The Absolute Arbitrageur

Article on Turkey

2013-06-03T23:03:00.001+01:00

Great article on the consequences to the Turkish economy of the current political/civil unrest from the FT.
The current situation clearly shows that the people felt the unfair and disproportionate intervention of the police over the protesters in Taksim square, further aggravated by the apparent careless attitude of Erdogan.
I hope that Erdogan gets back to his senses and understands that this is not only an "internal" question but a issue that if escalated can seriously damage the progresses achieved by the Turkish economy in the last few years.
Link for the FT article: http://blogs.ft.com/beyond-brics/2013/06/03/guest-post-economic-implications-of-turkeys-occupygezi-movement/

Boomerang

2013-05-20T22:57:00.001+01:00

I just finished reading Boomerang by Michael Lewis, I found it a very entertaining overview of the sovereign debt crisis.

Michael Lewis travels to Iceland, Ireland, Greece, Germany and California and speaks to people who played some role on the crisis (either in creating it or in solving it).

The key message of the book can be summed up in the following sentence (you can replace "Americans", by the citizens of any other crisis hit country and "Wall Street" by the corresponding financial centre): “Alone in a dark room with a pile of money, Americans knew exactly what they wanted to do, from the top of the society to the bottom. They'd been conditioned to grab as much as they could, without thinking about the long-term consequences. Afterward, the people on Wall Street would privately bemoan the low morals of the American people who walked away from their subprime loans, and the American people would express outrage at the Wall Street people who paid themselves a fortune to design the bad loans."

Overall I found it an interesting read, the only thing missing in my view was a visit to Italy, Spain and Portugal.

Two good books on Value Investing

2013-05-02T21:05:00.001+01:00

"The Little Book That Still Beats the Market: Your Safe Haven in Good Times or Bad"

In this book Greenblatt explains his Magic Formula, a simple formula based on fundamental indicators (ROA and EV/EBIT) that leads to great investment results (according to the results presented in the book).

I really enjoyed reading this book, is an easy read, accessible to even the most novice of investors. I particularly liked the fact that all the formulas used are clearly specified in the appendix.

"Quantitative Value: A Practitioner's Guide to Automating Intelligent Investment and Eliminating Behavioral Errors"

This book purpose is to identify a formula build upon the principles of Value Investing that will eliminate behavioural erros while at the same time generating very good returns.

The book runs trough several methods of identifying good (and bad companies) such as the F score or EV/EBIT ratio.

After arriving at the formula that provides the best results (according to the results provided in the book) the authors test it against other formulas such as the Magic Formula or a simple Index tracking strategy.

The book concludes with a checklist that investors should follow in order to achieve an optimal result.

Goldman and Copper River

2012-03-28T23:29:00.000+01:00

Very Interesting article from The New York Times on how Goldman is, allegedly, behaving towards its clients.

"According to Mr. Cohodes’s deposition, Copper River often sold short shares that were hard to locate for borrowing purposes and therefore extremely costly. As such, Copper River paid Goldman handsomely to make sure its trades complied with securities laws, Mr. Cohodes testified. He was unhappy about these fees, he said, but assumed that they were the cost of doing business and that Goldman was charging the market rate for following the rules.
...

Nevertheless, the stocks climbed, and Goldman began requiring Copper River to unwind its short positions by buying back the shares. This upset Mr. Cohodes, he said, because the firm’s account was in compliance with its federal regulatory margin requirement. Moreover, the fund was not leveraged; it had not made its bets using borrowed money. Instead, he said, he suspected that Goldman had never borrowed the shares for Copper River’s short positions and was trying to close out the trades to eliminate the problematic naked short positions. Because Goldman had a duty to borrow the shares, it could have risked regulatory questions about compliance, under Mr. Cohodes’s account.
...
As the stocks continued climbing, Mr. Cohodes came to believe that Goldman was buying the stocks that he was short ahead of him, driving up their prices and making Copper River’s short-covering purchases even more costly, he testified. "

Interesting to read in conjunction with this one also from The New York Times

EU agrees mobile roaming price cuts

2012-03-28T23:13:00.002+01:00

The EU is really a great thing! I can barely wait to be able to check my mail wherever I am without spending a fortune.

"The charge for using data services such as email and web browsing will be capped at 70 cents a megabyte, a fraction of the €2-€5 charged by most operators across the EU. The cap will fall to just 20 cents by 2014, all but eliminating a lucrative sideline for telecoms operators."

This is even better than I ever dreamed of:

"From 2014, mobile phone customers will be able to sign up with one company for domestic calls and another for their overseas trips, while retaining the same number."

Via The Financial Times

Size of Internet Economy

2012-03-20T00:45:00.001+01:00

The following chart shows the size of the Internet economy as percentage of the GDP for G20 countries in 2016.
Source: All things D

Eurozone growth expectations for the year

2012-03-18T00:45:00.003+01:00

I decided to give a go at creating a very, very simple macro model to sort Eurozone countries according to their growth potential for the year. The data used comes from the IMF and the map was made using Freemap.

As always this is not to be regarded as investment advice or anything remotely similar to investment advice.

Bankers versus bitching rights graph

2012-03-14T23:41:00.000+01:00

For all those graph loving monkeys out there, this is a very funny chart from FT Alphaville. Via FT Alphaville

Losing My Virginity

2012-02-02T21:59:00.002+01:00

Just finished reading "Losing My Virginity" by Richard Branson. In the book, Richard tells us not only about the origins of the Virgin group, but also about the several endeavors he has attempted (like trying to be the first to travel around the world in a balloon). Although I may disagree with some of his business/life choices, all in all he is one of those persons I would love to have lunch with. Not only has he the courage to challenge the traditional business canon,he does so while having fun.

When Genius Failed: The Rise and Fall of Long Term Capital Management

2011-11-27T00:40:00.001+01:00

This book should be in every hedge fund manager's desk. It's a great reminder that "the market can stay irrational longer than you can stay solvent".

Bridgewater's Dalio shares some insights with New Yorker magazine

2011-11-26T00:39:00.000+01:00

Some excerpts from the New Yorker magazine interview:

"To guide its investments, Bridgewater has put together hundreds of “decision rules.” These are the financial analogue of Dalio’s Principles. He used to write them down and keep them in a ring binder. Today, they are encoded in Bridgewater’s computers. Some of these indicators are very general. One of them says that if inflation-adjusted interest rates decline in a given country, its currency is likely to decline. Others are more specific. One says that, over the long run, the price of gold approximates the total amount of money in circulation divided by the size of the gold stock. If the market price of gold moves a long way from this level, it may indicate a buying or selling opportunity."

"Dalio believes that some heavily indebted countries, including the United States, will eventually opt for printing money as a way to deal with their debts, which will lead to a collapse in their currency and in their bond markets. “There hasn’t been a case in history where they haven’t eventually printed money and devalued their currency,” he said. Other developed countries, particularly those tied to the euro and thus to the European Central Bank, don’t have the option of printing money and are destined to undergo “classic depressions,” Dalio said. The recent deal to avoid an immediate debt default by Greece didn’t alter his pessimistic view. “People concentrate on the particular thing of the moment, and they forget the larger underlying forces,” he said. “That’s what got us into the debt crisis. It’s just today, today.”

Dalio’s assessment sounded alarmingly plausible. But when one plays the global financial markets a thorough economic analysis is only the first stage of the game. At least as important is getting the timing right. I asked Dalio when all this would start to come together. “I think late 2012 or early 2013 is going to be another very difficult period,” he said."

Read the full interview on New Yorker:
http://www.newyorker.com/reporting/2011/07/25/110725fa_fact_cassidy?currentPage=1

Money Mavericks: Confessions of a Hedge Fund Manager

2011-11-24T22:23:00.000+01:00

This is an amazing book for all the hedge fund managers wannabes.

Lars tells us about how he founded Holte capital, the problems he faced raising capital, managing the day to day operations and finally about his decision to close the fund.

Definitively a must read.

Portfolio Tracker

2010-08-10T23:41:00.002+01:00

I have been looking around for something like this for a while, since all I could find was either paid or not good enough I made my own portfolio tracker.

It is made to be used with xlq (http://www.qmatix.com/XLQ.htm) to automatically retrieve stock quotes but can be used with Bloomberg, Reuters or any other data source (you just have to have access to their data).

By the way, I have been testing XLQ for a while and I believe there is no other program like it on the market, it is definitely worth testing.

https://spreadsheets.google.com/ccc?key=0AqB3hUTSRi9rdEQzZ2swaTNBakk5bWlUdGpkNWRxamc&hl=en_EN&authkey=CKTxsKsO#gid=0

The House of Morgan

2010-08-10T23:18:00.000+01:00

I have just finished reading The House of Morgan by Ron Chernow, it is a great book, not only about the history of JP Morgan and Morgan Stanley but also about the history of modern banking.

5 lessons I learned from the crisis

2010-05-07T15:09:00.001+01:00

1. Although your stocks can be fundamentally great, they can still be technically bad and make you loose money.
2. After selecting the stocks in which to invest from fundamental indicators, always look at the candlesticks.
3. Always define your stop losses and take profits before buying a stock.
4. Buy and hold may be good, but when stock prices start falling, is better to sell then keep losing money.
5. Diversification is great, but it dosen't work if all your asset classes's correlations increase.

Great article on rating agencies

2010-04-29T10:29:00.001+01:00

From the FT: http://www.ft.com/cms/s/0/28df0210-52f8-11df-813e-00144feab49a.html

"The organisations on political trial last Friday were the ratings agencies Moody's and Standard & Poor's, which played a more central role than any investment bank in the failure of so many investment-grade securities. If all the subprime mortgage securities they rated triple A had not turned to junk, no bail-outs would have been required.
The stories that former Moody's and S&P employees told at that hearing – of the agencies trying to please investment banks that were paying big fees to get high ratings – cast doubt on a central plank of how the fixed-income markets are supposed to work. Why should investors place faith in these over-rated bond market guardians again?
Ratings agencies have been criticised in past crises – most recently in the aftermath of Enron's collapse – for lending their approval to dubious bonds and issuers. Their failings in the housing bubble were much greater. Yet, despite shareholder lawsuits against the agencies and some political heat, there is little sign that their quasi-official status – or their business models – will be substantially changed. The financial reform bill that is still blocked on Capitol Hill has placed other priorities, such as derivatives regulation, above them.
That is unfortunate. If the crisis proves anything, it is that the agencies enjoy too much authority among investors and regulators. Any reform that would loosen their grip on bond markets deserves a shot.
This was a triple-A crisis. The banks and insurance companies that came close to failure believed so implicitly in the safety of "super-senior" mortgage debt that they were willing to stuff their balance sheets with it. They would never have taken such a punt on high-yield securities or equity tranches of collateralised debt obligations (CDOs)."

How to solve the rating agencies problem

2010-04-29T09:37:00.000+01:00

I have given this some thought and I finally believe to have arrived at simple solution for the conflicts of interests arising from rhe fact that the ratees pay the raiter to be rated.

If the rating agencies where liable for their ratings (in case the rating given was proven completly wrong, say AAA to junk in a year or so) the rating agencies would have to pay the investors a part of their investment.

It seems to me a easy and quick solution to better align everybody interests.

SEC charges GS with fraud

2010-04-16T19:56:00.001+01:00

Link to the SEC document: http://www.sec.gov/litigation/complaints/2010/comp-pr2010-59.pdf

Via FTAlphaville: http://ftalphaville.ft.com/blog/2010/04/16/204976/the-case-involving-abacus-2007-ac1/

Article on China - Africa relations

2010-04-15T17:27:00.001+01:00

"All across Africa, new tracks are being laid, highways built,ports deepened, commercial contracts signed—all on an unprecedented scale, and led by China, whose appetite for commodities seems insatiable. Do China's grand designs promise the transformation,at last, of a star-crossed continent? Or merely its exploitation? The author travels deep into the heart of Africa, searching for answers."

From Teh Atlantic: http://www.theatlantic.com/magazine/archive/2010/04/the-next-empire/8018/

Wine as an asset class

2010-03-31T09:29:00.002+01:00

""Wine in a portfolio has produced higher returns and lower risks than the Russell 3000 equity index ... Especially in times of economic downturns" they said in a report in the American Association of Wine Economists.

...

Wines selling below $200 a bottle saw a steady increase over the 13-year period and yielded a return of 120 percent, while those selling for under $100 a bottle generated a 170 percent return.

Wines selling for more than $200 and especially those over $400 a bottle, such as Chateau Petrus or Chateau Haut-Brion, had a three-to-four-fold price increase. These wines also suffered the most declines during the financial crisis, losing about 25 percent. Wines under $200 a bottle lost between 5 percent and 10 percent during that time."

From Reuters: http://www.reuters.com/article/idUSTRE62T2L320100330

Moodys new structured finance symbol

2010-03-16T12:00:00.002+01:00

One think I really don't understand from this crisis is how the rating agencies managed to get by with only a slap on the wrist... rating things they didn't understand...

Finaly someone starts doing something about it:

"Basically any agency that wants European registration needs to come up with a structured finance symbol to distinguish structured finance ratings from the ratings of other securities.
It's part of a European attempt to strengthen the (sf) aspect of the ratings business.
And the regulation does have some useful things in it. For example, under the new rules agencies should not be able to make recommendations on how securitisations are structured. That's something which occurred quite frequently pre-financial crisis, when agencies shed their traditionally-passive role in favour of actively advising clients on how to structure deals to achieve the best possible rating.
But, structured finance symbol aside, some of the European regulation really ticks the `odd' (or at least, `redundant' ) box. For instance, the directive recommends agencies that rate securitisations have at least one supervisory member with "in-depth knowledge and experience at a senior level of the markets in structured finance instruments." Well, you would hope (pray?).
Another requirement prevents ratings analysts from working for organisations they rated at some point or another. Some commentators have already pointed out that this limitation might be irrelevant in the case of structured finance, since securitisation-issuers are generally special-purpose vehicles – essentially shell companies unlikely to require their own analysts. Strangely, the employment limits do not appear to apply to analysts leaving agencies to work for companies who actually arrange SF deals."

From FT Alphaville: http://ftalphaville.ft.com/blog/2010/03/16/176186/sf-stands-for-structured-finance/

Time to buy an island

2010-03-11T16:16:00.002+01:00

From Reuters:

http://www.reuters.com/article/idUS244992404720100308?loomia_ow=t0:s0:a49:g43:r1:c0.122120:b31821618:z0

"The Greek government is being urged to sell its uninhabited islands to bail itself out of bankruptcy, and the UK is likely to find itself in the same position in the near future. What better time to explore the possibility of buying an island together with a group of friends, and setting up an off-grid community there with your own laws, government and even currency?

...

Sanda, off the tip of the Mull of Kintyre, is once again on the market (for offers over 2.75 million euros). And Little Cumbrae, in the Firth of Clyde, could be yours for offers over 2.5 million euros Islands off New Zealand were highly prized because, in the worst terror scenario - bombing of nuclear power stations - the winds come from the South Pole And until now the idea of buying an island has been the preserve of the wealthy - after all once you have bought it, you still have to get there and bring in supplies.
Private Greek islands such as St Athanasios are already on the market from 1 million euros, with no mod cons. There are 3,054 Greek islands and only 87 are inhabited. And the betting is that the vast majority of the deserted ones belong to the State.

...

Private Islands Inc., a Toronto firm specializing in the marketing and sale of islands says: "If you want to buy a private island you have to deal with us. We have those secret islands everyone wants to know about," Chris Krolow, chief executive officer adds: "Recent technological advances in solar and wind power have made many previously uninhabitable islands "viable places to live," and that means more islands than ever are coming on to the marketplace, he said
"Salt water can be turned into drinking water and modular, prefab homes have made building more accessible," Krolow says.
Still, building on an island in the middle of nowhere comes with its own challenges.
"Something always pops up," he says. "Like squatters or government crackdowns or issues with foreign ownership or various regulators. Even modern day pirates.
"But if you can get through all this - you have to be determined and self-sufficient - you typically have something special The company currently has about 500 islands for sale, starting at $27,900 for the 0.32 hectare Davis Island in Nova Scotia. Davis Island sits about 100 metres offshore and provides good boat anchorage off its shores.
At the other end of the price scale is Lisbon Island, about 300 metres offshore from the city of Lisbon, the capital of Portugal. It's available for 245 million euros ($391.8 million) and comes with plans for a golf resort with a luxury hotel and spa.
Or $100 million (U.S.) could buy the 809 hectare Ronde Island in Grenada. The parcel is described on Private Islands website as "isolated and untouched," with miles of pristine beach and several large, protected anchorages. The website says Ronde Island has "superb visibility (that) typically exceeds 100 feet, and turtles, large pelagics and green moray eels are common."
About 70 per cent of the islands on offer are undeveloped, though others come equipped with mansions or resorts. "These islands are owned by celebrities and CEOs and they value their privacy," Krolow says.

Water supply is one of the first hurdles facing Greek island buyers. Building offshore is costly too. Renting a barge to transport materials to your island could set you back EUR30,000 a month - less if you know the barge owner and marry his daughter.
"Islands without building permits are literally worthless," said Mr Vladi. The key factor is location - proximity to doctors and food suppliers. "Solar panels, satellite dishes, cheap desalination and the internet have transformed island living," said Mr Vladi. But the costs should not be underestimated. Some 10 per cent of the investment value of an island is likely to go on staff and maintenance, and transport to the mainland can be expensive. Many islands are deserted because they are barren, dusty outcrops of rock."

Leonardo Da Vinci CV's

2010-02-09T19:04:00.002+01:00

If you need inspiration on your cover letter/CV read this letter from Leonardo Da Vinci applying for a position with the Duke of Milan:

"Most Illustrious Lord, Having now sufficiently considered the specimens of all those who proclaim themselves skilled contrivers of instruments of war, and that the invention and operation of the said instruments are nothing different from those in common use: I shall endeavor, without prejudice to any one else, to explain myself to your Excellency, showing your Lordship my secret, and then offering them to your best pleasure and approbation to work with effect at opportune moments on all those things which, in part, shall be briefly noted below. 1. I have a sort of extremely light and strong bridges, adapted to be most easily carried, and with them you may pursue, and at any time flee from the enemy; and others, secure and indestructible by fire and battle, easy and convenient to lift and place. Also methods of burning and destroying those of the enemy.
2. I know how, when a place is besieged, to take the water out of the trenches, and make endless variety of bridges, and covered ways and ladders, and other machines pertaining to such expeditions.
3. If, by reason of the height of the banks, or the strength of the place and its position, it is impossible, when besieging a place, to avail oneself of the plan of bombardment, I have methods for destroying every rock or other fortress, even if it were founded on a rock, etc.
4. Again, I have kinds of mortars; most convenient and easy to carry; and with these I can fling small stones almost resembling a storm; and with the smoke of these cause great terror to the enemy, to his great detriment and confusion.
5. And if the fight should be at sea I have kinds of many machines most efficient for offense and defense; and vessels which will resist the attack of the largest guns and powder and fumes.
6. I have means by secret and tortuous mines and ways, made without noise, to reach a designated spot, even if it were needed to pass under a trench or a river.
7. I will make covered chariots, safe and unattackable, which, entering among the enemy with their artillery, there is no body of men so great but they would break them. And behind these, infantry could follow quite unhurt and without any hindrance.
8. In case of need I will make big guns, mortars, and light ordnance of fine and useful forms, out of the common type.
9. Where the operation of bombardment might fail, I would contrive catapults, mangonels, trabocchi, and other machines of marvellous efficacy and not in common use. And in short, according to the variety of cases, I can contrive various and endless means of offense and defense.
10. In times of peace I believe I can give perfect satisfaction and to the equal of any other in architecture and the composition of buildings public and private; and in guiding water from one place to another.
11. I can carry out sculpture in marble, bronze, or clay, and also I can do in painting whatever may be done, as well as any other, be he who he may.
Again, the bronze horse may be taken in hand, which is to be to the immortal glory and eternal honor of the prince your father of happy memory, and of the illustrious house of Sforza.
And if any of the above-named things seem to anyone to be impossible or not feasible, I am most ready to make the experiment in your park, or in whatever place may please your Excellency - to whom I comment myself with the utmost humility, etc."

The translation and the original letter via the Stone blog: http://www.cenedella.com/stone/archives/2010/01/leonardo_da_vincis_resume.html

Great post about investing in gold on The Business Insider

2009-11-19T18:59:00.002+01:00

It's always usefull to know about the alternatives to futures, options and etf's when investing in gold.

http://www.businessinsider.com/11-ways-to-get-into-gold-2009-10

Self fulfilling profecy?

2009-11-17T14:51:00.002+01:00

Great piece by James Saft from Reuters, according to this the markets will go up because managers need the markets to go up.

"With just a few short weeks until the end of the year, look for many fund managers to take on more risk in an effort to salvage their annual return figures.
This is not about fundamentals, this is about something far more important: career risk.
Hedge Fund Research's Global Hedge Fund index, which is broadly representative of the industry, is up just 11.9 percent year to date, while its Equity Hedge index is scarcely doing better, up 12.6 percent. The HFR Macro Fund index is actually down 8 percent, indicating the best paid minds in the business did not see the astounding emerging markets rally and dollar fall coming.
Given that global emerging markets are up something on the order of 60 percent this year, that all global shares are up 30 percent and even the S&P 500 is up 22 percent, we can conclude that a lot of managers are heading into the year-end reporting season with a lot of ground to make up."

...

"The authorities, in their wisdom, have broken the circuit of a crash by flooding the market with enough money to drive up asset prices. This is intended to bring money out from under mattresses and force people to take risks again, to make them dance even if they feel like a fool.
That is unlikely to last forever or to work forever, but a reversal is less likely before January 1 than after."

http://blogs.reuters.com/great-debate/2009/11/17/while-the-music-plays-funds-gotta-dance/