” without acute sensitivity to price is an investor who will spend a career behind the counter of McDonald’s. (Or if he’s really, really lucky, such an investor might spend a couple of decades running a legendary mutual fund and THEN working behind the counter of McDonald’s).

But we suppose that Buffet can afford to write such claptrap. By our count, the man’s wealth still totals more than $29 billion – and that’s based solely on the price [not the same thing as “value”] of his Berkshire Hathaway stock. We’d guess he also holds billions of dollars more in assets in the form of houses, cars and cases of Cherry Coke.

So we do not gather here today to weep for Warren Buffett, but rather to mourn the death of “buy and hold.” Which leads us to wonder, what tactic is likely to take its place? What process/strategy will create the next generation of investment geniuses?

Buying low is certainly an important component. But unless you remember to sell high, you’ll never be a genius. Furthermore, it is important to remember that you have to take what the market gives you. And if it only gives you falling stocks, you won’t find too many investment geniuses. Doing nothing at all is sometimes the best course of action. The Oracle himself says as much. “Lethargy bordering on sloth remains the cornerstone of our investment style,” Buffett once remarked. Pity he did not apply a greater dose of lethargy to his recent investment activities. If he had, he might have avoided his woefully ill-timed purchases of ConocoPhillips, General Electric and Goldman Sachs.

Perhaps, therefore, we should begin doing what Buffett SAYS, not what he DOES.

To emphasize the value of lethargy, we would remind our readers that a hypothetical Japanese investor who moved his money into a passbook savings account on January 1, 1990, would have amassed about seven times as much capital as an investor who left his money in the stock market. Closer to home, buying the Vanguard Prime Money Market Fund on any day since June 30, 1995 would have produced a greater return than buying the Vanguard S&P 500 Index Fund.

To be sure, many stocks here in the US and elsewhere are now cheap enough to warrant making some initial buys. And probably, many of the stocks that an investor buys today will be worth holding for many years. But that’s not “buy-and-hold.” That’s “buy and watch out.”

A final point: For those investors who are still resisting the urge to buy anything, may we suggest one sale: Treasury Bonds.

Please check in this week as we examine the parlous state of American public finances, and why the best trade ticket to write on Treasury bonds for the next few years might be the one that says “SELL” at the top.

Source: The Death of “Buy-and-Hold”

For investors in one uniquely positioned company it could mean extraordinary growth in the years ahead… starting precisely at midnight 2 June 2008.

Before I reveal why, let me explain why the boom times in the Gulf are here to stay for the foreseeable future…

Take Qatar…

Like its neighbours the Gulf emirate is in the midst of a massive economic boom.

As the world’s biggest exporter of liquefied natural gas, demand for LNG is soaring because the stuff is still undervalued compared to oil.

To produce all that gas to satisfy global demand, Qatar is bringing in hundreds of thousands of foreign workers to work in its booming energy and construction industries. They come from India and Pakistan and from the poorer Arab countries like Egypt to seek their fortunes…

Of course, if you have ever visited the region, you’ll know the Gulf States rely on cheap imported labour to keep their economies going.

But we’re seeing something on an entirely different scale right now.

So much so Qatar’s population has risen by a staggering 90% since 2004 to more than 1.4 million. It’s up 18% over the last year alone!

If you want to see the very definition of a boom town, look no further.

An economy growing six times faster than Britain

The Qataris are raking it in!

The economy grew by 14% last year and will repeat that performance this year, according to IMF estimates. The average income is expected to hit $80,211 this year – almost double what it was just four years ago.

What are the chances of us ever seeing something like that happen here in Europe? Pretty darn slim!

I’ll put that into perspective…

The IMF estimates the average personal income here in the U.K. was $45,301 in 2007 and will reach $48,071 this year. It expects the British economy to grow by 2.3% this year. So, if we’re lucky and the U.K. economy doesn’t get derailed by the credit crunch and plunging property prices, we’ll be a little bit richer than the Qatari’s were four years ago.

Not only that, the country’s vast gas reserves are expected to last for another century, so this story still has a long, long way to go. That boom is also paying-off big time for investors. Qatar’s share market hit a 28-month high on Tuesday.

You can see why I’d rather put my money down on the Gulf over the long-term… and you should too.

Because it’s not just Qatar…

The “backdoor” way in to the booming Gulf

We’re seeing a huge boom right across the Gulf region, but most international investors still haven’t got a clue on how to buy into this boom. Many think it’s too hard and risky getting exposure to the Gulf’s markets.

But it’s easier than you might think…

Here at Profit Hunter we’ve been well placed to profit from this phenomenon since December last year.

The company we’re invested in is making a fortune hoovering-up the region’s petrodollars and re-investing them in undervalued Western companies for the last 25 years.

It’s recently been investing a lot closer to home as well – their Gulf Growth Capital fund is investing in high-growth companies in the region.

It gives you a brilliant “backdoor” entry into the booming Gulf. But I’d act quickly if I were you…

Why you should buy in BEFORE 2 June

You see, not only is this company extremely undervalued, on Tuesday it announced that it will become one of seven constituent companies included on the MSCI Bahrain Index from 2 June.

The MSCI indices are the world’s leading family of global financial indices and are widely tracked by professional investors. The move is brilliant news for our company…

Why? Based on its market cap this potential goldmine will have a 17.8% weighting in the index and therefore automatically gets included in both the Frontier Markets Index and GCC Index.

This means investment funds that track these indices will HAVE to buy in. And with international investors increasingly interested in the Gulf and in the so-called “frontier markets”… this could give its share price a real punch.

If you’re looking to profit from the region’s energy boom without investing directly in the volatile energy markets, I think this is probably the smartest investment you can make.

Here’s how all the exclusive details can be yours.

Regards

Manraaj Singh
Editor
Profit Hunter

Source: One Emerging Gulf Market Stock About To Boom

Why the mainstream media are utter fools

Oil’s new record high has a lot to do with the strike. Not the one up in Scotland that is getting our media hacks so excited. I’m talking about the one that’s going on in Nigeria and isn’t getting a mention in the mainstream media.

Nigeria is the biggest oil producer in all of Africa; it normally pumps out some 1.96 million barrels of oil per day.

And a lot of that ends-up going to the United States.

In fact, the Americans get about 10%-15% of the oil they need from Nigeria. So any serious disruption to that supply is has a major impact on the price of oil.

Right now, Washington insiders are probably ripping their hair out because Nigeria’s oil production has plunged by nearly 50%… they know the implications for the oil price.

It started with a strike at Exxon’s refinery in the country last Thursday. They’re demanding higher pay. You can’t blame them. With oil prices at a record high and oil companies making record profits, they probably believe that they are entitled to record pay… maybe they are…I haven’t a clue. But their strike wiped about 850,000 barrels off Nigeria’s output instantly.

Strikes are the smallest problem…

That’s on top of the at least 169,000 barrels per day of oil output that Shell is already losing from attacks on its pipelines by the militant group MEND – that’s the Movement for the Emancipation of the Niger Delta.

The group from local tribes is fighting against what they see as a raw deal as the bulk of the oil-wealth being generated in the Niger Delta gets diverted to corrupt officials, the central government and the oil companies.

They’ve been bombing pipelines since 2006 and things may soon get a lot worse. It said:

“Our candid advice to the oil majors is that they should not waste their time repairing any lines as we will continue to sabotage them. We have time on our side and there is so much to be destroyed.”

The OPEC oil exporters’ cartel isn’t helping to calm things down either. Its President Chakib Khelil says that there is more than enough oil around at the moment and they won’t consider increasing crude output before September.

As far as I can see, they’re doing just about everything they can to keep the price of oil high right now and you can almost imagine him rubbing his hands at the thought.

There’s no doubt about it – high oil prices are here to stay

High oil prices are excellent news for the Gulf merchant bank we are invested in. They speed up the transfer of money to the oil-exporting Persian Gulf countries. Then our bank comes along and hoovers them up to invest in undervalued Western assets. But the big winner in our portfolio from Nigeria’s oil woes is a certain pan-African conglomerate we’re currently invested in.

We aren’t invested in Nigeria, but I keep a very close eye on what goes on there because we’re seeing some remarkable developments on their business front (More about that some other time.) But instability in that country is pushing the global energy giants towards the other two other major oil producers in West Africa are also going to be big winners from this.

Our pan-African conglomerate isn’t in Nigeria – but it has major operations in Angola and Equatorial Guinea. Those countries are sub-Saharan Africa’s second and third biggest oil exporters and they haven’t aren’t facing the sort of armed insurgency and unrest that Nigeria does. So, they’re prime candidates for more investment as the global energy giants scour Africa for oil.

It already owns the major port in Equatorial Guinea that is emerging as the main oil shipping hub in the Gulf of Guinea. But it’s also sitting on another virtual goldmine…in Angola.

It’s growing nearly twelve times faster than the UK

With the price of oil hitting new records and international investors pouring money into Angola like there’s no tomorrow, the country is in middle of a massive economic boom.

Its economy zoomed ahead by 23.1% last year and by 18.6% the year before. There’s no end in sight to boom either. The IMF is predicting that it’s going to grow by a whopping 27.2% this year. That’s nearly 12 times as fast as the UK economy.

All that growth is creating massive infrastructure bottlenecks in the country though. In the capital, Luanda, ships can sit in the harbour for three months before they get a chance to clear their cargoes. And that’s where our African conglomerate has spotted another brilliant opportunity.

They’ve come up with a solution to this white hot economy’s congested ports. It’s building a “dry port” in the capital. You see, they’re working with local partners to set up a massive logistics centre, close to the airport and the major road network.

This new terminal should dramatically slash the congestion at the country’s ports by allowing designated containers and cargoes to be rapidly offloaded at the port and then delivered and cleared by customs based at ELT for delivery to customers across the country.

Of course, our pan-African play already owns a full-service passenger and cargo airline in Angola, so the move makes brilliant sense.

Angola is about as far away from the mainstream news as you can get, but fortunes are being made out there. Our investment gives us a chance to play that. We aren’t directly invested in Africa’s oil story right now. Instead we’re taking the route of “selling the shovels to the gold miners.” We’re investing in the infrastructure that is going to allow them to bring that oil to the market.

RegardsManraaj Singh
Profit Hunter
Editor

All right, it’s really a digital tiger. But we still
refer to central banks as “cranking up the printing
presses” when we really mean “increasing the money supply.”
The old image of fiat paper money is with us still, so I
refer to China as a paper money tiger.

Mao referred to America as a paper tiger. America
wasn’t at the time. China is today: not weak, but highly
vulnerable. China’s central bank, the People’s Bank of
China, has been pursuing a policy of monetary inflation as
no large modern country ever has in peacetime. Year after
year, M-1 increases at about 20%. This has fueled an
economic boom of unprecedented proportions. This boom has
been a particular kind of economic growth, one weighted
heavily toward exports.

Now this inflation-fueled boom is facing its day of
reckoning: rising domestic prices, especially of rice.
Most of the 400 million residents the booming cities can
afford to buy rice. The poor 900 million of the
countryside are finding it difficult to buy rice. It is
being exported to the cities, where residents can afford to
pay for it.

The response of the government to rising prices has
been to impose price controls on key products. This has
created shortages, as price controls always do whenever a
government’s central bank is inflating.

There is a simple solution. The People’s Bank of
China should cease inflating. It should cease buying U.S.
Treasury debt, Chinese government debt, or any other kind
of debt. But that would produce China’s first post-
Communist recession. The real estate boom would turn into
a bust that would dwarf the recent downturn in the United
States. The flow of millions of people into the cities
would slow. The unemployment rate in the cities would
soar.

Then the riots would begin.

When you think “riots in China,” think “geriatric
Communist oligarchy.” Think “Tibet.”

The oligarchs are riding the paper money tiger. So
are you. So am I.

How should we get off? That is not our decision. How
will we get off? That is the #1 investment question of the
next five years, all over the world.

FOUR THEORIES OF NATIONAL WEALTH

To understand what China has accomplished since 1978,
we must understand the history of modern economic thought.
There have been four main streams of economic thought:
mercantilism, capitalism, socialism, and Keynesianism.

Mercantilism was the dominant economic outlook prior
to Adam Smith’s book, “The Wealth of Nations” (1776).
Mercantilists believed that national wealth is based on
gold. A nation’s wealth increases by means of foreign
trade, but always government-controlled trade. The sign of
increasing national wealth is an increase in the supply of
gold in the national government’s treasury.

The mercantilists believed that a nation increases its
wealth by exporting more than it imports, with gold
imported rather than consumer goods. Goods flow out; gold
flows in. This makes the nation richer.

Smith disproved this theory. Actually, David Hume had
disproved it three decades earlier. He pointed out that
the inflow of gold increases prices in the exporting
nation. Meanwhile, the outflow of gold reduces prices in
the importing nation. As domestic prices rise, a nation’s
exports become more expensive to foreigners. So, it is
able to export less. The system balances itself without
government intervention. Hume’s brief essay was short and
to the point, but it was not widely known or believed
inside elite circles. Smith changed elite opinion over
time: 1776 to about 1846 in England.

Free market capitalism teaches that wealth is based on
consumer-satisfying production, not gold. Wealth is
achieved by free trade, stable money, and open markets.

Socialism is an alternative to both mercantilism and
free market capitalism. It arose in the nineteenth century
and was widely believed by a minority of Western
intellectuals until August 19-21, 1991, when the Soviet
Union’s leaders officially abandoned Communism, confiscated
the Party’s funds, and distributed the money to themselves,
who then sent it to Western banks. (This is not the story
in the textbooks, which steadfastly refuse to follow the
money.)