We posted a few days ago about Spain and Prime Minister Zapatero’s troubles. The socialist leader is refusing to scale back any aspects of the welfare state, even as the country’s economy is in shambles, with massive debt and 20% unemployment. The economic trouble started when Spain, a country of 45 million, built more houses than Italy, Germany, and France COMBINED (over 200 million people)! When the housing bubble burst, Spain felt more pain than their European neighbors. There is wide speculation now, that Spain’s imminent demise could be the last domino which has to fall before the Euro zone currency is dissolved for good.
Germany and France have pledged financial support for Greece but Spain is a different animal. As the 4th largest economy in Europe, a bailout of Spain would be far too costly for countries who have problems of there own. This is the inherit problem with the Euro currency. With so many different cultures, economies, and politics under one roof, it creates huge conflicts of interest. Britain was smart when they didn’t sign on for this inevitable disaster!
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Blue Gold, one of the most successful commodity hedge funds of the last 5 years, came under fire a few weeks ago, when some accused them of causing the volatility in oil prices. We have always found this kind of criticism funny. If only one fund had that much power to control billions of dollars and hundreds of thousands of oil transactions…
With Blue Gold down 11% as of February there was even speculation that the firm was shutting down shop, and liquidating their positions. It turns out, they were doing no such thing, rather a little risk management. Something Wall Street apparently has no grasp of. They had lost a little bit in their oil positions, so they sold out on most of them, to stop continuing losses, and a catastrophic drawdown. It is risk management 101. Would you rather face a 10% loss, or an uphill climb from a 50% drubbing? People need to get a grip and learn a thing or two about the proper way to manage a portfolio, before they make these wild accusations again.
We are often asked why we don’t preach the “endowment style” of investing that is prevalent with many other online investing sites. Our response always is the same: “Why on Earth would we want to lose money?” Sure, saying you are investing like Harvard and Yale sounds great for marketing purposes. These are supposed to be the smartest guys in the world. But well informed investors know that most of the top endowments have blown up over the last few years. Harvard and Yale have endured catastrophic losses, that they will need a generation to recover from. Another problem with mirroring endowments, is that they invest largely in illiquid assets like real estate and private equity, which are hard to replicate using ETFs.
The bottom line is we implore retail investors everywhere to be careful of the marketing hype that exists online when it comes to endowment investing. Please do your research before you dive in head first. Here is a list of the largest 2009 College Endowment losses:
http://www.cnbc.com/id/35199757
- Chanos- Crazy, or Brilliant?
Jim Chanos, famed contrarian investor has made a lot of noise recently, with his proclamation that China is on the brink of collapse. Everybody thought Jim was crazy, until a few weeks ago when China surprisingly announced it was putting in bank restrictions to curb lending and try to tighten the countries purse strings. So maybe he’s not so crazy after all:
Bubbles are best identified by credit excesses, not valuation excesses. And there’s no bigger credit excess than in China.”
We happen to agree with Jim. China, like every other booming economy throughout history eventually grows too fast and faces a large speculative shock. There is no data that would make us believe otherwise. Whether this happens in 3 years, or 30 years is anyone’s guess. Some would argue, this collapse occurred in 2008, when the Chinese market was pummeled. But it would take a prolonged crash for China to truly be in a depression. And their stock market was on a tear last year. The key maybe in how the Chinese real estate market turns….
http://finance.yahoo.com/retirement/article/108534/contrarian-investor-sees-economic-crash-in-china?mod=retire-planning
Lots of chatter recently about the imminent collapse of the EU, in response to the economic demise of Greece, Spain, and Italy. If that happens, it will make some currency and bond speculators very rich. Here are some great reads on the subject, from MoneyNews and Nouriel Roubini-
http://moneynews.com/StreetTalk/spain-euro-zone-roubini/2010/01/27/id/348162
http://moneynews.com/StreetTalk/EuroZone-Collapse-EconomicWeakness-/2010/01/05/id/345384
Peter Thiel, one of the most influential guys in the entrepreneurshipworld, also happens to run a big hedge fund- Clarium Capital. They have had a rough few years, posting a 5% loss in 2008, after being up big in the first half of the year, then in 2009 being down over 25%. We wish Peter and the rest of the Clarium team all the best. They are good investors and hopefully can recover from their recent slump…
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Adios Sabata…I mean “Zapatero”
In the wake of the continued crisis in the Eurozone, the Prime Minister of Spain is coming under increasing scrutiny.
Perhaps the most telling analysis of the situation came from analyst Jose Garcia Zarate- ”The current fundamentals of the Spanish economy only make good reading if one is into horror stories.”
The most pressure is not even coming from those who one would expect…the most pressure is coming from within Zapatero’s own Socialist Party. Spanish unions plan protests and the opposition may hold a vote of no confidence by the end of the year. At a time when unemployment is exploding over 20% there, the unions actually want the government to spend more money, give out more benefits, and expand the national debt…Pure madness! This is a sure sign of a country unraveling, and the perils of a centrally planned socialist economy. Are you listening U.S. Congress?