With gold hitting highs throughout the year, this position couldn’t have had worse timing! But what the heck - it’s a new year and I feel fine! So if I was trading the portfolio, I would double up on the position and short the MCX Gold Future at ~ 15850. Call me crazy - what with Harrods getting into gold sales - but I think the time is ripe for a major reversal in gold over the next 6-12 months.

Just look at the awful dollar sentiment everywhere and the ‘I love gold’ mania. No shortage of optimism in emerging or commodity markets, US markets at/near 52-week highs, oil at a new yearly high, the list goes on … seems to me that ‘long gold’ is an over-crowded trade by far.

China channels ‘Monkeybrains’: Now unfolding is a preview of the next, the future, credit collapse. Such methods as China is employing—a borrowing binge centrally planned and directed—will eventually come to grief, as the readers of Grant’s know full well. Indeed, in money matters, nearly everything seems to come to grief sooner or later. However, it is equally true that, before the grief, comes the laughter and levitation. Massive injections of money and credit are always unsound. But for stocks, commodities and credit, they are bullish before they are bearish. In the fad for “quantitative easing,” when might the laughter turn to tears? How to prepare for that inflection point? How to see it coming?

Read the whole thing.

They have invested nearly $400 million in 49 start-ups, the most by any VC. That is also 15% of all VC investments made in India since 2004. They have exited with profits from seven of the 18 investments made from their first $135 million fund, even though it was launched on the eve of the dotcom crash of 2000. In just a few months, this fund will exit all remaining investments and return money to its limited partners (companies like Goldman Sachs, among others, that gave Sequoia India money to invest). Incidentally, this will be the first successful VC fund closure in India.

Many firsts.

Over the years, two qualities have distinguished Sequoia India’s investment strategy—adaptability and a strong hold on ground realities. However, it did not always get it right. In the initial years, with Fund I, the investment thesis was to put 50% of the corpus in technology product companies and the other half in services. Both would involve companies that targeted the US as a market. The cross-border focus was bang on. But the product bet came a cropper. “We were wrong,” says Chadha. “When we set up the fund in early 2000, people were rushing to buy software products. At the end of 2000 and early 2001, they stopped buying.” The firm shut down most of the seven product companies it had invested in and put more money in services. “It was the best decision we took,” he says. Products, luckily, were just 6-7% of the fund’s investments. But it was a painful lesson to learn. “It is tough not to get emotional about young companies,” says Balaraj.

Taleb’s Empirica Kurtosis “black swan” fund had negative returns in 2001, the year of the 9/11 black swan event. Taleb later claimed he only called it a hedge fund “in May‐Oct 2001.” Perhaps he meant something else, because Empirica Kurtosis wound up at the beginning of 2005 with lackluster returns , and performance specifics are not public, but it may have been a stranded swan.

Taleb has appeared in public with Arianna Huffington who has credited him with courage, yet he plays the victim and resorts to unwarranted name calling when asked legitimate questions. He has said Myron Scholes belongs in a retirement home and called Nobel Prize winners charlatans. Viciousness isn’t the same as courage. It takes courage to be transparent not just when results look fabulous (temporarily or otherwise), but when they don’t make you look as favorable.

Taleb taking it from all sides. Time to disclose performance data?

Statistics show that from May 1 to July 24, which seemed to be good days for Shanghai’s real estate market, many housing projects were seeing over 30% cancellations, and the cancellation rate of some projects was as high as 125%. Behind the “boom” of the housing market are irregular behaviors such as getting bank loans by cheating and making fake housing purchasing contracts.

Can you say NPA?

Also, here’s the latest missive from Jeremy Grantham of GMO: Boring Fair Price!

… let me point out that China is showing every sign of being a country ahead of the curve. There has been a whiff of panic – which I believe is justified– in China’s last 5 years of behavior regarding resource limitations and possible mitigation through truly dramatic increases in alternatives, desperate attempts at resource acquisitions, and the fostering of special foreign relationships.

Neutral US, long emerging markets, short China.

Our very broad estimate indicates that the total market value of government companies (including unlisted companies) is US$406 billion. The market value of 55 listed public sector companies is US$281 billion. The average government stake in these companies (listed) is 80%, and hence the government’s stake in these listed companies is worth US$224 billion.

We expect the government to collect proceeds of about US$4-5 billion by March 2010, which will be much larger than the amount collected in recent years.

The total workforce employed in quasi-government entities (including public sector undertakings) of the central government (excluding those working directly in administrative machinery) is 5.9 million, just 1.4% of the total workforce.We believe that the key policymakers in the new government appreciate the urgent need for investment in infrastructure but are strapped for funds, with the current national fiscal deficit of about 11.8% of GDP as of F2009. We believe that the government could easily provide for additional infrastructure funding of at least US$15-20 billion (1.2-1.6% of GDP) per annum for the next three to four years through divestment. Indeed, we believe that the private sector (including foreign investors) would be likely to invest a matching amount in manufacturing in response to these infrastructure investments.

The median age of the Indian population is currently 23.7 years, one of the lowest among large nations. India is likely to add 141 million to its current working age population of 750 million by 2018, according to estimates by the United Nations.

What Is The Effect of All This Toxic Trading?

1. Volume has exploded, particularly in NYSE stocks. But you can’t look at NYSE volume on the NYSE. The NYSE only executes 25% of the volume in NYSE stocks … traders Magazine estimates high frequency traders may account for more than half the volume on all U.S. market centers.

2. The number of quote changes has exploded. The reason is high frequency traders searching for hidden liquidity … this has significantly raised the bar for all firms on Wall Street to invest in the computers, storage and routing to handle all the message traffic.

3. NYSE specialists no longer provide price stability. With the advent NYSE Hybrid, specialist market share has dropped from 80% to 25%.

4. Volatility has skyrocketed. The markets’ average daily price swing year to date is about 4% versus 1% last year.

5. High frequency trading strategies have become a stealth tax on retail and institutional investors. While stock prices will probably go where they would have gone anyway, toxic trading takes money from real investors and gives it to the high frequency trader who has the best computer. The exchanges, ECNs and high frequency traders are slowly bleeding investors, causing their transaction costs to rise, and the investors don’t even know it.

Excellent read. And the controversy around intellectual property related to quant funds continues: The Cold War in high frequency trading turns hot

The trouble isn’t so much that the associates don’t know what actually constitutes a good business, it’s that they believe that they are uniquely qualified to make that determination.  Further, they actually believe that their few years of business school entitles them to an opinion as to whether or not a leadership team is going to get the job done.  This is particularly pronounced and troubling when the management team has 20+ years of experience, but the associate doesn’t think is “cool.”  If the associate doesn’t like you, you don’t get through them as a gate keeper.

 

When working to raise venture money, your path to meeting with the partnership must and will run through the associates.  They are primarily concerned with their ability to remain employed, which means minimizing their risk.  They are not going to push hard for anything, for that would entail taking on risk.  They don’t score points for being risky, and they certainly don’t score points for pushing for a deal which doesn’t get done.  They score points by not wasting the partners’ time, and showing the partner what the partner thinks they want to see.  As such, they are even more risk averse than the partners will seem.

Sad but very true. Beware the rookie associate who asks for your b-plan!

As for their future:

There will be a great number of unskilled (except in the art of “doing deals”) blue shirt and khaki pant wearing MBAs walking around Silicon Valley looking for biz dev jobs.