Clients: After A Long Trip….Some General Thoughts: Peruvian Election, Global Economy and Amalgamood
Posted by blodmell in Investment Advisory on June 6th, 2011
These are interesting times. I just had to jump to Peru and see what the heck is going on in the fastest growing economy in Latin America. I have a special relationship with Peru, nearly lost it all there in 1992. The Institute of LIberty and Democracy was the Heritage Foundations baby down there and I was an intern…bright eyed and bushy tailed until the bombing. However, things have changed since then. Peru is on fire in a different way now. The shocking point is that fast growth has met leftist politics. It didn’t “use to be like this”. The only thing I can imagine is that either candidate will stick to the script of growth.
In my mind, this is an affirmation for the overall growth story of the region. Commodities rule! The poor used to send that stuff to the rich to produce value and now the value is the raw material.
Anyway, I also met with as many money managers as possible. Those luncheons are always enlightening. There is a new mechanism on the horizon…assessing the “social mood” and all the indicators in the popular press to time market movements. It almost reminds me of the notion that art imitates reality and reality only tries to imitate art…vice versa.
The news real and all the feelings around it have a potent influence over markets and thus tracking the “mood” of markets is a legitimate way to divine the future. It’s catching on in the investment community.
I think the most forward looking mind on this subject matter is a brilliant hedge fund guy named Kevin Coogan. He basically created a system to digest the massive amount of info into Amalgamood concept. I am watching this carefully because the volatility of markets have made all investors hyper sensitive to the trading impulse. We have got to me sensitive to the volatility. That is the bottom line. I noticed John Augers in the Financial Times just wrote a piece arguing that we all need to learn when to sell and find mechanisms to determine when? It’s the same concept.
I Agree With Jim O’Neill, Of Goldman Sachs, Assessment That The Global Economy Is Basically Back On Track
Posted by blodmell in Global Economy on May 19th, 2011
Understanding Today’s Sell Off
Posted by blodmell in Global Economy, Investment Advisory on May 11th, 2011
Inflation numbers are high. The global economy is growing again. Thus, fears of inflation mean that central banks will be raising rates which causes a sell off in markets. Equity shareholders are afraid of relatively slower growth bond prices fall because interest are rising. None of this really matters in the long run if the economy keeps growing. I think this a good opportunity to build on positions. My greatest fears were around a double dip recession and that now looks like ancient history. Let’s be grateful.
A General Client Update
Posted by blodmell in Uncategorized on May 11th, 2011
I have been off the blog for almost two weeks due to a business trip in the USA. I met with a lot of people and it was just another affirmation that the global economy is truly shifting towards emerging markets and China for future growth. I also sensed that a growing number of Americans are becoming aware of that fact and are opening up to the concept of placing assets in foreign institutions and beginning to diversify away from the USD and US securities. It’s not rocket science to perceive that the situation in the USA is unsustainable. It happened to be another rocky week but if you are down on positions then limit orders should be occasionally ticking off. I also think it is appropriate to get more invested if you are heavily in cash. More positive hard economic data came out of China today and they are lowering the inflation rate. Also, Europe’s monetary crisis is coming to a head and should find resolution after all the brinksmanship.
Please note page 8 in HSBC s report
http://www.hsbc.com/1/PA_1_1_S5/content/assets/investor_relations/strategy_day/2011/110511_strategy_day_gulliver.pdf
The biggest bank in Europe which is now headquartered in Hong Kong, HSBC, is throwing all of their weight towards emerging markets.
On Trying To Understand The Price of Gold
Posted by blodmell in Emerging Markets, Global Economy on May 1st, 2011
I joke with clients that buying gold has turned out to be a sort of, “If you can’t beat em’, join em’ phenom.” I have not been a gold bug over the years but nobody can deny that it has been and fantastic investment. My concern was always basic: there is no balance sheet or industrial purpose for gold. It’s an inflation hedge. However, retail investors have been buying more and more of the stuff , including our clients. The asset is not an irrational purchase but one just must be prepared to “protect the position” or buy more if the price falls. That is why I like our clients to buy assets that they fundamentally believe in so that they can continue to buy it in good conscience. Again, that is the difference between investing and speculating. Buttonwood’s just wrote a thoughtful piece on gold which sheds light on the conundrum:
Buttonwood
Gilt-edged argument
The battle to explain the remorseless rise of the bullion price
Apr 28th 2011 | from the print edition
..THOSE people who thought that reaching $1,000 an ounce was a sign that the bull market in gold was about to collapse have been proved wrong. The price of bullion recently passed $1,500.
Gold can be viewed in many ways: as a “barbarous relic” that is currently the subject of a speculative bubble; as the one reliable source of value over history; as a harbinger of hyperinflation; as a hedge against global financial or economic collapse; or even as a sign of the rising power of China and India.
Whichever factor you choose to explain gold’s bull run, it is not a short-term phenomenon. Since 2002 the average annual price of gold has risen by double digits in percentage terms in every year bar one (2005, when it gained 8.7%). As yet gold’s price chart does not display the classic bubble characteristic whereby the pace of increase seems to accelerate (although silver has been conforming to that pattern lately).
Gold does exhibit another bubble-like feature, however—the increasing participation of the public. When the last gold bull market peaked in 1980 speculators took part by buying jewellery or coins, complete with retailers’ markups. This time round they are able to buy exchange-traded funds (ETFs) which promise a return linked to the bullion price. As the chart shows, the largest gold ETF has a gold hoard that places it on a par with the reserves of central banks.
Another sign of bubbles is a change in the basis of valuations. Dotcom shares were assessed in terms of “price per click” rather than anything tangible. Here gold presents a problem. It has no earnings or cashflow so it is harder to come up with a fair price.
One approach is to use gold’s purchasing power in terms of life’s essentials such as energy and food. An ounce of gold was worth 12 barrels of oil at the start of 1986; now it is worth around 13. Its purchasing power in terms of wheat has risen more sharply over the past quarter-century but is much lower than it was a year ago.
Mostly, however, gold’s price is expressed in terms of the dollar. So its strength may simply be down to a lack of confidence in paper currencies rather than its own merits. Whereas a strong currency was once a symbol of national pride, few countries appear to relish the prospect today. Central banks have slashed interest rates to almost zero, expanded their balance-sheets (and thus the monetary base) to buy government bonds and, in the case of Japan and Switzerland, intervened to weaken their currencies.
The Swiss franc is usually seen as a very strong paper currency. Gold is 17% higher in Swiss-franc terms than it was at the start of 2010. Remember that, until 1971, the value of most currencies was expressed in terms of gold or silver. On that basis the Swiss franc has just experienced the kind of devaluation that would have been the mark of a crisis in the 1930s or 1960s.
In the eyes of many commentators this lack of confidence in paper currencies makes sense only if high inflation is on the way. But in the developed world measures of consumer inflation are very low. There is spare capacity in the economy and no sign that a wage-price spiral is taking hold. And government-bond markets show no sign of alarm at the inflationary outlook.
Then again, since central banks are such big players in government-bond markets these days, is the yield a true “market price”? The banks are buying bonds as part of their foreign-exchange policies, or as a way of injecting liquidity and bringing down yields, rather than as a way of maximising their returns.
Then there is the issue of higher commodity prices. Jeremy Grantham of GMO, a fund-management group, has compiled an equally weighted index of 33 commodities. This fell by 70% between 1902 and 2002 in real terms. It has regained all that ground in the past nine years. The rise of developing nations is generally deemed to explain this commodities boom. Since raw materials have greater weight in the inflation baskets of such countries, it makes sense for investors in China and India to buy gold as a hedge against this phenomenon.
If it turns out that China (rather than gold) is a bubble and that growth in developing nations disappoints, then you would expect commodity prices to fall sharply and gold to follow suit. But in the absence of such an event, gold’s strength is not entirely irrational.
www.crinvestmentadvisors.com
The IMF Just Declared That “The Age Of America” Will End On The Next Presidents Watch
Posted by blodmell in Emerging Markets, Global Economy on April 26th, 2011
Perhaps you heard it here first but the IMF just dropped a bombshell, “America will be number 2 by 2016.” A ccording to the IMF forecast, whoever is elected U.S. president next year — Obama? Mitt Romney?
Donald Trump? — will be the last to preside over the world’s largest economy. Most people aren’t prepared for this. They aren’t even aware it’s that close. Listen to experts of various stripes and they will tell you this moment is decades away. The most bearish will put the figure in the mid-2020s. The U.S. Treasury market continues to operate on the assumption that it will always remain the global
benchmark of money. Business schools still teach students, for example, that the interest rate on the 10
Year Treasury bond is the “risk-free rate” on money. And so it has been for more than a century. But
that’s all based on the Age of America.
What does this mean for investors, keep buying China, especially when it is cheap.
http://www.marketwatch.com/story/imf-bombshell-age-of-america-about-to-end-2011-04-25?link=MW_home_latest_news
www.crinvestmentadvisors.com
http://www.marketwatch.com/story/imf-bombshell-age-of-america-about-to-end-2011-04-25?link=MW_home_latest_news
JP Morgan Outlines Their Vision Of Near Term Risks
Posted by blodmell in Emerging Markets, Global Economy on April 25th, 2011
Over the next few months, we expect equity markets to face greater turbulence stemming from the combination of
(i) escalating turmoil in the Middle East;
(ii) fallout from the Japan nuclear disaster/earthquake;
(iii) US budget deficit and debt ceiling concerns; and
(iv) intensifying inflationary pressures
Of these issues, we think higher oil prices continues to represent the greatest risk, as higher oil acts as a burden on the US economy (via gasoline).
www.crinvestmentadvisors.com
Earnings Keep Flowing And Markets Bounce Back Up. Volatility, Volatility, Volatility
Posted by blodmell in Emerging Markets on April 20th, 2011
On another note, this a blog post on the FT Emerging market blog about Geely, Chinas largest private carmaker. Many of our clients are stakeholders.
It seems things are all sweetness and light and cross-cultural understanding after the China car industry’s largest outbound acquisition, of Volvo by Geely. And it seems to be based on the principle that good fences made good business partners.
Stefan Jacoby, the Volvo CEO, is at pains to stress that he is his own man, and that the new Volvo concept car, the Universe, unveiled at the Shanghai auto show, does not bear the heavy fingerprints of Geely. “I don’t report to Li Shufu” he says, referring to the head of Geely, which bought Volvo a year ago.
Somewhat surprisingly, Li seems to agree: he says that he initially queried the Volvo team on whether their cars for China were big enough – because to him, they seemed smaller than those of competitors like Audi and Mercedes. But the Volvo team proved to him that what looks small from the outside, is actually quite big on the inside (because new technology allows Volvo to fit more interior space into a smaller exterior).
Asked whether Chinese consumers – without the benefit of a Volvo powerpoint on the subject – will also think the Swedish car has suddenly grown some new legroom, remains to be seen. Just to be sure, the new Volvo concept car is noticeably longer than its predecessors in the China market.
Asked how much time he spends on Volvo and how much on Geely, itself a multi-brand car company, Li said he doesn’t spend much time on either: he spends time on his own thinking big thoughts about the future – like his plan to become one of the world’s leading car companies.
Here We Go, AGAIN: China Overheating Worries/Rate Rises, Eurozone Debt Fears
Posted by blodmell in Global Economy on April 19th, 2011
The twist this week is S and P has restated the obvious: unless the US Congress gets serious about budget cutting then US debt should be downgraded. None of this is new news. Meanwhile, corporate earnings are rolling out at or above expectations. I often refer to the market as “hysterical” and the “volatility is here to stay” theme seems to be as accurate as ever. I know our emerging market equity portfolios are solid yet it is tiring to watch prices run up and just as they appear to head for that long awaited “break out”…the bad horror flick scene appears again: Eurozone debt, China overheating. I still believe that the Europeans know that they have to find a political solution to their monetary union problem: the lagging south. I also think that the Germans are posturing. They are the anchor of a unified Europe and they are pressuring any way they can to assure all countries have lower their debt to GDP ratios and not just the efficient north. However, in the end, the credibility of a unified Europe and Euro are the priority. I also think that China is wise to raise rates and it is in their interest to further the export machine regardless of who complains about a cheap Yuan. Again, I watch hard economic data, leading economic indicators and corporate earnings but tails do wag dogs. The global economy is still digesting the post crisis debt explosion. There are still some serious economic imbalances. High commodity prices and inflation, especially in Emerging markets, are all real threats. The center of gravity of global economic power is shifting and those consequences are probably the greatest unknown of all. Meanwhile, we will watch the carnival show one act at a time and build on positions.
Patience.
The US Budget Fight
Posted by blodmell in Emerging Markets on April 17th, 2011
The Op Ed piece in the Economist from Lexington states the obvious, US politics have become too polarized to produce compromise and solve their fiscal crisis, which is bad news for the US dollar:
An optimist might infer that each party is at last shaming the other into taking the hard decisions they had previously ducked. The most striking aspect of this spectacle has been the behaviour of the president. After failing to prevent the Republicans lopping $38 billion off his own party’s budget, Mr Obama promptly performed a jaw-dropping U-turn, heaping praise on, and taking credit for, the “largest annual spending cut in our history”. You would think it was some other president who four months ago touted as a famous victory the spending increase he pushed through the lame-duck session of the previous Congress.
Mr Obama’s inconsistency is no mystery. Posing as a conciliator seeking a sensible middle between the warring tribes on the Hill may help him win re-election in 2012. But for the present a posture is all it can be. Mr Ryan’s plan would raise no taxes and, in effect, privatise Medicare. In other words, he has planted his party’s flag so far to the right that it is hard to see how an agreement on the deficit could emerge from any Congress, let alone the most polarised one since the second world war. In the end, American politics may well rise to the needs of the moment, proving the truth of Winston Churchill’s famous adage. But until then more comic opera, with even less amusing results, lies ahead.
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