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February 23, 2006

Turning Back
by Ron Ellison

Aluminum recently hit a multi-year high, joining a host of other commodities that have surged in the past couple of years.

Sometimes it's an exercise in fun rather than futility to turn the pages back and look over what you've written in the past. Though some may view it as a back-patting exercise, it's simply a record of fact. To paraphrase the Jack Nicholson line some folks can't stand the facts.

The article appeared on Market Maven.com and back then we were fairly certain (as certain as anyone can be about knowing anything) that commodities were set to be the next hot ticket, especially after we received a visit from our old friend Harry. Though hardly perfect, it should prove entertaining if not informative.

Lunch Near LAX
By Ron Ellison, Global View
Blasingham and Ellison Financial Group
Article Posted On May-24-02 14:45

I got a call the other day from my old friend Harry. Harry is a trader. There's probably not a market in the world Harry hasn't traded. And he's been quite successful. I don't think he's had more than one or two down years in all the time that I've known him.

Harry has a peripatetic soul. Lots of money managers brag about visiting companies. Harry visits countries. Years ago before most retail investors had ever heard of emerging markets, Harry informed me that opportunities were hardly confined by the continental U.S. borders. Harry is also a data computer junkie. He never goes to the bathroom without his laptop.

Just before the Asian meltdown, he called one morning and said he was in Bangkok. He said he could look out his hotel window and see building cranes in every direction. He called it the positive crane sign. He said the bhat at 25 to the dollar was overvalued by 50 percent. Then, before I could get a word in, he rattled off a gob of statistics, informed me he was short the entire region and hung up.

Another time some years ago he phoned from Bogota and launched into a 10-minute peroration about success. "Success is about consistency, not triples and homeruns," he informed me. That's the way Harry is. To say he's eccentric is to say that Tom Daschle likes to spend other peoples' money. Like all good traders Harry has strong opinions and he's contrarian to the core. I once heard him tell an audience of investors that 75 percent would probably disagree with what he was going to say. But that would make them examine their own biases about why they disagreed and probably learn something in the process. For all of his eccentricities, however, over the years Harry's views have been correct too often to be ignored.

We agreed to meet for lunch. The restaurant was one of those little Italian joints, the kind with the red and white checkered tablecloths and the narrow milk white vases for phony long stem roses sitting in the center. It was located in a strip shopping center near LAX. In all the years I've known Harry he's always on his way to somewhere.

It was dark inside and it took a minute before I spotted him sitting at a booth in the back with his laptop open. We exchanged greetings as I slid into the seat across from him. The waitress appeared suddenly. We ordered a bottle of super Tuscan red, pate' crostini and some penne on the side. Harry's always believed that good food compliments the wine, not the other away around.

A lot had happened since we last chatted and I was curious to hear what was on his mind. From past discussions, however, I knew that Harry subscribed to the Hollywood school of conversation: He liked to cut straight to the economic chase.

"If the dollar were an Olympic athlete," he offered. "It would've been busted for anabolic steroid abuse long ago."

With that opening I realized this was probably going to end up a discussion about inflation and the current account deficit. The waitress came, the wine got poured and after a token toast, Harry warmed to his topic.

"Treasury Secretary O'Neill has been there less than two years and he's already caught the Greenspan disease—speaking in tongues. This decade is going to look a lot more like the ‘70s and early ‘80s," he said. "And nothing like the 90s. That's what's gonna bust the back of most retail investors and the deflationary hawks you see on the tube everyday."

"What do you mean?" I interjected.

"The similarities with the Nixon days are getting eerie. To win some union and farms votes, Bush's slapping price controls on and ramping up the pork. From Cubans to education to lumber to unions, is there anybody this guy hasn't placated? They ought to change the name of the White House. Call it Placation Palace. Programs increased under Nixon and he devaluated the currency," he said.

"If they send any more pork up to South Dakota, those folks will be able to give up farming and retire. I was watching bubble vision the other day, CNBC, and they were interviewing Al Gore's economic flack, Alan Blinder. He revealed he had just created a new statistical indicator that shows the capital spending trend is improving.

"It's gone in two quarters from something like negative five to negative three. To which the commentator suggested that should be good for the market and folks' confidence. When you're worried about getting you head blown off by some jihad freak, your 401 (k) is in the toilet, and accounting guarantees you about as many correct answers as astrology, who the hell cares about cap ex?"

"The Berlin Wall," he continued, "crumbled more than a decade ago. That created a window of opportunity that ended on 911. Fraud, terrorist threats, shrinking tax receipts, a war on something as vague as terrorism, bad times increase regulations and government interference, does that sound like a high protein meal for financial assets? You've got a real estate bubble, a huge trade deficit and a dollar that look likes it's coming down with a bad case of pernicious anemia."

"What about inflation?" I asked

"Most of the television types will tell you they can't find any with an electron microscope. These are for the most part the same flacks that spread the new-age gospel during the dot-com madness. I was sitting on a plane the other day next to a guy who told me he just came back from burying his mother. After the appropriate condolences, he told me he just paid $589 bucks for the exact same headstone he bought 20 years ago for $59 when he buried his father. You do the math."

Harry finished his wine, checked his watch and closed his laptop.

"So where are you putting money now?"

"Outside the U.S.," he shot back. "Just returned from Japan. We started accumulating gold and silver a year ago. Energy is one. Sometime in the next three to five years, the U.S. will experience major fuel shortages compliments of the political hacks running this charade. And commodities."

"But commodities have been in a 25-year downturn?" I probed.

"You just made my point," he said, motioning to the waitress for the bill.

Ron Ellison
Blasingham and Ellison Financial Group

Ron Ellison is a principal of Blasingham and Ellison Financial Group, a money management firm in Newport Beach, California, and can be reached at www.Befg1.com.

Copyright © 2005-2007 Ron Ellison

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