Readings: BRICs, Buffett’s bet, Saut
Jim O’Neill, the Goldman Sachs economist who originated the term in 2003, said the financial crisis that began in U.S. mortgage security markets was allowing the BRIC countries to take a bigger share of world gross domestic product.
“Of the four BRICs, Russia, China and India have all grown on average 2 percent more than we suggested,” he said. “It is a hell of a lot so they are now collectively 16 percent of global GDP so it is all happening a lot quicker.”
- Fortune: Buffett’s big bet
Protégé has placed its bet on five funds of hedge funds - specifically, the averaged returns that those vehicles deliver net of all fees, costs, and expenses. On the other side, Buffett, who has long argued that the fees that such “helpers” as hedge funds and funds of funds command are onerous and to be avoided has bet that the returns from a low-cost S&P 500 index fund sold by Vanguard will beat the results delivered by the five funds that Protégé has selected.
Each side put up roughly $320,000. The total funds of about $640,000 were used to buy a zero-coupon Treasury bond that will be worth $1 million at the bet’s conclusion.
Buffett himself assesses his chances of winning at only 60%, which he grants is less of an edge than he usually likes to have. Protégé figures its own probabilities of winning at a heady 85%.
- Raymond James: Investment Strategy by Jeffrey Saut
The two most important market trends I see today:
1) Banks and brokerages are being forced to de-lever as they bring their SPE (Special Purpose Entities) on to the B/S (balance sheet):
- Increased margin requirements are forcing hedge funds to de-lever.
- De-leveraging will lead to a decrease in consumer, corporate and commercial real estate credit.
2) Legislation:
- CNBC talked about legislation adding margin requirements to CDSs (Credit Default Swaps, a $45 trillion world market). Many in the commodities market have been using some form of CDS instead of commodities futures because there currently are little to no margin requirements. If rules for CDSs are changed, it would force a lot of selling of commodity CDSs.
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