A quick introduction for this week's Outside the Box. This is from my London Partner Niels Jensen, talking about the problems with long only commodity funds. This is something I discuss frequently but have not written about in some time. Quite simply, many of the commodity ETFs do not deliver what they promise and in fact many of the inverse funds can lose you money even when you make the right macro call.
Niels gives us a very good explanation of why this is so. So for those of you who have "diversified" into commodity ETFs (not actively managed funds!) or are thinking about it you might really want to read this.
Your running our the door for dinner in NYC analyst,
I wrote about Greece in last week's letter. Then I ran across this column in the Financial Times by my friend Mohammed El-Erian, chief executive of Pimco, and someone who qualifies to be introduced as one of the smartest men on the planet. It is short and to the point. (www.pimco.com)
And finally, many of you are probably familiar with TED Talks. If you are not, you should be. They basically get very smart, creative people to come in and do short talks Tiffani just sent me one of their latest videos. 13 minutes. It blew me away. The world of Minority Report is here, 40 years ahead of schedule. All I could do was just say "Wow!" Its young men like this that should make us all optimists that somehow we will figure out how to get through all this. http://www.ted.com/talks/view/id/685
We all know that a large wave of Baby Boomers in the US are approaching retirement. But what about the rest of the world? And what happens when those retirees need to spend out of savings? There is more than just a credit crisis and a government deficit crisis in our future. A rising level of retirrees to workers is happening even as I write. And the US is not, for once, the center of the problem. As this week's writer of your Outside the Box Niels Jensen explains, we cannot all export our way out of the problem. There is a global adjustment that must happen and when it does, it will have serious consequences for all. This week's letter is guaranteed to make you think. Set aside a few minutes to do so.
Niels Jensen is the Senior Partner of Absolute Return Partners based in London. I have worked closely with Niels for years and have found him to be one of the more savvy observers of the markets I know. You can see more of his work at www.arpllp.com and contact them at email@example.com.
There are those who sweat over every decision, worrying about how it will affect their lives and investments. Then there is the school of thought that we should focus on the big decisions. I am of the latter school.
85% of investment returns are a result of asset class allocations and only 15% come from actually picking investment within the asset class. Getting the big picture right is critical. In this week's Outside the Box we look at a very well written essay about the biggest of all question in front of us today. Do we face deflation or inflation?
It has long been my contention that we are entering an extraordinary period of time in which using historical analogies to plot market behavior is going to become increasingly problematical. In short, the analogies, the past performance if you will, all break down because the underlying economic backdrop is unlike anything we have ever seen. It makes managing money and portfolio planning particularly challenging. Traditional asset management techniques just simply may not work. Buy and hope strategies may be particularly difficult to navigate.
Part of the reason we are co challenged in our outlook is that we are experiencing a deleveraging on a scale in the world that is absolutely breath-taking in its scope. And to balance that, governments are going to have to issue massive amounts of sovereign debt to deal with their deficits. But who will buy it, and at what price? And in which currency? This week's Outside the Box gives us some very basic data points that illustrate the challenge very well. But the problem is that even though we can see the challenge, it is not clear what the final outcome will be, other than stressful volatility as the market reacts.
This week's OTB is by my good friends and business partners in London, Niels Jensen and his team at Absolute Return Partners. I have worked closely with Niels for years and have found him to be one of the more savvy observers of the markets I know. You can see more of his work at www.arpllp.com and contact them at firstname.lastname@example.org.
This week we look at the European bank markets through the eyes of my London partner Niels Jensen, head of Absolute Return Partners. I continue to believe that this is a brewing crisis which could have far more significant implications for the global economy than the Asian Crisis of 1998. In this week's Outside the Box, Niels has compiled a sobering set of data that suggests that only massive government involvement in Europe on a scale that is unprecedented will keep the wheels from coming off in Europe and the global economy.
I have worked closely with Niels for years and have found him to be one of the more savvy observers of the markets I know. You can see more of his work at www.arpllp.com and contact them at email@example.com.
Can the credit crisis get any worse? In this week's Outside the Box my London partner Niels Jensen shows that it indeed can. Banks, and mainly European banks, have large exposure to emerging market debt of all types through both sovereign, corporate and individual loans. Just as banks have had to write down large losses from the subprime crisis and other related problems, next will come a wave of potential losses from yet another source. Niels then goes on to give us a look the size and problems with hedge fund deleveraging. Altogether, this is a very interesting letter and one that is written from a non-US point of view that I think you will find instructive.
This week we look at a very solid piece of analysis on the world economy from my friends and London business partners Niels Jensen and Jan Wilhelmsen of Absolute Return Partners (www.arpllp.com). I find it is quite useful to read the considered opinions of those from outside the US and particularly from people who have developed keen insight from years in the trenches. Niels and Jan are certainly in that category. The world economy is clearly out of balance and they point out where some of the opportunities and problems lie. I think you will find this edition of Outside the Box quite useful. If you care to, you can write them at firstname.lastname@example.org.
From South Africa,
My good friends and London associates, Absolute Return Partners, have recently released their monthly letter. The letter consists of two essays with the first by ARP President Niels Jensen and the second by partner Jan Vilhelmsen. Given that the equity sell-off around the world has been far more dramatic than in the US, I thought it might be useful to get a view from "over the pond."
Niels comments on the correlation between commodities and stocks and takes a look at what history can teach us from years past. In light of all of the talk, this is a contrarian's view opposed to the "it's different this time" camp (like we haven't heard that one before). On the other hand, Jan explores a sector of hedge funds that, by definition, do not live up to their name. He concisely summarizes this discovery by stating, "If you pay the high fees that hedge fund managers demand, you would at least expect to get something that you cannot easily create yourself."
With most observers ranting and raving about the "new economy," I trust that you will enjoy this article that bets against the consensus by siding with history and the data. Enjoy the read and continue to think "Outside the Box."
Regular readers will know that I have mentioned my London partners, Absolute Return Partners, in the past. They have a monthly letter called The Absolute Return Letter. This week we will look at some recent comments by my very good friend Niels Jensen, the president of ARP. I was just in London last week for a few days, and the topic of this week's OTB was discussed at length over dinner. Niels seems to have a gift for great restaurants and even better wines, as well as strong and thought-provoking opinions.
Niels comments on global liquidity, the dollar and liquidity. Niels sees the U.S. current account deficit as a good thing because it has helped add liquidity and stimulus to the global economy. Past downturns in global liquidity have been accompanied by a financial crisis somewhere in the world and strength in the Dollar. I strongly suggest you look at the charts included in this letter. They are quite instructive.
This is clearly a contrarian call. As you know, most observers predict that the dollar will weaken due to the large current account deficit. Thus, it is perfect for this week's Outside the Box.