5 Minute Forecast

Posted by 5 Minute Forecast

Share on Facebook

Tweet on Twitter


When “More” Isn’t “Better”

  • When “smart money” looks dense: Typical hedge fund underperforms the S&P
  • Fabulously successful gold mining exec on the one factor that will drive gold to $13,000 (and it’s not the Fed)
  • A “great unraveling” in Japan that could be less than a month away: Dan Amoss outlines your best defense
  • Busting a suggestive Internet myth… The 5 readership begins to turn on one another… one couple’s unique solution to 2013′s higher taxes… and more!


z0000  Here’s a factoid that might shake you out of your leftover turkey-tryptophan stupor: You’re better off putting money in an index fund than a hedge fund.

That was the most interesting tidbit to emerge over the long holiday weekend: “Occupy Wal-Mart” was a bust. “Black Friday” sales improved on last year — barely. And Greece was fixed for the umpteenth time. Thus, the euro soared on Friday, and the dollar got stomped — which drove up stocks and precious metals alike.

According to a Goldman Sachs report, a mere 13% of hedge funds have outperformed the S&P 500 during 2012. A fifth of hedge funds are in the red. For the record, the S&P is up 14% year to date. The average hedge fund is up only 6%.

For “2 and 20″ — handing over 2% of assets and 20% of profits to the fund manager — you’d expect better.

The Goldman report blames a host of factors — among them, timid managers still spooked by 2008 and low interest rates leading to high correlations between stocks, bonds, gold and currencies.

We’d suggest another cause: Hedge funds have proliferated to the point that collectively they can no longer outperform the market. At the dawn of the new millennium, there were fewer than 4,000 hedge funds. As of two years ago, there were more than 9,000. As Bill Bonner has been wont to point out lately, “more” does not always equate with “better.”

z0030 “Analyst forecasts on gold have been wrong for years,” says Chris Mayer, busting still more conventional wisdom this morning. “And they’ve been wrong always in the same direction — too low!”

Chris is reviewing his notes from Grant’s Fall Investment Conference — which includes the following chart from a presentation by Pierre Lassonde. Lassonde founded the original Franco-Nevada Mining Corp. — which delivered an annualized 36% return over a 20-year stretch before he sold out to Newmont in 2001. (He’s also chairman of a revived Franco-Nevada, up 50% year to date.)

“The way to read this chart,” says Chris, “is to start on the far left. That first line, the lowest line, is a plot of the 2007 forecasts. You can see analysts projected a gold price of less than $600 an ounce by 2012. The next line up, which begins in 2008, is a plot of the 2008 predictions. Same thing. You can see the predicted gold price was under $800 an ounce. In each set of predictions, analysts not only forecast gold prices too low, but they forecast gold prices to decline a few years out.

5min 112612chart
“Basically, the market consensus is that gold prices are going to fall beginning in 2014.”

…..read the rest HERE