Ichan owns about 60 million shares of Chesapeake Energy.  It became very attractive as corporate governance issues drove down the price of the stock.  At the same time, natural gas was soaring in value as fracking make the fuel a much more viable energy source.  The chart below shows how the travails of Chesapeake Energy had the stock price falling as natural gas (NYSE: UNG) was rising.

There is much to like about Chesapeake Energy, particularly for value investors like Berkowitz of Fairholme Fund and Pabrai of the Pabrai Investment Fund.   The price-to-book ratio for Chesapeake Energy is just 0.92.  The industry average is 1.91.  The price-to-sales ratio for Chesapeake Energy is 1.08.  For the industry, the average is 2.33.

For growth investors, Chesapeake Energy also offers superior value.  The five-year sales growth rate is 9.29%.  The industry average is a negative 8.80%.  For the the most recent quarter, the earnings growth rate for Chesapeake Energy is around the triple digits.  Over the next five years, the analyst community projects that the sales growth rate for Chesapeake Energy will be over 30%.

That expected earnings growth has many, many problems to overcome, both on the balance sheet and operationally.

Chesapeake Energy is larded down by debt.  The debt-to-equity ratio 1.06.  For the industry, the average debt-to-equity ratio is just 0.56.  That means it required Chesapeake Energy almost twice as much borrowing to produce each dollar in equity as for its competitors.

All that borrowing has not resulted in a superior performance by Chesapeake Energy.  Its profit margin for the trailing twelve months is a negative 11.40%.  The industry average is 0.05%.  The five-year return on assets for Chesapeake Energy has been 1.90%.  That is about half the industry average of 3.50%.

There are major issues to be resolved with the former chief executive officer, Aubrey McCLendon.  According to one report about his separation agreement, “McClendon also will retain all rights to the Founders Well Participation Program though June 30, 2014. He already has chosen to buy a 2.5 percent stake in every well the company drills through that date.”

These factors have many betting that the share price of Chesapeake will fall.  The short float is now 9.65%.  A short float of 5% is considered to be troubling for a company.

Despite the obstacles facing the company, the macro climate is certainly positive for Chesapeake Energy and others in the sector continuing to rebound, as detailed in another article on this site.  Two permits have been recently approved for exporting liquefied natural gas.   The demand for fossil fuels from the United States by other countries is increasing.  More and more utilities around the world are replacing coal power with natural gas.  There is no doubt that these macro factors have resulted in the strong share price performance of Chesapeake Energy over the last year, as shown by the chart below.

For the recent market action, the technical indicators certainly indicate a continuing price rise.  The stock is trading well above its 20-day, 50-day, and 200-day moving averages.  Candle stick formations have been long, positive and engulfing, a very strong pattern.  Volume has been strong, too.  Institutional ownership of the stock is close to 80%, which is bullish.

Icahn, Berkowitz and Pabrai are all in Chesapeake Energy for the long term.  It is one of the largest holdings of Icahn’s, who has large positions in several energy companies.  As the stock price is up almost 50% for Chesapeake Energy for the last year of trading, that patience has so far been rewarded.

This entails the monthly purchase of $85 billion, about one trillion, annually in Treasury Bonds and mortgage-backed securities by the Federal Reserve.  By expanding its asset sheet through an accounting mechanism, the  Federal Reserve has acquired trillions of these securities since 2007.  As a result, its asset sheet has expanded from under $700 billion in 2007, before the onslaught of The Great Recession, to around $3.3 trillion now.  Unlike the previous rounds of quantitative easing, Quantitative Easing III is open-ended in both scope and duration.

Based on the CBO report, the Federal Reserve is now buying about $20 billion in securities each month than is necessary.  The previous projection was that the US budget deficit this year would be around $900 billion.  That estimate comports with the announced size of Quantitative Easing III by Chairman Bernanke last September.

In addition to the expected smaller size of the US budget deficit, the Federal Reserve has been returning almost $100 billion in profits to the Department of Treasury each year.  These profits result from changes in the value of the securities in the Federal Reserve portfolio that are later sold for a profit.  For 2012, $88.9 billion was sent to the US Treasury by the Federal Reserve.  There was $77.4 billion registered by the Federal Reserve as profits in 2011.

These factors result in a much reduced need for the Federal Reserve to step in and buy Treasuries.  Based on the smaller budget deficit and the profits to be expected from the Federal Reserve, there will be an excess of well over $300 billion in cash being produced from the current operations of the American central bank.  It should be expected by the investor community that the Federal Reserve will trim back its Treasury bond buying to reflect the changing market paradigm.

But there was a huge drop in the stock markets yesterday based on the fear that the Federal Reserve would reduce its intervention in the capital markets in the form of the securities buying.  As the chart below shows, the Dow Jones Industrial Average plunged at the opening as Federal Reserve minutes indicated there could be a pullback in Quantitative Easing III.

But this is to be expected.

As detailed in other articles on this site, the Federal Reserve will not be conducting its monetary policy and operations to the benefit of speculators.  The evolving market conditions will naturally result in program changes.  If the budget deficit is going to be much smaller, than so should the amount of the expected Treasury bond buying by the Federal Reserve.

The markets fell as investors thought that the Federal Reserve curtailing its bond buying operations will be detrimental due to a reduced amount of liquidity.  With the smaller American budget deficit and the profits being earned by the Federal Reserve that are returned to the Department of the Treasury, that should not be the case.  This is also a clear sign that the US economy is recovering, which is a very bullish development for the financial markets.

It appears as if the Federal Reserve can now reduce its Treasury buying by at least $200 billion without having a negative impact due to the deficit being lower for fiscal year 2013.  The profits posted by the Federal Reserve should also maintain the amount of liquidity needed for the bull market to continue even if Quantitative Easing III is truncated.  Those should be regarded as positive signs for the American economy, which should be bullish for the investment community.

What makes Renaissance’s liquidation of its Apple position even more drastic is the company’s recent attempt to retain shareholders looking for income.  Apple committed over $100 billion of capital to stock buybacks and dividend increases.  Obviously that was not enough for Renaissance Technologies as its most recent 13F filing with the Securities and Exchange Commission revealed that it had dumped its entire stake in Apple.

The trajectory of Apple’s share price could not be more different than after the release of its two more recent iPhones, its most profitable product.  The chart below shows the contrasting paths taken by the stock price of Apple from the iPhone 5 launch last September and the iPhone 4S launch in September 2012.

It clearly appears as if there is justifiable concern that the competition is catching up with Apple.

While the iPhone is still among the most if not the most expensive smartphone, there are plenty of viable alternatives.  In addition, Apple is very weak in the feature phone segment.  That market area, where others such as Nokia (NYSE: NOK) are formidable, is the mobile phone that has the broadest appeal to billions of emerging market consumers as there are not the 4G networks yet around the globe that the iPhone 5 requires.

Even with its problems and price fall, Apple is still a very profitable company, however.

Both Simon and Warren Buffett increased each’s position in IBM (NYSE: IBM), however.  Each takes a different approach to investing: Buffett applies primarily a value approach.  Simon is a pure quant, with degrees in Mathematics from MIT (BS)  and UC Berkeley (PhD).

At present, IBM has a profit margin of 16.05%.  For Apple, the profit margin is 23.46%.  Apple dominates IBM in other critical indicators, too: the return-on-investment for Apple is 28.53%, with IBM’s only 21.79%, as another example.

But the return-on-equity measure tells a different tale for Apple.

In a recent interview with Charles Rotblut of the AAII Journal, Carol Loomis, a Senior Editor with Fortune who edits Buffett’s infamous shareholder letters, stated in response to a query about return-on-equity being critical to “The Oracle of Omaha,” that, ” It is one of the things he believes in strongly: that a company capable of producing a good return-on-equity and doing it consistently is the kind of company you want to be in.  It’s just a good marker to see what kind of company it is.”

The return-on-equity for Apple is 33.34%.  For IBM, the return-on-equity is 83.28%.

It was also noted by Loomis in the interview, “Insights on Warren Buffett from His Friend and Editor,” that Buffett has a “…focus much more on good companies, like See’s Candies, which has been one of the best purchases Berkshire ever made.”  No longer is Buffett chasing turnarounds, as detailed in a previous article on this site, “There is a Chance for Hedge Funds to Buy Cheaper Than Buffett on His Latest Acquistion.”

Was Apple’s return-on-equity the reason for Renaissance Technologies selling?

The world will probably never know as Simon and Renaissance Technologies are famously adverse to media attention and very controlling in the flow of information (another huge contrast with Buffett, who courts all aspects of the press and just launched his first Tweet at the recent Berkshire Hathaway (NYSE: BRK-A) shareholder meeting, as reported by USA Today).

But one thing is known, for sure.

Not even Apple doubling its  capital return program for shareholders could keep Renaissance Technologies from disgorging its entire position, without even waiting for hopes of a rebound in the stock price when the iPhone6 is introduced.

Microsoft has never projected the panache of Apple (NASDAQ: AAPL) to consumers.

This dates back to the infamous Bill Gates letter of January 1976 to the Homebrew Computer Club.  In that dispatch, Gates took a firm position against the widespread copyright infringement of software in the nascent high tech community.  Focusing on the intellectual property being taken from his company, Gates’ letter was viewed as being against the spirit of sharing and open information among techies.   By contrast, the first Apple computer was directly spawned from the Homebrew Computer Club, as this video relates.

From then on, Gates was painted with the brush of being corporate and not cooperative in the world of high tech.  For Steve Jobs of Apple, it was a different view (even with his own G5 personal jet)!   The black turtleneck for one and cardigan sweater while playing bridge for the other completed the diametrically opposing images of Apple and Microsoft based on the public images of the high profile leaders for each high tech behemoth, which a televised commercial campaign later reinforced.

More than $50 billion in personal wealth accumulation later, we all know how that has turned out personally for Bill Gates.

For the shareholders of each company, as the chart below shows, Microsoft has performed much better as a stock than Apple in recent market action.  While Microsoft is up more than 33.42% for the past six months of trading, Apple is off by 15.64%.  It is difficult to project an Apple turnaround anytime soon, unless the iPhone 6 is monumental in its offerings when it is unveiled!

Unlike Apple, Microsoft has made a smooth transition from a high tech growth stock to one with a very appealing income feature in the post-Great Recession era.  While the average dividend for a member company of the Standard & Poor’s 500 Index is around 2%, the yield for Microsoft is 2.64%.  Microsoft has a modest payout ratio and ample cash reserves, so shareholders should expect dividend increases and buybacks in the future.

Apple has been moving to copy Microsoft’s success in this regard.

Just recently, Apple announced that $100 billion would be dedicated to stock buyback programs and dividend increases to reward shareholders.  So much for the old school high tech dictum that excess cash was better spent on research and developments efforts and acquisitions rather than sharing it with the other owners of the company.

The recent performance of Microsoft has the price in overbought territory.  The current relative strength index rating is 75.15.  At nearly $35 a share, Microsoft is at its 52-week.  The mean analyst target price for Microsoft is $32.95.

As the chart below shows, Microsoft has soared since the first of the year.  It is trading well above its 20-day, 50-day, and 200-day moving averages.  Naturally, that, along with other technical indicators, has created concerns of a pullback.

But that has not deterred hedge funds, pension groups, and others.  Microsoft’s franchise in business applications and personal computers is very appealing.  It has also done very good work in The Cloud and Big Data, which should increase revenues with its present customer base.  At present, institutional investors own nearly 70% of the publicly traded shares of Microsoft.  With a beta of 0.97, it is obvious they hang on to the stock.  As there is only a 1.31% short float on Microsoft, it does not appear as many are betting that the share price will fall.

The next commodity looking ready to plunge for the same factors is oil.

As the chart below shows, the exchange traded fund for oil (NYSE: USO) is trading at a high after its plunge from the summer of 2008.  According to ICE Futures Europe, hedge funds now have bullish bets on Brent crude at the highest level in six weeks.  But there are many fundamental economic factors why oil is higher than it should be, including such basic ones as low demand and a high level of inventories.  Much of the rise is oil can be attributed to speculative buying, in reaction to the quantitative easing programs of the world’s central bankers.  According to a study by the International Monetary Fund, about 70% of price moves in commodity markets are generated by computerized trading programs, which counters the buying and selling by others rather than basic economic demand.

The USO should be following the path of the JJC (NYSE: JJC), the exchange traded fund for copper.  As both are used almost entirely for industrial end uses, oil and copper have traditionally followed the same trajectories.

That is shown by the chart below.  The JJC and the USO were trading in a co-relationship up to and just after the announcement of Quantitative Easing III by Bernanke last September.  But as the chart below clearly shows, the USO and the JJC have diverged in market action this year.  For the last six months, the USO is up by 9.37%.  Over the same period, the JJC has fallen by 4.73%.

Due to its greater depth, investors and speculators have stayed in oil investments, while bailing out of those in copper, gold and other commodities.  According to a recent article in The Wall Street Journal by Christian Berthelsen, “Oil out of Sync with Market Forces,” this could soon be changing, however.

In his Journal piece, Berthelsen points out that, “Oil is a standout in a mostly dismal year for commodities, as the Dow Jones-UBS Commodity Index has fallen 5.6%.  The decline has even been steeper for gold, copper, and other former darlings.”  But this is contravening the fundamental market forces of basic economic demand as Berthelsen states that oil should be lower falling due to “several factors that often push prices lower” such as, “…U.S. economic growth is tepid, domestic oil stockpiles are at their highest in more than three decades, the unemployment rate is at 7.5% in the U.S., and inflation is lower than the Federal Reserve’s target of 2%. Meanwhile, domestic oil production is soaring and U.S. fuel demand is soft.”

Testifying before Congress, Rex Tillerson, the Chief Executive Officer of Exxon-Mobil (NYSE: XOM), declared that the price of oil was higher by about 50% due to speculative forces.  That was back in the spring of 2011, but that rise in oil was as a result of the market reaction to Quantitative Easing II, announced by Bernanke in August 2010 at a speech in Jackson Hole.  Quantitative Easing II, which consisted of the Federal Reserve buying about $700 billion Treasury securities by expanding its balance sheet, sent the price of oil, gold and other commodities soaring as the US dollar plunged.

Eventually, however, the fundamental economic forces of supply and demand will catch up with the price of oil.

It happened after the summer of 2008, when the price of oil fell more than 50%, before its Quantitative Easing II-induced jump.  It has recently happened to copper, gold, currencies, and other asset classes.  For oil, it will take longer due to it being a much larger market with a different demand paradigm than copper and other commodities that react to industrial demand.  However, that must means the losses will be greater for those hedge funds caught unprepared.

According to an article in The Wall Street Journal, “Hedge Fund Billionaire William Acman, Investor Group in Contract to Buy a New York Penthouse for Over 90$ Million” this will be the expensive sale of real estate in Manhattan’s history.  For those who want a closer look at the unit, click on this link for a YouTube video dedicated to it.  As noted by the Journal piece, when the deal settles, Ackman “would be part of a group that owns the 75th and 76th floors of One57, a new luxury tower overlooking Central Park. The 13,554-square-foot condo has a two-story-high, 51-foot-wide glass enclosed “winter garden” with a curved glass roof.”

In addition this real estate deal, there have been articles on other publications such as Forbes and Town & Country about hedge fund luminaries buying expensive real estate as an investment.  These articles reported that the high end property market in destination cities like New York was very healthy…the Ackman deal at One57 will make it even more robust!

Real estate is a natural sector for hedge funds to invest.  While we are all looking for an investing edge, hedge funds have substantial advantages over others in buying properties.  Probably the most important is the cost of capital.

Others must pay to borrow the money to buy a real estate investment.  By contrast, a hedge fund is paid to invest the money.   Investors in a hedge fund will generally pay a 3% upfront fee to a hedge fund to invest.  So if a real estate buyer borrows with a 6% mortgage to buy a piece of investment property, the hedge fund is already 9% ahead.

When paying cash, hedge funds are not assessed other expenses that accompany a mortgage.  Many times these can add another 3-4% to the purchase price if the buyer decides to buy down the mortgage with points.  These expenses added on to borrowing costs now have the hedge fund investor with a double digit percentage point advantage.

For the property at One57, that is about $10 million.

From this, the hedge fund gains a significant exit strategy advantage.  To achieve its goal, it can sell at a much lower price and still do very well.  With the more than $10 million tacked on, other investors have to wait for a much higher price (more than $10 million higher, in this case).

As detailed in another article on this site, hedge funds are very active at all levels in real estate at the present, not just deals near $100 million.  While the deal at One57 is cash, mortgages are used for many others.  Many hedge funds have been buying single-family homes, often times foreclosures, fixing them up, and them renting out the properties.

If done right, that provides a solid return on capital.  A house with $200,000 in it that rents for $2000 a month provides a 10% return to the hedge fund.  If the rent rises 5% a year, so does the return, doubling about every 14 years.

Baron Von Rothschild once advised that the ideal investment portfolio was one third real estate, one third securities, and one third art.  The penthouse at One57, for close to $100 million, could certainly be considered a work of art as it is a magnificent residence.  With the investing advantages favoring hedge funds in properties, Ackman could be able to turn this into a double digit masterpiece with the high end real estate market so strong!

As reported by Frangos, “Who among Wall Street’s brightest currency minds predicted four months ago that the yen would get to 100 per dollar so soon? Nobody, that’s who. None of the currency analyst teams among the top 15 currency-trading banks surveyed by Dow Jones Newswires at the end of last year penciled in ¥100 to the dollar by the second quarter.”

The quantitative easing efforts of global central bankers have routed many in the financial community who did not adapt to the new paradigm.  While the almost three years since the introduction of Quantitative Easing III in August 2010 has witnessed the downgrade of the United States by Standard & Poor’s with continuing threats of similar actions, the US Dollar has soared.  The chart below shows how the exchange traded funds for the US Dollar (NYSE: UUP) has surged while that for the Japanese Yen (NYSE: YCL) has stumbled.

Wall Street analysts missed the shift in investors in moving from traditional safe haven assets such as gold (NYSE: GLD) and the Japanese Yen to the US Dollar.  It was too big to recognize, as it has involved trillions in currencies being created by global central bankers around the world.  This has taken place from expanding the balance sheets of the Federal Reserve, the Bank of Japan and across The Pond at the Bank of England (the chart below shows how the Pound (NYSE: FXB) has fallen against The Greenback in recent market action).  Asset swaps then help to balance out each central bank’s position to help quell the markets.

There is so much capital in circulation now that the US Treasury market is the only one capable of providing the needed liquidity.  The still struggling American economy combined with political scandals and trillion dollar deficits has not deterred foreign investors.  In March,  foreign demand for Treasuries securities increased.  Both the Japanese and Chinese were net sellers, however.

It is not like the direction of the Japanese Yen was more than subtlety signaled.

Prime Minister Shinzo Abe ran on a platform, as outlined in his speech to the legislature from this video, of stimulating the moribund Japanese economy which is now well into the second decade of “The Lost Decade.”  There was only one way to do that: massive intervention by the Bank of Japan, following in the path of the  Federal Reserve under Chairman Ben Bernanke.

It was resulted in the same set of odd circumstances.

The Yen is weak as the Japanese economy just posted record growth with the Nikkei Index hitting a 5-year high.  The same holds truye for the Dow Jones Industrial Average soaring with the American economy so anemic.  So much for what hedge fund legend Jim Rogers said about a weak currency being a sign of a weak economy, which is a sign of a weak government.

There is no end to quantitative easing in sight.  But the political leaders in the United States, Japan and Great Britain have openly conveyed their objectives: to utilize monetary policy to maintain a low interest rate environment to create jobs through greater investment.  The Federal Reserve continues to acquire $85 billion worth of Treasury bonds and mortgage-backed securities each month to revitalize the American economy.  That can be expected to continue, as will similar efforts in Japan and Great Britain.

Klarman, as detailed in a previous article on this site, is known as the “Oracle of Boston as his investment strategy so resembles Buffett’s.  Reading every shareholder letter of Buffett’s, Lampert is regarded to have bought Sears Holdings (NASDAQ: SHLD) to replicate Berkshire Hathaway (NYSE: BRK-A) as an investment vehicle to fund other acquisitions from its cash flow. as reported in another article on this site.  But it is safe to assume that few expected Buffett’s recent investment in Chicago Bridge & Iron (NYSE: CBI).

That the share price of Chicago Bridge & Iron was up more than 8% for the week after the announcement of Buffett’s buying is testimony to that!

Based in The Netherlands, Chicago Bridge & Iron is a construction company with a global presence and a focus on the energy sector.  It operates in three segments: Lummus Technology, Steel Plate Structures, and Project Engineering and Construction.  None of those businesses are exactly glamorous, which is what Buffett seeks for his investing.

The returns and margins are hardly stellar, either: the profit margin for Chicago Bridge & Iron is 4.57%.

That is about half the average for a member company of the Standard & Poor’s 500 Index.  But that has never been the most important indicator for Buffett as the profit margin for Heinz (NYSE: HNZ), a recent acquisition, is just 9.20%.  Wal-Mart (NYSE: WMT), another major holding of Berkshire Hathaway’s, has a profit margin of only 3.78%.  Along with disclosing the investment in Chicago Bridge & Iron, it was also reported that Buffett bought more shares of Wal-Mart for the holdings of Berkshire Hathaway.

What Chicago Bridge & Iron does have is a wide economic moat that Buffett values so highly.  According to Buffett, “ In business, I look for economic castles protected by unbreachable moats.”    Simply described, an economic moat is what protects a business against time and competition.  That is why Buffett invests so heavily in railroads (Burlington Northern Santa Fe), utilities (Mid-American), and companies with brand names such as Wal-Mart and Coca Cola (NYSE: KO) that are virtually  impossible to challenge.  As Buffett said in an article in Fortune, “If you gave me $100 billion and said, ‘Take away the soft-drink leadership of Coca-Cola in the world’, I’d give it back to you and say it can’t be done.”

The economic moat for Chicago Bridge & Iron is evinced by its founding in 1889, and its soaring sales growth of today.  For the last quarter,  the sales growth is up more than 80% for Chicago Bridge & Iron.    According to the analyst community, it is projected to increase by an average of 21.63% over the next five years.  With a projected forward price-to-earnings ratio of just 12.06, down from the present 22.06, Chicago Bridge & Iron is poised for growth.  As the chart below shows, Chicago Bridge & Iron is up 33.36% for 2013 (some of that can be attributed to The Buffett Effect, when the stock prices rises as it is disclosed he has invested in the company).

Where the opportunities lie for other hedge fund managers to imitate Bufett is that Chicago Bridge & Iron is a very volatile stock with a modest market capitalization.   The market capitalization for Chicago Bridge & Iron, after the recent Buffett Effect surge, is just 6.61 billion; with a beta of 2.31.  That means that the stock price of Chicago Bridge & Iron moves more than twice as much as the stock market as a whole

By contrast, the market capitalization of Coca-Cola is over $190 billion with a beta of around 0.50.  It is a similar story with Wal-Mart: a market cap of over $256 billion for the world’s largest retailer with a beta of just 0.34.  For the other hedge funds, the volatility of Chicago Bridge & Iron could allow for buying on the dips and getting in on a better price than Buffett.

Due to the massive amounts of fiat currencies being created by expanding the balance sheets of central banks rather than from greater economic production in countries, commodities such as gold, copper, oil and others soared in the early rounds of quantitative easing.  This was particularly true after Quantitative Easing II was announced by Federal Reserve Chairman Ben Bernanke in a speech at Jackson Hole in August 2010.  Quantitative Easing II consisted of the Federal Reserve buying about $700 billion in Treasury securities from November 2010 through June 2011.

This was part of Federal Reserve Chairman Ben Bernanke’s effort to maintain a low interest rate environment to revitalize the housing and stock markets, which would hopefully lower unemployment in the United States and around the world.  As this was impossible to do by relying on global capital markets as there was no demand for these securities at such low interest rates, the Federal Reserve was forced to expand its balance sheet from around $700 billion in 2007 to about $3.35 trillion now, as recently reported.  These purchases that are increasing the balance sheet of the Federal Reserve are growing at a rate of $85 billion a month, from buying of Treasury bonds and mortgage-backed securities.

At first, commodities soared as speculators fled paper money for hard assets.

But this has not been the case since Quantitative Easing III was announced by Bernanke in September 2012.  While there was an initial run up in the price of copper, as show by the chart below of the exchange traded fund for The Red Metal, (NYSE: JJC), it has since fallen.  Just as the increase was due to the actions of global central bankers, so has been the decline.

Due to the efforts to keep interest rates as low as possible, assets that pay yields have become more in demand.  That is not commodities such as The Red Metal.  While there are some companies such as BHP Billiton (NYSE: BHP) that are active in copper and have healthy yields, the lack of demand for industrial metals has kept investors away.  For 2013, BHP Billiton is down 12.38%, as an example.

The falling price of gold, oil, copper, and other metals play into the hands of global central bankers.  Every dollar that buys an ounce of gold is one less dollar that could go into a job creating investment.  By crushing these assets, the Federal Reserve and others make needed productive investments more appealing.

In addition to diverting investment capital away from companies, speculators drive up the price of copper and oil.  These commodities, unlike gold, are needed for the factories and farms of an economy to produce.  If speculators drive up the price of oil and copper, it is much for expensive for the businesses who need it create goods and services.  That reduces economic growth, keeps unemployment high, and creates crippling inflationary conditions.

It has been a difficult year for The Red Metal.

While the Dow Jones Industrial Average and Standard & Poor’s 500 Index are both up in double figures, the JJC is down 10.68%.  For the last week of market action, the JJC is down by 2.05%.  Hedge fund managers long on copper hoping for speculative gains should not expect any assistance from central bankers.

The ‘Helicopter Ben’ analogy continues to follow Bernanke and the Fed, even as they restructure the liquidity program. As you may remember, the tag was given to Ben Bernanke when he jokingly offered to throw money from a chopper to induce spending. Still contentious, the almost toxic relationship with hedge funds has crystallised into a love hate affair in 2013. Is this down to the politics or can these managers see something that the rest of the market is missing?

Stanley Druckenmiller – Duquesne Capital

A vocal advocate to the feds quantitative easing program, Druckenmiller was quoted as saying:

“Bernanke is running the most inappropriate monetary policy in history.” (Stanley Druckenmiller)

His long term opinion of the market comes in stark contrast to much of the current sentiment, with the Duquesne supremo highlighting the potential for an explosion in inflation and interest rates. On a short term basis, he has cited that the liquidity in the market has given rise to quick investment opportunities.

Paul Singer – Elliott Management

Strong in his condemnation of the steps taken by the Fed, Singer is forecasting an adjustment in the first world economies. In essence he has cited the two speed economy, with large corporations benefiting from excess liquidity and the consumer struggling to adjust to new prices and living costs. Rising CPI and the disparity of balance sheet debt has led to Singer voicing his disgust for Bernanke and the Fed’s decisions.

David Einhorn – Greenlight Capital

In late 2012, Einhorn was pressed on quantitative easing and its long term ramifications. He was quoted as saying:

“One jelly doughnut is a great snack. Two is indulging. Six is an eating disorder. Twelve is a fraternity hazing. You can have far too much of a good thing; that’s where we are now with monetary policy.” (David Einhorn)

With a view that falls in line with Singer and Druckenmiller, the Greenlight Capital chief identifies a problematic inflationary disparity in the coming years. Unlike the other two hedge fund managers, Einhorn is politically affiliated to the democrats, with a contrasting view to Bernanke, the Fed and Administration.

Dan Arbess – Xerion

One such manager that professes to support an injection directly into the economy by the Fed is that of Xerion’s Dan Arbess. Recently in a speech to the Milken Institute, he highlighted the need for direct investment into companies rather than through the banking system. In essence the printing of money. Some suggest that the limited spending and reduced investment by banks could be the reason that inflation has been manageable to date.