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BRICs, PITs, and PIGS: go ugly
Asset Management
<p>In my research and investing I stress three things: people, structure and value.  I look for companies that are controlled and managed by quality people, have corporate structures that align minority and majority shareholder interests and trade at valuations that are below fair value if not outright cheap.</p> <p>This blog is mostly about valuation and yet another example of how investing in beaten down, unpopular and ugly markets can lead to better returns.</p> <p>Usually valuations are low in markets that are not very attractive.  But who knows when the news can get even worse? Uncertainty and negative news flow keep most of us out of markets just when we should be buying.</p> <p>And it can take even greater will power to stay invested when nobody around you sees your point of view, friends and peers are calling you crazy, and well-educated, respected and slick investment bank analysts and traders are negative.<br /> It is psychologically easier to invest in markets when there is a lot of good news and the future looks very bright. The problem is that these markets tend to be expensive and future returns tend not to be as good.</p> <p>To contrast these two points let’s look at two acronyms that surfaced about the same time.</p> <p>BRIC stands for Brazil, Russia, India and China. The acronym is attributed to Jim O’Neill in a paper he wrote for Goldman Sachs in November 2001 (found here). In it he argued that these four countries should be included in high-level government groupings such as the “G7” because their size and growth would make them increasingly influential.</p> <p>The acronym came out not long after the tech crash. Wall Street was ripe for a new story and over the next few years the term became more popular. Goldman Sachs and many others launched BRIC funds and ETFs. There are now over 200 of them according to a very expensive database.</p> <p>The term took on a life of its own.  Leaders of the four appear to like the grouping. Just a few months ago they and South Africa formally launched the BRICS Development Bank (link here).</p> <p>About the same time BRICs was coined, traders and analysts who survived the late 1990s Asian financial crisis were referring to the ASEAN countries as PITs. The term stood for Philippines, Indonesia and Thailand.  These were three of the hardest hit economies and markets. Unlike BRICs I don’t think anybody has come forward to claim responsibility for it. Calling your home market a degrading term soon after clients lost money would not likely make one popular.</p> <p>Investing in the four BRIC countries when the phrase was coined until now would have generated decent returns. The four countries’ headline indexes are up an average of 302% since late 2001 for a CAGR of 10.5% (this and other return figures in this article are based on the average return of each country’s headline index, in USD, dividends not included).</p> <p>In contrast, and despite the acronym’s negative connotation, one would have done considerably better by investing in the three PITs markets. An equally weighted investment in the three grew by 675% over the same time period, which means the PITs investor would have made more than double the money of the BRIC investor. Even the worst PIT outperformed the best BRIC. Thailand, the worst performing PITs country, rose by 629%, a bit more than India, the best performing BRIC country, which increased by 611% from November 2001 to November 2015.</p> <p>In addition to being weary of investment fads, investors should also be skeptical of what the big banks are pushing. In July 2006 Goldman Sachs launched its BRIC fund. From launch to close, the fund’s performance was just under 20%.  Over the same time period the three PITs indexes increased on average by 157%, meaning that one would have made almost eight times more money by investing in the markets that were unloved rather than the ones that the big banks were marketing.</p> <p>Are PIGS Today’s PITs? </p> <p>PIGS stands for Portugal, Italy, Greece, and Spain. These are some the world’s worst performing economies a
12 Chinese hedge funds go AWOL
Hedge Funds
<p>Hot on the heels of Guotai Junan International Holdings chairman Yim Fung’s disappearance, 12 domestic Chinese hedge funds seem to have gone AWOL as well, as Reuters reports:<br /> “China's asset management association said that it has failed to contact 12 domestic hedge fund companies after trying to contact them through telephones, e-mails and short message services.</p> <p>The rare notice, dated Nov 23 and posted on the website of the Asset Management Association of China (AMAC), comes as Chinese financial executives remain under increased regulatory pressure, with many being pulled in for questioning regarding insider trading, malicious short-selling and other irregularities.”<br /> Should the hedge funds fail to contact AMAC within the next four days, they will be declared “missing.”<br /> Photo: elPadawan</p>
Brad Pitt is angry at Wall Street
Lifestyle
<p>Speaking to People Magazine during the premiere of The Big Short, three-time Academy Award nominee Brad Pitt can’t help but vent his frustrations about the financial crisis.<br /> “Families were put on the street, they lost their life savings, and yet no one was held accountable,” Pitt told the American rag, adding “There's something seriously wrong, you talk to the experts now and they say nothing's changed. The entitlement to make money without responsibility still exists, it's alive and well. And the same practices are still going on, only in different arenas. But nothing's changed…That's a problem.”<br /> How does he know all this? Why, he read a book about it. A book:<br /> “How does Pitt know so much about finance?</p> <p>While he's no banker, he did learn a thing or two from the book on which the film is based. ‘It wasn't the film, it was Michael Lewis' book,’ Pitt tells PEOPLE of getting a crash course in finance thanks Lewis' 2010 novel, also titled The Big Short. Lewis also wrote Moneyball which was adapted for the screen in 2011 and also starred Pitt.</p> <p>‘It was helping me understand it, because it's so convoluted and so complex and it's designed that way so the applicant doesn't know what they're getting into, and that's a problem,’ Pitt says.”<br /> Bradgelina Capital Partners will launch shortly after he discovers Babypips.<br /> Photo: Sam Javanrouh</p>
Elon Musk calls out Jeff Bezos in rocket-fueled nerd-off
Lifestyle
<p>Amazon co-founder Jeff Bezos made headlines on Tuesday by announcing – via his first ever tweet – that his rocket venture, Blue Origin, had successfully landed its suborbital rocket back at its launch site for the first time. Not to be out done, SpaceX founder Elon Musk was quick to try and bring his rival back down to earth.</p> <p>The Silicon Valley handbags at dawn began with a self-congratulatory tweet by Bezos featuring a video of his firm’s rocket, New Shepard, completing its first vertical take-off and landing (VTOL):</p> <p>The rarest of beasts - a used rocket. Controlled landing not easy, but done right, can look easy. Check out video: https://t.co/9OypFoxZk3<br /> — Jeff Bezos (@JeffBezos) November 24, 2015<br /> Tesla CEO Musk – who’s other company SpaceX has been working on a similar technology, but has recently struggled to launch and land its larger Falcon 9 rockets – initially responded like a gentleman, sending this tweet:</p> <p>Congrats to Jeff Bezos and the BO team for achieving VTOL on their booster — Elon Musk (@elonmusk) November 24, 2015</p> <p>…but the amiable display did not last long as Musk could not resist taking some wind out of Bezos’ sails.</p> <p>@JeffBezos Not quite "rarest". SpaceX Grasshopper rocket did 6 suborbital flights 3 years ago &amp; is still around. pic.twitter.com/6j9ERKCNZl<br /> — Elon Musk (@elonmusk) November 24, 2015</p> <p>It is, however, important to clear up the difference between "space" and "orbit", as described well by https://t.co/7PD42m37fZ — Elon Musk (@elonmusk) November 24, 2015</p> <p>He didn’t stop there, as Bezos single tweet elicted yet more responses from a rattled Musk.</p> <p>Getting to space needs ~Mach 3, but GTO orbit requires ~Mach 30. The energy needed is the square, i.e. 9 units for space and 900 for orbit. — Elon Musk (@elonmusk) November 24, 2015</p> <p>Jeff maybe unaware SpaceX suborbital VTOL flight began 2013. Orbital water landing 2014. Orbital land landing next. https://t.co/S6WMRnEFY5<br /> — Elon Musk (@elonmusk) November 24, 2015</p> <p>But credit for 1st reusable suborbital rocket goes to X-15 https://t.co/LSb0f8FLJd And Burt Rutan for commercial https://t.co/TGWlNjsyQz<br /> — Elon Musk (@elonmusk) November 24, 2015</p> <p>Looks like someone hit a nerve.<br /> Photo: Thomas Hawk</p> <p>&nbsp;</p>
Daily Scan: Stocks inch up; oil companies gain with Middle East tensions
Capital Markets
<p>&nbsp;</p> <p>Updated throughout the day</p> <p>November 24, 2015</p> <p>U.S. stocks edged slightly higher Tuesday, with the Dow and S&amp;P 500 adding 0.1%. The Nasdaq ended flat. Oil jumped more than 3% on tensions in the Middle East and gold bounced its lows as markets grew increasingly nervous about the Turkey-Russia showdown. Exxon Mobil and Chevron benefited from the push, rising 2% and 1.5% respectively.</p> <p>Here’s what else you need to know:</p> <p>Turkey downs Russian-made SU-24; Putin issues warning. The warplane was shot down by Turkish fighter jets after repeated air space violation warnings. In a televised appearance, Russian President Vladimir Putin warned that the action would have "serious consequences for Russo-Turkish relations." One of the pilots was shot and killed as he parachuted into Syrian territory and the other was captured by rebel forces. New York Times (paywall)</p> <p>Goldman Sachs says stocks in 2016 are going to be boring. The S&amp;P 500 should end next year at 2100, just a smidge above where it is today, the investment bank says. Wall Street Journal (paywall)</p> <p>Indiana governor sued for refusing Syrian refugees. ACLU filed a lawsuit against Indiana Gov. Mike Pence on behalf of a refugee agency. The lawsuit claims that Pence's rejection of Syrian refugees is unconstitutional. Talking Points Memo</p> <p>Presidents Obama, Hollande meet to discuss war on terror. It's the first time Francois Hollande has been to the U.S. since the attacks in Paris on November 13. Hollande is on a global tour to whip up support for the battle against the Islam State group. The effort to create a coalition is more complicated now that Turkey has shot down a Russian fighter jet; Hollande visits Putin later this week. Wall Street Journal (paywall)</p> <p>Two airlines cancel Sharm el-Sheikh flights. British Airways and Easyjet have canceled services between the U.K. and the Egyptian resort town at least through the beginning of January. BBC</p> <p>Worst of all worlds for GDP revision. The second estimate for third quarter GDP was raised to 2.1% from 1.5% -- but only because inventories are higher. Personal consumption was weaker. Second quarter GDP was 3.9%. WBP Online</p> <p>S&amp;P /Case-Shiller housing index up 4.9% in September. The index, a rolling average of the previous three months, shows continued strength in housing prices year-over-year. “Home prices and housing continue to show strength with home prices rising at more than double the rate of inflation,” says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&amp;P Dow Jones Indices. S&amp;P Dow Jones Indices</p> <p>The State Department has issued a global travel alert in the face of rising terrorism. The travel alert will be in place until February 24 and is in response to a tide of terror attacks by the Islamic State group, al Qaeda, and Boko Haram.  BBC</p> <p>Chicago police officer charged with murder. Jason Van Dyke, a white officer, has been charged with first-degree murder in the death of black teen Laquan McDonald in October. Van Dyke will appear in court Tuesday afternoon. CNN</p> <p>In another Midwest city, five people were shot near a "Black Lives Matter" protest. Gunfire erupted in Minneapolis were people were protesting the shooting death of Jamar Clark. The suspects are three white males. CNN</p> <p>Fatal twin blasts in Egypt hotel on Sinai Penninsula.  Two bombs exploded outside a hotel in Egypt housing election judges on Tuesday, killing at least three people and injuring 12. The blasts came a day after the second round of a parliamentary election closed. Guardian</p> <p>Audi to pay millions for software update. The Volkswagen-owned carmaker reportedly needs to pay somewhere in the mid double-digit millions to update the software in its U.S.-market 3 liter diesel models. Authorities however have yet to give the German giant approval. MarketWatch</p> <p>Aussie troops “will not fight IS”. Australian prime minister Malcolm Turnbull has said the so-called Islamic State (IS) group is weak and Australia ha
Flirting with US high yield
Capital Markets
<p>U.S. high yield is looking more attractive now than it has in about a year, but it may not be quite enticing enough for investors yet, writes Eoin Walsh, partner and portfolio manager at TwentyFour Asset Management.</p> <p>"You are now being better compensated for the risk and with the Fed likely to remain very vigilant, even if they do raise rates, overall rates should remain low and should continue to keep default rates low - although energy companies are likely to suffer," says Magrath.</p> <p>The U.S. index offered 6.08% last November, and has widened to more than 8% today, much more than the Euro index. But this late in the cycle, investors need to remain cautious. Carl Icahn has been vocal about the worst case scenario, saying an overheating high yield market is dangerous for investors.</p> <p>Is U.S. high yield the right move? Perhaps it's a wait-and-see.<br /> Photo: Jennie Park</p>
Goldman's VIP list gets massacred, turning in worst relative returns since 2008
Hedge Funds
The very important positions are getting very horribly slaughtered. Goldman Sachs' VIP list -- the top 50 positions for 667 hedge funds with $884 billion in assets -- has turned in the worst relative performance to the S&amp;P 500 since 2008, losing 7%, reports CNBC. Valeant Pharmaceuticals led the way down, collapsing 64% in the third quarter. In fact, healthcare accounted for about 70%
Daily Scan: Oil prices rise after Turkey shoots down Russian fighter
Capital Markets
<p>Updated throughout the day</p> <p>November 24, 2015</p> <p>Oil jumped more than 3% on tensions in the Middle East and gold bounced its lows as markets grew increasingly nervous about the Turkey-Russia showdown. Meanwhile, the hunt for a suspect in the Paris bombings took a new turn when a street cleaner found a suicide vest in the trash in a suburb. Brussels remains in high alert a fourth day as the country battles serious terror threats.</p> <p>Here’s what else you need to know:</p> <p>Turkey downs Russian-made SU-24; Putin issues warning. The warplane was shot down by Turkish fighter jets after repeated air space violation warnings. In a televised appearance, Russian President Vladimir Putin warned that the action would have "serious consequences for Russo-Turkish relations." One of the pilots was shot and killed as he parachuted into Syrian territory and the other was captured by rebel forces. New York Times (paywall)</p> <p>Presidents Obama, Hollande meet to discuss war on terror. It's the first time Francois Hollande has been to the U.S. since the attacks in Paris on November 13. Hollande is on a global tour to whip up support for the battle against the Islam State group. The effort to create a coalition is more complicated now that Turkey has shot down a Russian fighter jet; Hollande visits Putin later this week. Wall Street Journal (paywall)</p> <p>Two airlines cancel Sharm el-Sheikh flights. British Airways and Easyjet have canceled services between the U.K. and the Egyptian resort town at least through the beginning of January. BBC</p> <p>&nbsp;</p> <p>Worst of all worlds for GDP revision. The second estimate for third quarter GDP was raised to 2.1% from 1.5% -- but only because inventories are higher. Personal consumption was weaker. Second quarter GDP was 3.9%. WBP Online</p> <p>S&amp;P /Case-Shiller housing index up 4.9% in September. The index, a rolling average of the previous three months, shows continued strength in housing prices year-over-year. “Home prices and housing continue to show strength with home prices rising at more than double the rate of inflation,” says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&amp;P Dow Jones Indices. S&amp;P Dow Jones Indices</p> <p>The State Department has issued a global travel alert in the face of rising terrorism. The travel alert will be in place until February 24 and is in response to a tide of terror attacks by the Islamic State group, al Qaeda, and Boko Haram.  BBC</p> <p>Chicago police officer charged with murder. Jason Van Dyke, a white officer, has been charged with first-degree murder in the death of black teen Laquan McDonald in October. Van Dyke will appear in court Tuesday afternoon. CNN</p> <p>In another Midwest city, five people were shot near a "Black Lives Matter" protest. Gunfire erupted in Minneapolis were people were protesting the shooting death of Jamar Clark. The suspects are three white males. CNN</p> <p>Fatal twin blasts in Egypt hotel on Sinai Penninsula.  Two bombs exploded outside a hotel in Egypt housing election judges on Tuesday, killing at least three people and injuring 12. The blasts came a day after the second round of a parliamentary election closed. Guardian</p> <p>German business sentiment climbs to 17-month high. The Ifo Institute Index of German Business Executive Confidence – commonly known on the strasse as the “Ifo” – came in at 109 in November, beating estimates for an unchanged 108.2 reading. Financial Times (paywall)</p> <p>Audi to pay millions for software update. The Volkswagen-owned carmaker reportedly needs to pay somewhere in the mid double-digit millions to update the software in its U.S.-market 3 liter diesel models. Authorities however have yet to give the German giant approval. MarketWatch</p> <p>Aussie troops “will not fight IS”. Australian prime minister Malcolm Turnbull has said the so-called Islamic State (IS) group is weak and Australia has no plans to send combat troops to fight it. His remarks contrast those of his predecessor Tony Abbott who described IS as a “death cul
Video: Turkey releases 'proof' that Russian jet violated airspace
Capital Markets
<p>Via Business Insider</p> <p>Photo:</p> <p>Photo: Marina</p> <p>&nbsp;</p>
Square may face a 'reckoning' in next downturn but lending startups on stronger footing
FinTech
Fintech has been one of the biggest beneficiaries of the economic meltdown -- call it the silver living on that enormous storm cloud. Companies like Lending Club, Kabbage, and Square emerged from the ashes of a finance system gone haywire. They've also benefited from an expanding economy -- even if growth has been less than rip-roaring. Abhas Gupta, a venture