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8:30 AM EST Thursday, September 28, 2006: Five major influences affect investing today:

1. Much money. So much that it way exceeds available opportunities.
2. Higher asset prices. Money sloshing around drives up asset prices.
3. Heightened desperation. There's so much money to be made by managing money -- figure 2% and 20% for hedge funds and private equity funds versus 1% or so for mutual funds. If you do well, you get rich instantly. If you don't, you're out of business. Amaranth's energy trader was paid $100 million in cash last year. That's one man's wages for the year. He tried to make even more this year by taking a desperate gamble. Despite this year's mega-screwup, he won't return last year's $100 million.
4. Fashion. Investments become fashionable quickly.
5. Lightning speed. Hedge funds move ultra-quickly, creating ultra-volatility in asset pricing -- just look at the last few months in oil, natural gas, gold, etc. etc.

For evidence:
1. In 2003, 13.7 million natural gas contracts traded on the Intercontinental Exchange (the ICE) with a notional value of $186 billion. Last year, 55.5 million such contracts traded, with a notional value of $1.3 trillion. That's an increase of seven times in two years.
2. In 1994, the top 13 private equity funds raised $17 billion. In 2006, the biggest eight funds will raise $100 billion. The top 100+ funds will raise more than $300 billion. There weren't 100 private equity funds in 1994.

Some implications:
§ "Buy and hold" as an investment policy is clearly dead.
§ Asset prices are now way beyond historical norms, e.g. P/Es in pubic equities, cap rates in real estate and will continue their rise into nose-bleed territory.
§ There are two classes of investors -- the quick or the dead.
§ Most "professional" money managers haven't figured the new world yet and get stuck with their old focus and their old strategies.
§ You have to learn when to hold and when to fold. Better to play with the bank's money. Most non-professionals leave their winnings on the table, figuring their lucky streak will last longer. It rarely does.

This not your father's world.

Gas Is Down - Go Back to Sleep
This piece yesterday by Kelpie Wilson comes from a blog called t r u t h o u t.

Last year at this time, gas prices were on the rise. Katrina and Rita had just rampaged through the Gulf, wasting drilling rigs and shutting down refineries. In the short term at least, the price rise made sense.

It also made sense in the long term, as an increasing number of oil industry insiders and analysts were coming forward with predictions that the world was very near the peak of oil production. Oil is a finite resource. As such, its production must follow the general outline of a bell-shaped curve known as Hubbert's curve. Oil will peak, and then fall. If there were little elves inside the earth making new oil for us all the time, then oil production would follow a different curve. But there aren't, so it doesn't.

We are used to gas prices going up and down in the short term, but in the last six weeks, we've seen a dip of fifty cents or more in the price of a gallon. We haven't seen anything this precipitous in a long time and it has excited a lot of comment.

The commentary itself is interesting. True to form, the TV news reports tend to stick to the "gee whiz, ain't it grand" type of story, interviewing happy motorists filling up at the pump and bypassing any sort of context or analysis.

But you can also find a strong current of suspicion in the public mind that the price drop has something to do with keeping the electorate quiescent as we head into November. A recent poll found 42 percent thinking this way.

In response, we've seen a handful of "conspiracy debunker" articles labeling those with suspicious minds as "tinfoil-hat-wearing conspiracy nuts." The source of most of these articles is a group of self-appointed liberal media "newsbusters" at the Media Research Center (MRC) funded by a roster of right-wing foundations.

MRC journalist Dan Gainor devoted a whole column to attacking CNN commentator Jack Cafferty for something Rafferty said on August 30:

"You know, if you were a real cynic, you could also wonder if the oil companies might not be pulling the price of gas down to help the Republicans get re-elected in the midterm elections a couple of months away."

I guess 42 percent of Americans are real cynics at this point. But can anyone blame us? Here are few things we have noticed over the past several years:

* Energy prices can be manipulated. Look at what Enron did to California.

* Oil companies are in charge of our national energy policy. Dick Cheney invited heads of oil companies to meet with his energy task force and refused to tell the American public what went on at those meetings.

* The war in Iraq is really about oil. Recent reports to Congress show that we knew well before the March 2003 invasion that Saddam had no weapons of mass destruction. And the latest National Intelligence Estimate reports that our Iraq adventure has destabilized the Middle East and made democracy less, not more, likely. Most Americans conclude from this that the real reason we invaded Iraq was to control its oil.

No one denies that the oil industry would like to see their Republican guard dogs stay in power and that lower gas prices help them in the polls. Motive is established. It remains to establish the means.

In fact, the bulk of the price drop probably has to do with two things. First, it is normal for prices to drop somewhat at the end of the summer driving season as demand goes down and refiners dump their summer gasoline blends in preparation for winter.

Second, we were spared the killer hurricanes this season. Refineries normally run at higher profit margins during the summer and were encouraged by gas speculators to produce all they possibly could in anticipation of hurricane disruptions. Hence, we ended the summer with a larger than normal gasoline supply.

Coincidentally, any refinery owner who thought that lower gas prices in the fall would help get Republicans elected might easily have decided to err on the side of over-production heading into the fall - hurricane or no hurricane. And if that refinery happened to serve a swing state, so much the better. I hear Ohio has about the lowest gas prices in the country.

Markets can also be manipulated in more subtle ways. Right-wing columnists want us to think that the price of oil is a simple matter of supply and demand, but oil is the most heavily traded commodity in the world. That means that oil trading decisions are processed through thousands of minds that are all subject to the mass psychology of politics and the media. Look what happened last week after Bush made a conciliatory speech about Iran at the UN. According to Bloomberg, oil prices posted their biggest drop in four months.

A real cynic might say that all the recent US saber rattling at Iran has been about manipulating oil prices upward during the summer and then down just before the elections, with the side benefit of keeping the electorate in a high pitch of fear and uncertainty about Iranian nukes.

Certainly, Bush 'n' Big Oil are not in charge of every blip and trend in oil prices. But that doesn't mean that they don't know how to steer successfully through the bumpy terrain of the oil peak. That may account for the announcement just after Labor Day of a big new oil find in the Gulf of Mexico. Chevron announced that a deep water test well called "Jack 2" had proved that oil was recoverable from an oil field lying 175 miles offshore where the ocean is more than a mile deep. The find was hyped everywhere as the "next Prudhoe Bay" that will rain the black gold down upon America once again.

But if that were so, why wasn't the announcement made back in May when the test results were first published? Here's where the conspiracy theories get real. The "Jack 2" discovery is basically a fake story planted at an opportune time. It is extremely unlikely that the new oil field will yield anything like Prudhoe Bay. First, because it is dispersed in small pockets throughout a large region of the Gulf and second - well, you think drilling in the arctic is tough, try drilling out in the middle of the Gulf where the hurricanes play.

Energy journalist Tom Whipple describes some of the challenges:

To extract oil from 20,000 feet below the surface, where the pressures run to 20,000 pounds per square inch (psi) and the temperature of the oil is in the order of 200 degrees centigrade, is going to be a major technical challenge. Wells drilled to these depths will cost in the range of $100 million each.

Whipple estimates that 300-500,000 barrels per day at the most could be got from all the wells sunk into this new oil field. Not nearly enough to justify the hype and the claim by some business journalists that our oil worries are over.

The "no worries" attitude is just what the Republicans can use right now. It's so great to have a happy face to put up next to those scowling Democrats bleating on about gas prices.

But fortunately, at least 42 percent of us are starting to get wise to these tactics.

Can you believe anything you read? The simple answer is NO. Most everyone has an agenda. To scoop the competition. To prove their own brilliance. To change what others think. To float some political agenda. To pump a stock. To get a cover story and a pay raise. A myriad of reasons.

A reader alerted me to a story in the New York Sun, a tiny New York City newspaper. The heading on the story written by Dan Dorfman was For Real Estate Brokers, Business ‘Has Dropped Dead.' The story began:

Veteran real estate broker Deanne Esses, who plies her trade as a senior vice president at one of the city's biggest firms, Bellmarc Realty, said eight people in her Upper East Side office on Madison Avenue are leaving their jobs for alternative careers. Those eight represent 20% of the office's sales staff of 40.

That's only the beginning. Ms. Esses said she thinks more New York City brokers will be leaving the scene. "Business here is just not quiet; it has dropped dead over the past few weeks," she said. "At the same time, there's a flood of inventory on the market. We run open houses, we run advertisements, but nothing works. There are no buyers, and without buyers, there are no sales." ...

Indeed, the plethora of inventory on the market can be seen in the outburst of open houses. In a Sunday advertisement earlier this week, for example, one Bellmarc ad featured 87 open houses. In contrast, two years ago there were virtually none as brisk demand quickly snapped up any available inventory.

As a cub reporter my boss drummed into me, Check, Check, Check. So I called Ms. Esses and asked her about the article and her quote about Manhattan real estate having "dropped dead." She said the quote was inaccurate. Manhattan real estate hadn't died. She didn't want to discuss the article any further. I could hear the anger in her voice. She'd been misquoted. She'd been embarrassed. She was furious at the author.

A bell rings in my brain. I remember the name "Dan Dorfman." He was a famous New York financial journalist, once. Four years ago, a blog written by someone called "Brad" (click here) had the following:

Thursday, August 15, 2002

The fact that Dan Dorfman has joined the New York Sun says a lot about both his fortunes and the paper's. Dorfman was, from the late 80s through the mid-90s, one of the most powerful men on Wall Street. Numerous articles from the time testify to his ability to move the market simply by repeating a rumor he had heard, and he heard a lot of rumors. His move from CNN's 'Moneyline' to CNBC's 'Market Wheel' made headlines and he wrote columns for USA Today, Money magazine, and syndication, the Money gig alone paying him $450,000 per year. And then there was his popular series of videos. . . .

But it all started to crash around October 1995, when Business Week informed readers that the US Attorney for the Eastern District of New York was investigating Dorfman's relationship with a stock promoter who was a regular tip source of Dorfman's. The promoter, Donald Kessler, and Dorfman were suspected of possible illegal insider trading, wire and mail fraud, and violations of securities laws according to Business Week. The feds also wanted to know if Kessler was giving Dorfman a cut of the money Kessler was being paid by corporate executives to introduce them to Dorfman. (The best story in the Business Week article: the CEO of a chain of porn shops paid Kessler ten grand to introduce him to Dorfman, who “Not long after” wrote a USA Today column praising the porno chain’s, as Business Week put it, “optimistic growth plans.” Yeah, I got yer growth plans.)

Business Week followed up with another article on December 11, 1995, and although he was never charged with anything, Dorfman’s fall was cemented. Early in 1996 he was canned from Money for refusing to tell his editors who his unnamed sources were, and in May 1996 Dorfman suffered a stroke, which led to the end of his appearances on CNBC; CNBC then let his contract quietly expire.

Then, in 1999, Dorfman reappeared with a column on JagNotes.com, an online financial information provider. This was to be Dorfman’s return to prominence; unfortunately, one Warren Harrison, who had previously been a fairly regularly cited source of Dorfman’s, claimed that it had been his idea to have Dorfman write a finance column for a website. So, Harrison sued poor Dorfman, claiming that Dorfman took Harrison’s idea to JagNotes. As you can see from the court ruling linked to above, Dorfman’s motion to dismiss the suit was denied; no resolution to this matter has been located by Like Father Like Sun, but we reckon it didn’t go Dorfman’s way. Why? Because nothing else seems to. The most recent reference to Dorfman’s JagNotes.com column we could find was a November 2000 Business Wire, suggesting he lost the gig sometime but not too much later; the fact that his departure went unrecognized by the press speaks volumes as to how far this once mighty individual has fallen. (In the meantime, JagNotes doesn’t seem to be doing so well either. In January 2002 a deal to sell 50.1% interest in the company fell through when its suitor backed out. That suitor was the parent company of the New York strip joint Scores. When the strippers don’t even want you. . . .)

And 2002 finds Dan at the New York Sun. The man who was “easily the most influential financial writer in America” (Christopher Byron, TheStreet.com, 4/99) is now working for a paper which manages to sell about three ads per issue. Of course, you can’t blame Dan; he is probably just happy to have work, while Seth Lipsky gets to add another name writer past his prime. Lipsky has already snagged the cast-offs Wallace Matthews, Jack Newfield, and Jerry Capeci (more on Capeci, a Daily News veteran, when we get a chance). This time, Seth just happens to have snagged a disgraced 70 year old stroke victim. Well done sir!

You do not want to see this movie. Trust me. it's seriously awful.


Capitalism returns to Somalia:
A Somali woman, Hawa Elmi, 66, is charging a fee for visitors to see the wreckage of the Black Hawk helicopter that was shot down in in Mogadishu on Oct. 31993, killing 18 Americans, changing US foreign policy shift and spawning the movie Black Hawk Down. Elmi grew up a nomad, herding camels in Somalia's deserts, and never went to school. She moved to Mogadishu in the 1960s, when it was a showcase of Italian architecture, a gem along the sea. Mogadishu is now ruled by Islamist clerics who have delivered a level of order and stability that the city has not seen for years. Part of the reason they came to power was that the Islamists tapped into anti- U.S. sentiment by challenging warlords backed by the United States. Some people fear the Islamists will impose a draconian version of Islam in Somalia, which up until recently had been relatively secular. But Elmi said she loves the Islamists. "They bring peace," she said. "And peace brings tourists."

Quote of the day:
I once wanted to save the world – now I just want to leave the room with some dignity. – Lotus Weinstock, comedian

The ultimate gotcha
Four friends, who hadn't seen each other in 30 years, reunited at a party. After several drinks, one of the men had to use the rest room. Those who remained talked about their kids.

The first guy said, "My son is my pride and joy. He started working at a successful company at the bottom of the barrel. He studied Economics and Business Administration and soon began to climb the corporate Ladder and now he's the president of the company. He became so rich he gave his best friend a top of the line Mercedes for his birthday."

The second guy said, "Darn, that's terrific! My son is also my pride and joy. He started working for a big airline, and then went to flight school to become a pilot. Eventually he became a partner in the company, where he owns the majority of its assets. He's so rich he gave his best friend a brand new jet for his birthday."

The third man said: "Well, that's terrific!? My son studied in the best universities and became an engineer. Then he started his own construction company and is now a multimillionaire. He also gave away something very nice and expensive to his best friend for his birthday: A 30,000 square foot mansion."

The three friends congratulated each other just as the fourth returned from the restroom and asked: "What are all the congratulations for?" One of the three said: "We were talking about the pride we feel for the successes of our sons. ..

What about your son?"The fourth man replied: "My son is gay and makes a living dancing as a stripper at a nightclub." The three friends said: "What a shame...what a disappointment." The fourth man replied: "No, I'm not ashamed? He's my son and l love him.? And he hasn't done too bad either. His birthday was two weeks ago, and he received a beautiful 30,000 square foot mansion, a brand new jet and a top of the line Mercedes from his three boyfriends."

This column is about my personal search for the perfect investment. I don't give investment advice. For that you have to be registered with regulatory authorities, which I am not. I am a reporter and an investor. I make my daily column -- Monday through Friday -- freely available for three reasons: Writing is good for sorting things out in my brain. Second, the column is research for a book I'm writing called "In Search of the Perfect Investment." Third, I encourage my readers to send me their ideas, concerns and experiences. That way we can all learn together. My email address is . You can't click on my email address. You have to re-type it . This protects me from software scanning the Internet for email addresses to spam. I have no role in choosing the Google ads. Thus I cannot endorse any, though some look mighty interesting. If you click on a link, Google may send me money. Please note I'm not suggesting you do. That money, if there is any, may help pay Claire's law school tuition. Read more about Google AdSense, click here and here.
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