Jan 162015
 

Yesterday evening I was fortunate to be amongst a select few who had the privilege to be invited to hear the investment advice of the chief strategist of a major Swiss bank. (I should mention at the outset that the vast majority of the audience’s reference currency is the Swiss franc.)

The speaker was clearly an erudite man and his delivery was flawless. The underlying theme of his speech was divergence in today’s economy: in interest rates, in GDP, in unemployment, in central banks’ strategies, and so forth. Render unto Caesar, his presentation was concise, well-researched and extremely persuasive.

The conclusion of his argument was the bank’s investment strategy. In a nutshell, Swiss and European equities present few opportunites. On the other hand, the USA appears to have left recession and is showing strong growth perspectives, which he estimated at around 6%. The bank’s strategy is thus to move their clients’ assets to Swiss and European gilt of the highest quality for portfolio protection and to US blue-chips for revenue.

When questioned on the Swiss National Bank’s strategy of locking the Swiss franc to a floor of 1.20 CHF/EUR, he was of the opinion that the floor to the Euro would be replaced by a floor against a basket of currencies, probably EUR/USD/JPY, sometime in 2015.

Were I to have followed his advice, this morning, first thing, I would have moved my investments into US blue-chips, the stocks that participate in the Dow-Jones Index: American Express, Boeing, Caterpillar, etc. in the hope of a return of some 6% instead of the measly percent or two that I get on Swiss franc holdings.

With the most tragic timing for our strategist, some 14 hours later the Swiss National Bank announced that it had abandoned the 1.20 floor. The effect was instantaneous: the EUR and the USD crashed against the CHF, settling at day-end to ~0.86CHF/USD and CHF/EUR at a similar rate.

Had I bought those American shares some hours previously, I would have taken a 15% hit on my portfolio in so-many hours; even if the strategist’s predictions come true, I’ll have to wait two and a half years before breaking even.

There are several lessons to be learned from this story:

  1. Despite everything that your banker, hand-on-heart, assures you, he has no interest whatsoever in your financial well-being. His sole aim in life is to persuade you to trade your holdings as often as possible so that he can gather a maximum commission. If, despite the commissions, you make money, he’ll congratulate himself on having helped you. If you lose money, he’ll appear heart-broken at your misfortune, which was entirely due to the unfavourable market.
  2. If your reference currency is the CHF and you invest in higher-yield USD-labelled assets, you’re exposed to the CHF/USD exchange risk. Momentarily you might get away with it; as this example shows, you are likely to take a caning.
  3. Inversely, if your reference currency is the EUR and you buy CHF assets, your yield will be much more frugal… but your capital will be better preserved.

The take-away from all this is that in today’s liquid markets there is no free lunch. If your ambition is to receive the rate of inflation plus a whisker on your investments, there’s a strong likelihood that you’ll get it. If your ambition is get 6%, be prepared to lose 15% momentarily when things go tits-up.

P.S. For those whose mother-tongue is not English, the title is a pun

Jun 102014
 

If XKCD’s 4.5° is correct, in some ~160 years there’ll be a 200m rise in sea level and Palm trees at the poles.

I couldn’t give a monkey’s toss, for several good reasons:

  • I live more than 400m above sea level. Those of you who have elected domicile close to the ocean might grasp the meaning of Darwinism sooner or later; but your choice indicates that you have the same intelligence as those that built Fukushima on a beach
  • In 30-odd years, with luck, I’ll be pushing up the daises
  • In 50-odd years we’ll have burnt all the fossile fuels available and the whole CO2 panic will turn out to be be what it really is: a tiny blip in our planet’s evolution
  • Within a century, nuclear fusion will have been mastered and our energy problems will disappear

Carpe diem, our children will look after themselves just as our ancestors did.

May 012014
 

Let me pretend for a moment that I am Vladimir Putin.

Our sole sea access towards the Mediterranean is from the strip of coastline on the Black Sea between Ukraine and Georgia. We have recently invested massively in a naval base at Novorossiysk, the only readily-accessible city, as the coastline southwards to Sochi is obstructed by mountains:

Ukraine / Russia / Georgia

Ukraine has had strong ties with Russia ever since we annexed the Crimean Khanate in 1783. Barely 25 years ago it became independent. The first 10 years were a mess, with a 60% loss in GDP. In 1996 Kuchma was elected president and as corrupt as they get. Since 2004 Yanukovych and Yushchenko have been taking turns at rigging elections and mis-managing the country, which is now in a shambles.

Earlier this year it is brought to my attention that the EU is negotiating closer ties with Ukraine. The logical conclusion is that Ukraine will sooner or later join NATO. When that happens, my naval base at Novorossiysk would be barely 125Km from Kerch, from whence it would be easy to deny us naval access to the Black Sea. This is strategically unacceptable, as sailing to the Mediterranean / Africa / the Middle East from the Baltic or the Pacific is unthinkable.

To keep unfettered access to the Black Sea, the area from Donetsk to Sevastopol cannot be allowed to present a threat to Russia, the question is: how do I achieve this?

Simply invading the area would probably succeed. The Europeans would procrastinate, Obama would chastise, but nothing would be formally done to stop me, and reasonably so: the Europeans need our natural gas and Obama has repeatedly shown that he won’t go to war just because some foreigner’s rights have been trampled.

That would be a crude solution, let me envisage a wiser plan:

  • Get the KGB to identify self-seeking troublemakers in Ukraine and encourage them to sue for ‘democracy’. Provide appropriate financing to sustain them for a few months.
  • Once the demonstrations are in full swing, send in half a dozen elite snipers to pick off the noisiest, thereby turning them into martyrs. Actively propagate the rumour that the snipers were Ukrainians, the Internet will do the rest. Pay said snipers handsomely to keep their mouths shut.
  • The troubles created will be enough to dissuade foreign aid and investment, the economy will tank, what remains of the government will be incapable of restoring law and order.
  • Announce that I am providing assistance to Russian nationals in Eastern Ukraine. To prove my good faith, get the KGB to suggest holding a referendum to some red-neck local, who takes the bait and goes on TV calling himself the new president of Crimea.
  • The outcome of the referendum is a foregone conclusion: Crimea wants to be part of Russia. For the stupid foreigners’ benefit, encourage the notion that Crimea and Eastern Ukraine are the same thing.
  • Stupid foreigners beguiled, instead of sending my troops to Eastern Ukraine, I send them to the Crimea to establish my strangle-hold on Sevastopol.
  • Wait a few months, to let the world accept that Crimea is once again part of Russia.
  • Based on the success of the Crimean referendum, find a clown in Donetsk to suggest a similar referendum in what really is Eastern Ukraine, roughly from Kharkiv to Melitopol.
  • Rig said referendum if necessary, funds are no object. The line east of Kharkiv – Sevastopol is now part of Russia and I’ve achieved my goal.
Dec 102013
 

18 months ago I suggested that UBS get out of investment banking, if for no other reason than I was sickened by having to pay thousands of francs to bail a too-big-to-fail greedy bunch of arseholes who should have been hung out to dry long ago. I apologise for the strong language, but I really am sick and tired of this. In an unexpected move, they appointed Sergio Ermotti, a wise Swiss-Italian (like the brilliant Alfredo Gysi) as group CEO and he had the sense wind down the loss-making division. I’m far from ready to heap praise on UBS, but let us render unto Caesar, it’s a step in the right direction.

Aug 012012
 

So UBS has lost $350M after Facebook’s botched launch, and the only people to be surprised are those who were stupid enough to try and buy the shares instead of buying puts (which would have made them significantly richer).

UBS is supposed to be one of the world’s leading banks, and yet time and again they squander money in a manner which beggars belief. I’d find it laughable if I hadn’t been forced to pay my taxes to provide UBS with a 65billion$ bailout a couple of years back; the way things are going it seems more than likely that they’ll be back, cap-in-hand, in the not-so-distant future.

What does surprise me is the naivety of all concerned. It appears that many well-paid employees at UBS subscribed to the idea of buying shares in a company whose business model is based solely on displaying advertisements which are completely ignored by a barely-literate proletariat bent on exchanging mindless drivel.

In a few years, Facebook will be remembered as an ugly skid-mark on the digital toilet.

Hopefully sooner, UBS will nominate a CEO who can learn from his predecessors’ mistakes: sell off the investment banking division, close all operations in the USA and  focus on what the bank does well: private banking. The Swiss will once again be proud of their successful bank and grateful both for the reduction in taxes and hassles from the Americans.