Articles for a rainy, first, weekend of October

Rainy... cold... gloomy... at least in Toronto. Not sure how things are in your part of the world.

Here are some articles I found interesting... mainly non-investing stuff...

• (Recommended if macro-oriented) Bears still haven't gone into hibernation yet (The Economist): A run down of various bearish views. Unless you were pursuing a specialist strategy—say short-selling—one should never be in any of the 'perma' camps. Neither perma-bull nor perma-bear is likely to be profitable in the long run. What this means, at least in my opinion, is to always pay attention to what the opposite side is saying. So, even if you are pretty confident with your bullis call, you should probably read this article. The difficulty, if you agree with the bears, is to figure out if asset prices reflect the gloomy scenario. It's far more difficult than it seems. For example, I remember Jim Rogers saying that the commodity sell-off last year was irrational selling due to forced liquidations but I wasn't convinced. Is it forced selling or is it a permanent re-pricing? Hard to say. Even right now, almost an year after the collapse of the commodity complex, it's hard to say if prices are "too low" or if they are "too high." This is one of the reasons value investors ignore macro. Sure, you might get blown up buying ConocoPhillips near a peak like Warren Buffett, but you would have no problem investing in an investment bank like Goldman Sachs when the financial industry looked very uncertain.
  
  
• Natural gas & Alberta (The Globe & Mail): The natural gas story shows how difficult it is to forecast commodities prices or supply/demand fundamentals. I remember being bullish on unconventional gas a few years ago and even invested in a small junior called Cordero Energy (it was bought out I believe.) But even I, who was already bullish on unconventional gas, never would have imagined that it would be profitable at a lower price than conventional gas. The linked article mentions that shale gas is profitable around $4 to $5 per mcf whereas conventional gas in Alberta, the main energy-producing region in Canada, is around $7 to $8 per mcf (mcf=thousand cubic feet.) I was thinking, back then, that unconventional gas would parallel oil. That is, unconventional oil, such as oil sands, is attractive but it remains more costly than conventional oil and will likely remain so for a long time (until conventional oil fields are almost depleted.) Of course, the opposite has happened in natgas. It's amazing that unconventional gas appears to cost much less than conventional gas. Investors, workers, and anyone in the industry probably aren't enjoying the collapse in natural gas prices but it is resulting in some completely unexpected outcomes. For instance, another article from The Globe & Mail mentions an announcement about recently-built LNG terminals, which were supposed to import natgas into USA, being converted to allow them to export natgas. As recently as one year ago, it would have been unimaginable that USA would export natgas. Natgas prices will probably rally now that the winter season is here. But I'm not sure those prices can be sustained over $5 per mcf or thereabouts. (BTW, you may notice me covering natgas more frequently in the last 6 months and that's because it is very contrarian right now...trading near 7 year lows and very close to (or possibly even lower than) marginal cost of production. But natgas stocks are already pricing in higher prices.)
  
  
• What of unemployment? (Rational Irrationality at The New Yorker): John Cassidy briefly summarizes the current employment situation and future scenarios.
  
  
• Return of John Maynard Keynes (The Economist): The Economist briefly reviews three books on Keynes. As I have speculated, economics will likely move more towards Keynesian views, in addition to incorporating economics related to human behaviour and psychology. Monetarist economics will probably decline in popularity, especially if we are stuck near the zero-lower-bound, as Paul Krugman and others speculate. If the market fixes the interest rates near zero then central banks' tools from the last 30 years will be useless. There is also an intersting article in The New Republic, a publication whose ideologies I do not share even though it is liberal, by Richard Posner about how he became a Keynesian.
  
  
• ZeroHedge unmasked (New York; h/t Felix Salmon at Reuters): For those not familiar, ZeroHedge is a controversial, underground, trading-oriented blog that is famous for calling out anyone or anything. Apparently managed by someone convicted of securities crime, it is very good at presenting radical views and conspiracy theories. Felix Salmon, John Hampton, and several others, have questioned the motives behind the owners of the blog but it cannot be accused for being plain and boring. I don't frequent ZeroHedge—it's too oriented towards short-term trading—but it does provide access to professional tools unavailable to amateurs. For example, ZeroHedge posts letters by hedge fund managers, detailed bond market statistics, or security pricing information (only available through Bloomberg or some professional source,) and so on. As is the case with any online source, including mine, use your judgement. The motives of the owners of ZeroHedge are not clear...
  
  
• (non-investing) The Globe & Mail in China - 50 years of reporting (The Globe & Mail): China recently celebrated 60 years of so-called Communism and The Globe & Mail reflects on China over the decades. Journalists have been reporting since 1959 from China and this story is an opinion of how China has changed over the years. Accompanying the article are some interesting old photos from 1959 so do check that out as well (if link doesn't work, click on Photos tab near the beginning of the article.)
  
  
• (non-investing) China and its gangs (The Economist): Criminals are present everywhere. However, I feel that many Asian countries are more vulnerable to criminals because corruption is endemic in many parts. To make matters worse, a totalitarian state like China is even more vulnerable to criminals taking over the government. I say totalitarian states are more vulnerable to criminals because the courts and citizens do not provide a check against government malfeasence. For instance, although the Soviet Union wasn't heading in the right direction, it only turned into hell once Joseph Stalin, who was basically a military thug who even considered his mother to be a prostitute and a slut, took over. Once Stalin took over, there was nothing you could do. Similarly, a state like China is vulnerable to something like that. Mao Zedong was also a terrible person, with indirect responsibility for killing millions through famine, not to mention the meaningless and brutal Cultural Revolution, but China is lucky that Mao didn't appoint another person like himself or Stalin to power. I'm going off-tangent but to return to the topic of criminals, China will have to tackle the criminal elements at some point.
  
  
• (political; not investment-related) China & USA - A strange realtionship for sure (The New Republic): I don't like The New Republic but I chose to link to a political story from it. Even though it is liberal, it is way too hawkish and imperialist in nature. In any case, it's always good to get different perspectives. One of the most complex issues in the world today is the relationship between China and USA. On top of disputes over economics, the countries have quite differing views on politics and social issues. I personally don't think Timothy Geithner was the perfect person to oversee the financial crisis but I do think he will be far better in dealing with China. He is familiar with the country and appears to be better at global matters than local, financial, issues. Once the financial crisis is over, which it may already be, he will have to deal with various issues between China and USA. These issues will gain importance over the years. I think Timothy Geither will likely perform better in those tasks than Henry Paulson or John Snow.