Thank You Readers!

SeekingAlpha Top 5 Opinion Leader on Forex*

Dear Reader,

Apologies for the garishness, but the Seeking Alpha designation is a nice occasion to say a long overdue and warm thank you. 

It's been great to see the number of site visitors steadily grow since my first post in May of last year on sovereign debt, currencies, and gold. And I'm especially excited to see more and more always welcome comments. My hope when I started was for two-way communication and the trends are encouraging.

Regretfully this past week was slow in terms of blogging productivity. This has been due to my needing to focus on an exciting opportunity. Long story made short, some amazing doors are opening which should translate into some even more interesting and original content for this site going forward.

Thank you for your continued interest, and keep the comments coming!

Sincerely yours,

The PolyCapitalist

*If you're interested in learning how Seeking Alpha constructs its Opinion Leader rankings they're based on page views by investment category (e.g., forex) over the past 90 days. Here's more info.

Number of the Day: $30 billion

That's the amount of aid provided to Egypt by the U.S. since 1975.

Video: Niall Ferguson on Euro Optimism; Discusses Middle-East/Pakistani Upheaval

Link to Bloomberg video interview here.

Video: Michael Lewis Discusses His Personal Portfolio Strategy

Michael Lewis On Why Ireland Will Ultimately Default

Michael Lewis

Following up on his previous profiles of bankrupt Iceland and bailed out (for now) Greece, Michael Lewis has a new article titled 'When Irish Eyes Are Crying' in the March Vanity Fair.

I highly recommend carving out time to read the full article, but here are a few choice excerpts:

Not knowing why they were so suddenly so successful, the Irish can perhaps be forgiven for not knowing exactly how successful they were meant to be. They had gone from being abnormally poor to being abnormally rich, without pausing to experience normality. 

Ireland’s financial disaster shared some things with Iceland’s. It was created by the sort of men who ignore their wives’ suggestions that maybe they should stop and ask for directions, for instance. 

The journalists were following the bankers’ lead and conflating a positive outlook on real-estate prices with a love of country and a commitment to Team Ireland. (“They’d all use this same phrase, ‘You’re either for us or against us,’ ” says a prominent bank analyst in Dublin.)

The most obvious change in the country’s politics has been the role played by foreigners. The Irish government and Irish banks are crawling with American investment bankers and Australian management consultants and faceless Euro-officials, referred to inside the Department of Finance simply as “the Germans.” Walk the streets at night and, through restaurant windows, you see important-looking men in suits, dining alone, studying important-looking papers. In some new and strange way Dublin is now an occupied city: Hanoi, circa 1950. 

At the rate money currently flows into the Irish treasury, Irish bank losses alone would absorb every penny of Irish taxes for at least the next three years. 

A banking system is an act of faith: it survives only for as long as people believe it will. Two weeks earlier the collapse of Lehman Brothers had cast doubt on banks everywhere. Ireland’s banks had not been managed to withstand doubt; they had been managed to exploit blind faith.

If the Irish wanted to save their banks, why not guarantee just the deposits? There’s a big difference between depositors and bondholders: depositors can flee.

Now the Irish people finally caught a glimpse of the guy meant to be safeguarding them: the crazy uncle had been sprung from the family cellar. Here he was, on their televisions, insisting that the Irish banks were “resilient” and “more than adequately capitalized” … when everyone in Ireland could see, in the vacant skyscrapers and empty housing developments around them, evidence of bank loans that were not merely bad but insane. “What happened was that everyone in Ireland had the idea that somewhere in Ireland there was a little wise old man who was in charge of the money, and this was the first time they’d ever seen this little man,” says McCarthy. “And then they saw him and said, Who the fuck was that??? Is that the fucking guy who is in charge of the money??? That’s when everyone panicked.” 

Ireland’s 87 percent rate of home-ownership is among the highest in the world. There’s no such thing as a non-recourse home mortgage in Ireland. The guy who pays too much for his house is not allowed to simply hand the keys to the bank and walk away. He’s on the hook, personally, for whatever he borrowed. Across Ireland, people are unable to extract themselves from their houses or their bank loans. Irish people will tell you that, because of their sad history of dispossession, owning a home is not just a way to avoid paying rent but a mark of freedom. In their rush to freedom, the Irish built their own prisons. And their leaders helped them to do it.

"Financial-catastrophe tourism" is how Michael describes his visits to various European countries since the financial crisis began.

For more from Michael on his latest story check out the article's accompanying Q&A, where he predicts the Irish people, like the Greeks, will eventually say nach bhfuil níos mó (Gaelic for 'no more') and default:

(quote from Lewis' driver) "The problem with the Irish is that you can push them and push them and push them and they don’t do anything, then they snap and go whacko.” (Lewis' response) I think that’s going to happen. I think that you’re going to be surprised how much punishment they take, and then at some point they’re going to cease to take it. This may be years off; it may not be six months off. I think it’s a pretty slow-burning fuse.

Video: Translation of Hillary's Egypt Briefing (Spoof)

The Buck Stops Here: Housing Price Trends and the Economic Outlook

Is the time finally right to get back into the residential real estate game? And what are the broader implications of trends in housing on the overall economy and financial markets? Let's take a look at the arguments and data.

The Case for Investing in Housing

Mortgage interest rates have come up some recently but are still near historic lows and appear attractive.

U.S. 30-Year Mortgage Interest Rates

Note: chart data only runs through early 2010; if updated through 2011
 the chart would show a recent increase in interest rates to around 5%.

We're also entering the comparatively slow home buying season and prices, after a post-bubble popping uptick, have been retreating recently.  There may be some sweet deals to be had over the next several months.

And perhaps most importantly are the following two considerations: a) the overall economy is showing increasing signs of life and b) the risk of deflation appears to be subsiding as commodity (e.g., oil) and food price inflation is taking off globally. Real estate has historically been considered one of the best ways to protect oneself against broad inflation.

Add it all up and it would appear that housing could in fact be a prudent investment right now. What would be reasons for holding off?

Continue reading the full article published on SeekingAlpha here.

Mind of a Hedge Fund Manager: Inside Hugh Hendry's Head

The Eclectica Chief holding court

When it comes to media appearances, major hedge fund managers can be a rather reclusive lot. Unless your name happens to be Hugh Hendry.

During this week's Alternative Investment Conference in London, the iconoclastic speculator waxed philosophical about his own "self loathing" and the "voices inside his head", described indirect ways to play the Chinese property bubble, and explained how desperate he is to "see inside the envelope waiting in the future which contains my 10-15-20 year performance results".

Hendry's keynote was facilitated by author Steven Drobny, who explained that his goal for this interview was to "get inside the head of Hugh Hendry". Also of note, Drobny publicly revealed for the first time that Hendry was in fact the anonymous 'Plasticine Man' featured in his recent book Invisible Hands: Top Hedge Fund Traders on Bubbles, Crashes, and Real Money.

While Hendry declined Drobny's Freudian-esque invitation to recline on a couch brought up on stage specifically for him, he did play along with Drobny's word association game. When prompted with the names Ben Bernanke and Vladamir Putin, the same two words popped out of Hendry's mouth: "evil genius". What does that reveal about the way Hendry thinks? Perhaps not as much as the below conference highlight reel which was dubbed "Hugh Hendry's Greatest YouTube Hits".

Hendry's growing notoriety has managed to attract attention on the other side of the pond. In a NY Times profile last summer the Eclectica boss quipped “If there was a way to short Obama, I would”. At the conference he clarified that his remark was not directed at President Obama personally per se, just his policies.

For Hugh Hendry followers much of what he said at the conference may be familiar, but here are a few of the highlights:

• The euro is "mortally wounded but can limp on for awhile at the expense of ordinary people, making it expensive to speculate against".
• His best trades are the ones where he doesn't "fear the consequences of being wrong".
• He's not positive (bullish) on any country.
• In his own opinion, one of the keys to his success is that from an early age he was "taught to misbehave".

When it came to talking specific investments themes, Hugh outlined his bearish stance on China: "the only thing unique about China's economic strategy are the sheer numbers". Fundamental to his bearishness is the fact that so much capital in China has been directed for sovereign, rather than purely economic purposes. 

He compared China to a "sun moving other planets", and that "it's best not to short the mainland but instead short the satellites" or "dark side of the moon" as he called it. As such Hendry has a significant "basket" of Japanese credit default swaps with a four year time horizon. He discussed the evolving Japanese steel industry and his expectation that Japanese steel exports will contract significantly in the years to come.

Like Jim Chanos, he is extremely bearish on Chinese commercial real estate and even provides a guided tour of empty Chinese high-rise buildings in the below video.

Whether or not Hendry's bets will pan out within his time frame is an open question. But what is without question is that the financial world is certainly a more interesting and entertaining place with the outspoken Hugh Hendry.

Video: Exporting Propaganda - China's New Charm Offensive

Spin, manufactured in China

A friendly, gentle depiction of the People's Republic may soon be coming to Americans and Europeans via their television screen and newspapers (see today's International Herald Tribune and its cleverly disguised paid-for-but-looks-like-news insert) .

Yes, this bought and paid-for China is the same country which has banned its citizens from using Facebook, Twitter, YouTube, and most recently Skype. As noted by the NY Times, China's rulers are "obsessed with the threat posed by the Internet".

From the article:

Li Changchun, a member of China’s top ruling body, the Politburo Standing Committee, and the country’s senior propaganda official, was taken aback to discover that he could conduct Chinese-language searches on Google’s main international Web site. When Mr. Li typed his name into the search engine at google.com, he found “results critical of him."

A Chinese person with family connections to the elite (said) that Mr. Li himself directed an attack on Google’s servers in the United States 

In the wake of the overthrow of Tunisia's government, other dictatorships (e.g., Mubarak's monarchy in Egypt) are now following China's lead.

I can only imagine how the Politburo Standing Committee's discussion over China's international image problem went down: "China is the world's greatest exporter, and propaganda works pretty well here, so why not package the two together?"

Twitter vs. Facebook: Which Was a Bigger Factor in Overthrowing Tunisia's Government?

Viva la revolution! (a photoshopped Mark Zuckerberg)

Interesting read over at the Atlantic which builds the swirling debate over just how important a role Silicon Valley tech companies, like Facebook and Twitter, played in the recent overthrow of Tunisia's government.

From the article:

There has been a lot of debate about whether Twitter helped unleash the massive changes that led Ben Ali to leave office on January 14, but Facebook appears to have played a more important role in spreading dissent. 

"I think Facebook played a bigger role in this case," said Jillian York of the Berkman Center for the Internet and Society, who has been tracking the Tunisian situation closely. "There are a lot more Facebook users than Twitter users. Facebook allows for strong ties in a way that Twitter doesn't. You're not just conversing."

The Atlantic article also addresses Facebook's response to attempted hacks, presumably by the notorious Ammar (Tunisia's secret police operation).

From Facebook's Chief Security Officer Joe Sullivan:

"We get requests all the time in a few different contexts where people would like to impersonate someone else. Police wanting to go undercover or human rights activists, say," Sullivan said. "And we, just based on our core mission and core product, don't want to allow that. That's just not what Facebook is. Facebook is a place where people connect with real people in their lives using their real identities."

Anyone still wondering why in addition to Twitter and Facebook, China also blocks its citizens from using YouTube and Skype?