Day: September 6, 2013

Sorted Weekly Tweets

Sorted Weekly Tweets

Posted on by David Merkel

Rest of the World

 

  • Risks of Capital Account Liberalization in China http://t.co/WkuOTqJsid Need stable macro policy, sound banking, & developed finl mkts $$ Sep 07, 2013
  • Putin Overwhelms Obama at the Sulky Summit http://t.co/5Hh3ShOjkp Putin is in a stronger position, b/c blocking is easier than attacking $$ Sep 07, 2013
  • China Beats US for Korean Students Seeing Career Ticket http://t.co/k2OK4qbWW3 English is common; learning Mandarin adds 2 skills $$ Sep 07, 2013
  • China and its Financial System: What Could Go Wrong? http://t.co/FBWAcwC792 Carl Walter explains it all in this well-written article $$ Sep 07, 2013
  • No Swift China Breakthrough Seen by Mao-to-Xi Scholar of Economy http://t.co/nwrmjWwpnF “You sow dragons? teeth, but you harvest fleas.” $$ Sep 06, 2013
  • Rich Norwegians Turn Down Labor Party as Welfare Loses Its Allure http://t.co/mpdTvgL3mu Fiscal policy about 2 get aggressive in Norway $$ Sep 06, 2013
  • Pension Stealth Rule Clears Path to Buy 60 Stocks: Korea http://t.co/ok3yTplmzy Natl Pension Svc receives approval to hold >10% of 60 cos $$ Sep 06, 2013
  • Banks Employing ‘Princelings’ Played Roles in Big Hong Kong IPOs http://t.co/jLPUCmKy7M Difficult to stop cos from hiring connected ppl $$ Sep 06, 2013
  • Europe?s Workers Flock to Norway for Better-Paying Jobs http://t.co/FsrMAaVHYJ Migration of under- & un-employed 2 stronger economies $$ Sep 06, 2013
  • The economics of China’s one-child policy http://t.co/tsSiRgnUdH Number of workers in China is already shrinking, aged are growing fast $$ Sep 06, 2013
  • The EU budget is a disaster that cannot save Greece http://t.co/6u6n2HArPB You can get money 4 capital projects, but not relief $$ Sep 05, 2013
  • Rajan Brings Stature to RBI Hamstrung by India?s Deficits http://t.co/dotiRrfaS4 Monetary policy forced to undertake impossible goals $$ Sep 05, 2013
  • The one map that shows why Syria is so complicated http://t.co/ElpNdB54pM Nations r hard 2 govern when they r collections of diff tribes $$ Sep 05, 2013
  • Fire and Water: China’s Looming Coal Problem http://t.co/LisCi2ocIJ China is short on water & long on coal. But u need water 2 get coal $$ Sep 02, 2013
  • Norway Oil Riches Up for Grabs as Anti-Tax Group Set to Win http://t.co/TlvF1ZcQ5K Politicians discover Sovereign Wealth Fund Cookie Jar $$ Sep 02, 2013
  • Plunging Currencies Plague Asian Companies http://t.co/qLhM89yUtZ Decoupling? The volatility machine of Fed policy smashes decoupling! $$ Sep 02, 2013
  • Today’s Alarming Japan-China Charts – James Fallows http://t.co/k8pLOfMZVd This should not be a surprise, they irritate each other often $$ Aug 31, 2013 *

US Politics & Policy

 

  • Push Intensifies for House Backing on Strikes http://t.co/bxnmgS9kRj House Emerges as Formidable Barrier for Attacks on Syria $$ Sep 07, 2013
  • Summers Faces Key ‘No’ Votes if Picked for Fed http://t.co/TGmWutqb8C Will be an interesting vote; how many Reps would support Summers? $$ Sep 07, 2013
  • Noonan: Why America Is Saying ‘No’ http://t.co/6esab4sOt4 We get that prior interventions haven’t helped, & we don’t have interests there $$ Sep 07, 2013
  • NSA Code Cracking Puts Google, Yahoo Security Under Fire http://t.co/2XNaPYKSi6 Foreign govts will cease to trust US internet companies $$ Sep 06, 2013
  • Congressional Vote Count on Syria http://t.co/y8DrdvFEjc Congress may not vote for military action. Graphic: http://t.co/czjHlMzT4Z $$ Sep 06, 2013
  • Edward Snowden and Chelsea Manning, the New Dissidents? http://t.co/pvy4J0lM4X US govt has too many secrets, collects data it should not $$ Sep 06, 2013
  • Abortion Clinics Close at Record Pace After States Tighten Rules http://t.co/Xw7rlQyyQu Many would like 2 adopt babies that r not wanted $$ Sep 06, 2013
  • Health Savings Accounts as Antidote to Obamacare http://t.co/BfoHItREQi HSAs r closer to a first party payer model & reduces costs $$ Sep 06, 2013
  • Why Wall Street Wants Larry Summers (and Why the Rest of Us Should Not) http://t.co/fgkERCxJHV We lose either way; Yellen is no prize $$ Sep 05, 2013
  • Budget cuts laying off scientists http://t.co/OLSk4V7t7J Scientist shouldn’t b given special status, their labor doesn’t always work out $$ Sep 05, 2013
  • Across U.S., bridges crumble as repair funds fall short http://t.co/iEZdmTdLAE Deferred Maintenance takes its toll on bridges $$ #sadbuttrue Sep 05, 2013
  • Bloomberg United States Financial Conditions Index Chart – BFCIUS http://t.co/bf6Df4mCNA Lending markets r calm, even complacent $$ #uhoh Sep 05, 2013
  • The White House walk-and-talk that changed Obama’s mind on Syria http://t.co/q47QbKgLe3 Syria is not our responsibility; let others fight $$ Sep 03, 2013
  • Wall Street Knows a Bad Trade When it Sees One http://t.co/WrqYD97yrV Cold. Calculated. Politically savvy. @reformedbroker nails it $$ Sep 03, 2013
  • Judge Rules in Case of Fortune Tied to Buffett http://t.co/Vzfu6CUaRr Fascinating, tangled tale of the invasion of endowment funds $$ $BRK.B Sep 02, 2013
  • Have to give Obama some praise. War is such a serious thing that it should run through Congress, to get the wide assent of the people. $$ Sep 01, 2013

 

Market Impact

 

  • In a cold market, typically some of the best IPOs get done. They have economic purpose when capital is skittish. $$ http://t.co/vUZYJ6PifB Sep 06, 2013
  • Don?t cry for ?the little guy on Wall Street? http://t.co/yxshyVk1ZI @felixsalmon argues that added liquidity benefits small investors $$ Sep 06, 2013
  • Dealers in Debt Pare Commitments Raising Risk as Rules Bite http://t.co/rDNO5bjGb9 Given new regulations, using capital 2hold bonds loses $$ Sep 06, 2013
  • Buybacks to Dividends at Risk With Record-Low Yields Ending http://t.co/FmgW7Enddq If due to rises in real rates, yes. Inflation, no $$ Sep 06, 2013
  • Have ‘Alternative’ Investments Lost Their Diversification Value? http://t.co/bqviG1zz6o When buyer base gets broad, correlations increase $$ Sep 05, 2013
  • Money Fund Lehman Moment Lurks as New Protections Stall http://t.co/nYWXGT237C Better to eliminate units upon defaults & keep stable NAV $$ Sep 05, 2013
  • Mortgage Rate Flip-Flop: Jumbo Loans Now Cheaper http://t.co/X5lsOnm1eU Low mtge loan demand & fedfunds may allow this 2 persist 4 awhile $$ Sep 05, 2013
  • Mad Men or Wise Men? Investors Today vs the 1960s http://t.co/t4mgitnOTZ We turn over portfolios 10x faster, but business is not faster $$ Sep 03, 2013
  • The Number One Threat to the Market http://t.co/sIlbEa3T1s @reformedbroker argues that a quick bond market meltdown is the worst scenario $$ Sep 03, 2013

 

US Economics & Monetary Policy

 

  • Economy recovers, income doesn’t http://t.co/TdJovea4GZ More of the total earnings stream flows through profits, median doesn’t have that $$ Sep 05, 2013
  • QE3 is ineffective in growing credit in the US http://t.co/EfbCDHpEdW Banks r content to not take much risk 4 now $$ Sep 05, 2013
  • America’s ‘Baby Bust’ Starts to Ease http://t.co/s2NNshIR6t When total fertility rates decline, it is almost impossible 2 get them 2 rise $$ Sep 05, 2013
  • Money For Nothing:Inside the Federal Reserve- Coming to a theater near you! Check out the trailer: http://t.co/Mi1umflvO6 @FedDocumentary $$ Sep 04, 2013
  • Starbucks Pastor-to-Be Shows Shift in US Part-Time Job Market http://t.co/RSAVmIYcM3 Part-time work fits the lives of childless students $$ Sep 02, 2013
  • Investors Are Doing Better Than Workers http://t.co/48jh3R8nxl Wages stagnant, stocks rising from buybacks, dividends, little new capex $$ Aug 31, 2013

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Companies & Industries

 

  • Gorman Says Chance of Another Financial Crisis ?Close to Zero? http://t.co/BZlTXxjfQX Revisit when the Fed starts tightening; 2 early now $$ Sep 07, 2013
  • Batista?s $1B Put Propels OGX to Record Gain http://t.co/iEYE6XOAqf Avoid: novel financing, currency mismatches, forced recapitalizations $$ Sep 06, 2013
  • Tankers Worst Since 1997 on Africa Oil Slowdown to China http://t.co/z0t63Q5CWl Chinese economy slowing down, reveals tanker glut $$ Sep 05, 2013

 

Other

 

  • NASA Set to Launch Moon Probe http://t.co/BPAF7X5OlU I have neighbors going to the local high spot 2c if they can see the rocket ascend $$ Sep 07, 2013
  • The rocket blasts off from NASA Wallops Flight Facility on the Eastern Shore of Virginia near Chincoteague National Wildlife Refuge Sep 07, 2013
  • Your Phone Is Deadlier Than Pacific Sushi http://t.co/sqNFG9r55d Interesting argument about radiation levels, but watch the mercury $$ Sep 06, 2013
  • President Tyler?s Grandson on Being Alive http://t.co/X3AX9vchEn Long generations 63 & 75 yrs, he’s ~84. 1790 + 63 + 75 + 84 = 2012 $$ Aug 31, 2013
  • The Rubber-Band Millionaire http://t.co/8uHOqQJPbB The pit in the stomach, staring @ a ton of rubber bands in garage, bot w/kids college $$ Aug 31, 2013

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Retweets, Replies & Comments

  • Thanks @garyvee @DonnyGoines for being top new followers in my community this week 🙂 | insight by http://t.co/sern3wLA13 Sep 06, 2013
  • Thanks @moneyscience @japhychron for being top engaged members in my community this week 🙂 | insight by http://t.co/sern3wLA13 Sep 05, 2013
  • “There are many more AAA companies in the US, but they aren’t publicly traded; only 4 publiclytraded.” ? David_Merkel http://t.co/mcv5KS3AsK Sep 03, 2013
  • Thanks @garyvee @OGMarcusC for being top new followers in my community this week 🙂 | insight by http://t.co/sern3wLA13 Sep 03, 2013
  • Thanks @GaelicTorus @The_Analyst for being top engaged members in my community this week 🙂 | insight by http://t.co/sern3wLA13 Sep 02, 2013
  • There is little proof that price inflation will drive real growth. The result could be stagflation which… http://t.co/wEehl1ryyZ Aug 31, 2013
  • @felixsalmon Fisk away, there is a lot of low-hanging fruit. Aug 31, 2013
  • RT @jake_f: Niederhoffer down 11% in July. Managed futures has been just brutal past three years. Time for an industry reboot. http://t.co/? Aug 31, 2013 *
On Alternative Investments

On Alternative Investments

Posted on by David Merkel

What makes an investment alternative?? Typically, it is because not many institutional investors own it.? But why don?t they own alternatives?? What attributes can characterize them?

  • Lower Liquidity ? this can take the form of long lockups for private equity, liquidity limitations on hedge funds, Real Estate LPs, etc.
  • Limited market for trying to sell out of limited partnership interests early
  • Can go both long and short financial instruments, use derivatives
  • Can hold commodities and collectibles (Art, wine, who knows?)

Typically, the form of the investment is a limited partnership.? The limited partnership can own all manner of assets, and short some of them also.

As with most valid investment ideas, those that get there first do the best.? You don’t want to be the last one to the party — you buy into a saturated market at an overvalued price.? Far better to avoid the market than to be the last one in.

You have to understand, there is nothing truly different about alternative investments.? They may invest in private businesses, and lever them up, but the returns aren’t greater than if we levered up public companies to the same degree.

They may go long and short, but there are so many trying to do it that the limits of arbitrage are tested, which is a major reason for why hedge funds are doing so badly.? When you have a lot of parties trying to make differential bets, the reward to the exercise declines.

Briefly, while working for Finacorp before it liquidated, I had the opportunity to give advice to some large pension plans that were charging into alternative investments in 2009.? I counseled them to stick to more liquid investments, because alternative investments had become common.? Alternatives are not magic — you have to evaluate them like any business, and ask whether the entry price discounts a high return or a low return.? Are the commodities/collectibles in over- or under-supply?? What possibility might you face of needing to raise liquidity at an inopportune time?

There are two matters affecting any investment:

  • Underlying behavior of the asset in term of its relative value, and
  • Behavior of those who hold the investment, their perception of relative value, and their need for liquidity.

To give an absurd example, think of Bernie Madoff.? The actual value of the assets never did anything.? But parties owning interests in Madoff’s “fund” needed to raise liquidity when the public equity markets plunged in 2008, which led to the insolvency.

Investor behavior affects asset prices.? Big surprise, not.? This is Ben Graham’s voting machine.? The weighing machine eventually catches up when there are liquidity events where investment vehicles get dissolved for cash or other securities.

This is not to say that there is no superior management talent with respect to alternative investments, but that it is subject to the same limits as public investments.? As more capital is allocated to a manager, he moves down his list and says, “Okay, what’s the next best thing to which I can allocate capital?”? Too much money kills even the best of managers.

Perhaps the best way to go is to focus on the Seth Klarmans and Howard Marks of our world, and be opportunistic.? Hold cash when it makes sense, or send it back to the limited partners, but invite them back and invest heavily when conditions warrant.

My view is this: given the wide level of investing in alternative investments, there is no reason why they should outperform, and no reason why they should be uncorrelated with other risk assets, because the same owners own both.

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