(Originally posted on January 22nd 2010)
I have been down with a fever ever since I came back from India on the 18th. However it looks like The Volcker Rule has scared the fever out of me. The markets have reacted negatively. Personally I am not sure what to make of it. Curbing the power of the proprietary desk is in a sense good but extending that to not investing in Hedge Funds or Private Equity is not good. If the Volcker Rule is implemented then in the future there will be very little to base a decision on whether the banks are putting their money where their mouth is. That is however the least of my concern. The greater and more immediate fear is if the banks have to pull their money out then the investor will get hit because the managers of the funds will have no choice but to sell. This will result in the same deadly spiral that we saw in September and October of 2008. I will be highly disappointed if banks are forced to sell immediately. I think I will be on my toes until things become clearer. There will be no knee jerk reaction from my side but I will be hesitant. It is Friday evening and it is time to switch off.
(Originally posted on January 11th 2010)
I was supposed to be at a business conference in London right now. Instead I am in Bangalore as I had difficulty getting the flight back to London due to the snow. Somehow that seems to mirror the economy. Over here it is a nice pleasant 28 celsius. In London it is freezing. People are hiring here and money is being spent by the common man. The infrastructure and real estate projects coming up in Bangalore are amazing. Some of the residential apartments coming up here and a more refined touch than some of the places in Central London. Being in India you can see why there is such a huge potential for growth. You can also see why the price of gold goes so high. People talk about the price of gold rising because it is a safe haven from the weakening currencies. However I believe that no matter what happens to the major currencies, the price of gold will rise because people in countries such as India will continue to buy it.
(Originally posted on December 14th 2009)
Today’s events reminds me of the Tom Jones song. Abu Dhabi’s bail out of Dubai has in a sense made me paranoid. There has to be a catch. I cannot believe that Abu Dhabi will give US$ 10 billion just like that. The bonds jumping nearly double in value and the dubai stock market jumping by nearly 10%. This is unreal. There has to be some kind of logic to the emotions behind the results. Then there is the news that Goldman is planning a 1 billion IPO of an energy company that has no proven oil reserves. I am no oil experts but after listening to my colleagues around me I would say I have got some kind of knowledge. Even companies with proven oil reserves run a fine line as far as profitability is concerned. However one piece of news saying that they have proven reserves could make a big difference.
What a year it has been. A whole emotional roller coaster. I know the new year will bring in something special. I do not want to reveal it yet. Last year I was like a company facing chapter 11. In between there were some attempted mergers but I think the new year will bring more than proven reserves.
(Originally posted on December 10th 2009
The first thing my first accounts teacher said to our class was “The only certainties in life are death and taxes.” I do not think that my professor had this in mind but I think that Darling has sounded the death knell of the City by announcing the new tax increases. I have always maintained that bonuses should be paid. It does not matter whether they are short term or long term in nature. Bankers usually do not save their money by putting it in an ISA. They will spend most of it. Whether ploughing it back into the stock market or spending it in Spearmint Rhino. Creating another tier of taxes is not effective. If you think that Bankers are being paid more than they are due then give them the incentive to contribute part of their earnings in the form of a charity. The government may not be getting that income directly but it will help them save a lot by putting in money earmarked for certain causes elsewhere. Bonuses of bankers should not be taxed at a higher rate than the others. Instead create a more liberal policy so that people who have moved to Geneva or are in Dubai will come back to London. If the U.K. wants to become a powerhouse again then more benefits should be given to people working in the financial sector not less.
(originally posted on December 3rd 2009)
I was met by an interesting sight as I left the office. An elderly man was “walking” a Lhasa Apso. However the dog just refused to budge and ended up being dragged. The battle between the rest of Europe and U.K. is similar. Now I have to state that by no means am I calling the U.K. a dog. Nicolas Sarkozy made a big mistake by hailing the appointment of Michael Barnier as a victory for the French European economic model and that they will be in control of the City. I have not been to the equivalent of the City in any other country except for America. There is no charm or beauty on wall street or the areas surrounding the site that previously held the World Trade Centre. The area is like a huge monolith. It does not have any character. You know it is there and hope it stays in place and does not come crashing on you. The City on the other hand is like a beautiful panther. Beautiful, full of mystery and most dangerous when injured. It may face extinction but it will go down fighting and there will be humans that will try their best to help its population grow. The Euro Zone are like poachers. They will try their best to kill the panthers off. However if they succeed well they are going to go out of a job. The City may get hurt especially if Darling introduces the 50% income tax on wealthy individuals. However I think the beneficiary of that will be Switzerland rather than Europe. When the dollar weakened, people shifted to Gold rather than the Euro or Pound. I support Gordon Brown for not being able to talk to Sarkozy due to his calendar being full. First Hienry pushes France into the world cup and denied Ireland the opportunity. Now Sarkozy has decreased the goodwill (Was there any left after France lost the 2012 Olympic bid?). You may try to drag a dog but be aware that the dog will be behind you and you have a good chance that the dog will take more than a nibble of your arse.
(Originally posted on November 20th 2009)
I have had epilepsy since I was a kid. For a brief period I was drug free but had a relapse when I had an accident. Now I have resigned myself to the fact that I will have to take my medicines for the rest of my life. Why am I revealing this? The reason is that an epileptic dance artist is planning to induce a seizure on stage by fasting, not taking her medicine and by having strobe lighting. In financial terms it would be like giving money without sufficient collateral then not hedging your portfolio and then leveraging your investment. It sounds crazy right? However that is exactly what happened. The result was to be expected as the world went through a massive epileptic fit. Once you get an epileptic attack you have to be attack free for 5 years before then can consider gradually reducing the medicine. Then small things like your weight can make a big difference. Cut the medication too fast and it will harm the patient. Similarly all this talk about the pace of Quantitative Easing is interesting. My opinion is that it should be done gradually otherwise we will see a relapse. The effects of the crisis has not been felt as yet. It will take time to see the markets stabilise in a proper fashion. Of course in 5 years time we could see another crash.
(Originally posted on November 10th 2009)
Today there is no other alternative but to invest in alternative investments. However more and more banks and financial institutions are distinguishing investments by those that provide alpha and those that provide beta.
Similarly the last year and a half has seen the metamorphis of the emerging market. Exposure to BRIC and other emerging markets should be an essential part of a portfolio. If you buy into vodafone then you are by no means buying a developed market U.K. based company. Conversely you may actually be buying a company that depends more on the Asian and Eastern European markets for growth, while they lose market share in their traditional markets where O2 which is owned by Telefonica gets all the exclusive deals.
In the coming years I think the markets currently classfied as emerging will outperform the developed markets with a better risk adjusted return. I do not think that we will see years where the return would be greater than 50% but if the US markets are giving 8% with a 5% volatility and the Asia market are giving 10% with an 7% volatility then surely it will be better to go in for the latter.
This financial mess was cataclysmic and requires a paradigm shift in our thinking of investments. Are fixed income or even. Government issued bonds safe? Are investments backed by real assets safe? Are hedge funds really riskier than equities?
If it was up to me then I would get my entire exposure to the asset classes through hedge funds and ETF’s. Hedge Funds I believe are flexible in nature even if they are not liquid for investors. ETF’s gives you access to the broad market and asset classes. You get your beta from the ETF’s and alpha from hedge funds. You don’t end up paying unnecessary fees to managers. I would rather see the profits of those investments increase by the non payment of fees rather than fatten their pockets. Besides I do not think that banks actually provide sufficient service to justify their fees. But sometimes you just don’t have a choice. A small sized family office will not have the manpower to do the due dilligence of a fund properly. It is not cost effective. When stuck between the devil and the deep sea it may just be better to sleep with the devil than risk drowning in the process of finding out if you can swim in the deep sea.