The document discusses the investment outlook over the short, medium, and long term. In the short term, the author believes markets will continue to be supported by central bank intervention. In the medium term, austerity measures could cause vulnerabilities in peripheral European economies. In the long term, the large amount of credit expansion may not have generated real growth, leaving the potential for non-traditional market outcomes like inflation or defaults under a "multi-equilibria" framework. The author takes positions to hedge against potential "fat tail" risks that have become cheap to insure against due to central bank actions.
The document provides an investment outlook from Fasanara Capital. It argues that markets remain in a fragile state with multiple potential outcomes, including inflation, defaults, or stagnation. Due to widespread risks, the base case scenario for 2012 is a stagnant market environment with volatile trading and potential shocks. Given embedded risks, current valuations do not adequately compensate investors. The outlook advocates maintaining short positions and hedges to manage fat tail risks in these dysfunctional markets.
The document provides an investment outlook and analysis from Fasanara Capital for March 2012. It summarizes that the ECB's LTRO2 liquidity injection was larger than expected and has fueled a risk rally in markets. However, the author believes this rally will be tested in the coming weeks. The outlook discusses the ECB's strategy of using monetary policy to buy time for banks and sovereigns, but notes this comes at a high price tag and risks inflation or defaults if the strategy fails. The author argues for defensive positions, hedges against negative scenarios, and opportunities to cheaply hedge risks.
The article discusses an interview with financial advisor Rich Ralston about his experience moving to a fee-based advisory model and active investment management. Ralston found success utilizing third-party managers for dynamic, risk-managed strategies after experiencing market crashes. This allowed him to focus on client needs while ensuring their assets were carefully managed. He addresses clients' primary concerns around preserving capital and making assets last in retirement. Ralston educates skeptical clients on the benefits of active management for long-term, risk-adjusted returns compared to traditional buy-and-hold strategies. While fees and performance in strong markets present challenges, Ralston finds most clients appreciate the transparency and real-time monitoring of their portfolios.
The document discusses strategies for companies to take advantage of changing stock and bond market conditions, including:
1) Issuing stocks and bonds at opportune times through "double barreled" non-simultaneous issues.
2) Refinancing bond issues at more favorable interest rates.
3) Using convertible bonds, convertible debentures, and callable stocks and bonds to hedge against market moves.
4) Protecting company value by preventing short selling through private placements.
The document discusses the VIX index and credit default swap (CDS) spreads. It provides definitions and background information on both. Regarding the VIX index, it notes that the VIX represents the implied volatility of S&P 500 index options and is often called the "fear index" because high values correspond to periods of uncertainty and falling stock prices. The document then charts the VIX index and S&P 500 from 2003-2011, showing that the VIX rises during financial crises as stock prices fall, such as during the 2008 global financial crisis when the VIX reached record highs above 80. It also discusses how CDS spreads relate to default probabilities.
This document analyzes various hedging strategies using futures contracts. It discusses using Eurodollar futures to hedge $70 million invested in equities, calculating that 6,667 contracts would be needed. It also examines a long/short portfolio hedging a $50 million investment in PRWCX using S&P 500 futures, determining a historical beta of 0.628. Leveraging this strategy at 150% with $100 million borrowed at 1% could yield a 4.54% return. However, future beta and market movements may differ from historical patterns. Additionally, the document proposes a spread trade betting on a rise in long-term vs. short-term interest rates using Eurodollar futures.
On the Risk of Leaving the Euro - by Albert Marcet, Manuel Macera and juan Pa...ADEMU_Project
- The document discusses the risks of countries like Italy, Greece, and Portugal leaving the Euro given their large budget deficits and debt levels.
- It uses a model to argue that if these countries leave the Euro without access to bond markets, they would have to finance deficits through money printing, leading to high inflation ("hyperinflation").
- It also develops a methodology to analyze models where agents have beliefs that are close to rational expectations but not perfectly so, to assess the robustness of outcomes to small deviations from rational expectations.
The document provides an investment outlook from Fasanara Capital. It argues that markets remain in a fragile state with multiple potential outcomes, including inflation, defaults, or stagnation. Due to widespread risks, the base case scenario for 2012 is a stagnant market environment with volatile trading and potential shocks. Given embedded risks, current valuations do not adequately compensate investors. The outlook advocates maintaining short positions and hedges to manage fat tail risks in these dysfunctional markets.
The document provides an investment outlook and analysis from Fasanara Capital for March 2012. It summarizes that the ECB's LTRO2 liquidity injection was larger than expected and has fueled a risk rally in markets. However, the author believes this rally will be tested in the coming weeks. The outlook discusses the ECB's strategy of using monetary policy to buy time for banks and sovereigns, but notes this comes at a high price tag and risks inflation or defaults if the strategy fails. The author argues for defensive positions, hedges against negative scenarios, and opportunities to cheaply hedge risks.
The article discusses an interview with financial advisor Rich Ralston about his experience moving to a fee-based advisory model and active investment management. Ralston found success utilizing third-party managers for dynamic, risk-managed strategies after experiencing market crashes. This allowed him to focus on client needs while ensuring their assets were carefully managed. He addresses clients' primary concerns around preserving capital and making assets last in retirement. Ralston educates skeptical clients on the benefits of active management for long-term, risk-adjusted returns compared to traditional buy-and-hold strategies. While fees and performance in strong markets present challenges, Ralston finds most clients appreciate the transparency and real-time monitoring of their portfolios.
The document discusses strategies for companies to take advantage of changing stock and bond market conditions, including:
1) Issuing stocks and bonds at opportune times through "double barreled" non-simultaneous issues.
2) Refinancing bond issues at more favorable interest rates.
3) Using convertible bonds, convertible debentures, and callable stocks and bonds to hedge against market moves.
4) Protecting company value by preventing short selling through private placements.
The document discusses the VIX index and credit default swap (CDS) spreads. It provides definitions and background information on both. Regarding the VIX index, it notes that the VIX represents the implied volatility of S&P 500 index options and is often called the "fear index" because high values correspond to periods of uncertainty and falling stock prices. The document then charts the VIX index and S&P 500 from 2003-2011, showing that the VIX rises during financial crises as stock prices fall, such as during the 2008 global financial crisis when the VIX reached record highs above 80. It also discusses how CDS spreads relate to default probabilities.
This document analyzes various hedging strategies using futures contracts. It discusses using Eurodollar futures to hedge $70 million invested in equities, calculating that 6,667 contracts would be needed. It also examines a long/short portfolio hedging a $50 million investment in PRWCX using S&P 500 futures, determining a historical beta of 0.628. Leveraging this strategy at 150% with $100 million borrowed at 1% could yield a 4.54% return. However, future beta and market movements may differ from historical patterns. Additionally, the document proposes a spread trade betting on a rise in long-term vs. short-term interest rates using Eurodollar futures.
On the Risk of Leaving the Euro - by Albert Marcet, Manuel Macera and juan Pa...ADEMU_Project
- The document discusses the risks of countries like Italy, Greece, and Portugal leaving the Euro given their large budget deficits and debt levels.
- It uses a model to argue that if these countries leave the Euro without access to bond markets, they would have to finance deficits through money printing, leading to high inflation ("hyperinflation").
- It also develops a methodology to analyze models where agents have beliefs that are close to rational expectations but not perfectly so, to assess the robustness of outcomes to small deviations from rational expectations.
ATA INVEST- TR BANKS- UPDATE March 2015Derya Guzel
Turkish bank valuations currently appear attractive relative to peers and fundamentals remain healthy. The Turkish banking index is down 10% YTD in Turkish lira and 19% in US dollars. Turkish banks trade at price-to-book ratios of 0.96x and price-earnings ratios of 7.7x based on 2015 estimates, representing discounts of 11-26% compared to peers. The document recommends some Turkish banks as outperform based on valuation and catalysts but removes others from the top pick list due to risks. It also revises 2015-2016 earnings estimates slightly downward and expects average bank earnings growth of 13%.
Senior life settlement policies (SLS) can be used as collateral to back medium-term notes (MTNs). SLS involve selling an unwanted life insurance policy to a third party for a lump sum, with the third party taking over premium payments. SLS policies can be pooled and used to collateralize MTNs, with the maturity dates of the SLS policies synchronized to the MTN term. The value of the SLS-backed MTN is equal to the value of the pooled SLS policies, which will be redeemed at maturity to pay the face value of the MTN. Calculating the present value of the face value and coupon payments shows the SLS collateral would cover around 80% of the M
The 10 Most Important Fundamental Indicators jamesyx
Fundamental indicators make it easier to predict whether a currency is about to increase or decrease in relative value. As opposed to technical indicators, which indiscriminately focus on the numbers, fundamental indicators account for material developments in the real world.
Chapter14 International Finance ManagementPiyush Gaur
An interest rate and currency swap dealer faces several types of risk:
1) Interest rate risk from interest rates changing before unplaced swap positions can be laid off.
2) Basis risk when two counterparties reference different floating rate indices.
3) Exchange rate risk from fluctuating currency rates before unplaced positions are laid off.
4) Credit risk from counterparty default.
5) Mismatch risk from finding an exact offsetting position.
6) Sovereign risk if a country restricts a currency, preventing obligations from being honored.
This document discusses inflation and monetary policy. It begins by defining average inflation over the last 50 years as around 4% according to the Consumer Price Index. It then notes that the market currently expects future inflation to be around 2%, in line with the Federal Reserve's target. However, it expresses concern that monetary policy interventions in response to the financial crisis, which dramatically increased the monetary base, could sow the seeds for higher inflation in the future if banks begin lending out excess reserves more aggressively. Fiscal policy interactions with monetary policy are also flagged as a potential issue to monitor regarding inflation.
Chapter6 International Finance ManagementPiyush Gaur
The document contains sample questions and solutions related to international parity relationships and foreign exchange rates. It includes definitions of concepts like arbitrage and purchasing power parity. It also derives relationships such as interest rate parity, purchasing power parity, and the international Fisher effect. Sample problems are provided and solved related to covered interest arbitrage opportunities between currencies.
This document provides an overview of time value of money concepts including present and future values of lump sums and annuities, interest rates, loan amortization, and uneven cash flows. The objectives are to explain time value, calculate present and future values, identify annuity types, compare interest rates, and develop loan schedules. Key concepts covered include compound interest, discounting cash flows, and solving for unknown variables like interest rates and time periods.
The document analyzes the investment performance of rare U.S. coins from 1979 to 2011. It finds that over this period, rare coins and stocks achieved the highest average annual returns despite being the most volatile assets. Rare coins had a stronger positive correlation with inflation than gold or other assets, suggesting coins may be a better hedge against inflation. Adding a modest allocation of rare coins to portfolios containing stocks, bonds and bills generally improved returns and reduced risk over the long term.
The EIU has updated its economic forecast for January. Highlights since December include: raising GDP growth forecasts for both the US and euro zone, China's slowing economy, and commodity price and demand outlook.
The DotCom Bubble in California
The document discusses the DotCom bubble which occurred from 1995-2000 when stock markets saw rapid growth in technology companies and internet startups. Venture capitalists heavily funded many dotcom startups, causing stock prices to soar. However, the bubble eventually burst in 2001 when it became clear many of these companies were overvalued and unprofitable. The bubble bursting triggered an economic recession as many investors lost money and dotcom companies failed. While the crash devastated the stock market, over half of dotcom companies still survived in the following years.
The DotCom Bubble in California saw rapidly increasing stock prices in internet companies from 1995-2000, creating an environment where investors overlooked traditional metrics in favor of technological advancements. Many individuals and companies suffered when the bubble burst in 2001 as the majority of dot-com companies ceased trading after burning through venture capital without becoming profitable. The bursting of the housing bubble in 2007 also impacted the financial sector by triggering a complex interplay of valuation and liquidity problems in the U.S. banking system.
Carlyle Financial crisis- Super Return 2008 10 15gueste519a
The document discusses the financial crisis that began in 2007 and its causes and effects. It identifies excesses in the US housing and mortgage markets, including risky subprime lending, as root causes. Mortgages were then packaged into complex financial products and widely distributed, while leverage levels throughout the financial system rose to unprecedented heights. When housing prices declined and default rates rose, trillions in losses were revealed, precipitating a global credit crunch and economic slowdown.
Fasanara Outlook Sept Investors Presentation 2013 | Artificial Markets are St...Fasanara Capital ltd
This document provides an investor and media kit from Fasanara Capital Ltd dated September 19th, 2013. It includes an investment outlook and discussion of portfolio positioning. Key points include:
- Markets remain structurally fragile due to overleverage, low liquidity, and optimism. Tapering will eventually happen but recent postponement led to a short-lived relief rally.
- Rates are the biggest risk to equities as tapering and rising rates could negatively impact markets. China's corporate debt is also a concern if growth slows.
- The portfolio has hedging, value, and tactical books. The hedging book seeks opportunities in volatility and downside protection. The value book
Abstract from MARCH 2012 fasanara 'fat tail risk hedging programs' FTRHPsFasanara Capital ltd
This document discusses portfolio hedging strategies, including security-specific hedging, macro overlay hedging, and Fat Tail Risk Hedging Programs. It provides examples of strategies to hedge various tail risks, such as short positions in Japanese equities and currency to hedge risks of a credit crunch or default scenario. Short positions in shipping companies and rates are discussed to hedge risks associated with a decline in China's commodity imports. Purchasing out of the money options on currencies like the Swiss Franc and Danish Krone are presented as ways to hedge against an EU break up scenario. Short positions in Japanese rates and long gold are discussed as hedges against an inflation scenario. Declining Chinese export growth is cited as
The document discusses the Dot-Com bubble that occurred in California from 1995-2000. It began as venture capitalists invested heavily in new Internet companies and their stock prices soared. Many companies spent heavily to expand without regard to profits. However, the bubble burst in early 2000 as many Internet companies reported poor earnings and 50% of dot-com companies eventually failed. While the stock market declined, over half of dot-com companies survived in the long run. The bubble demonstrated the risks of speculative investing in emerging technologies.
The document provides an investment outlook from Fasanara Capital. It discusses cutting directional risks in the short term and maintaining a neutral beta portfolio while keeping relative value plays across markets. It maintains the view that risks in Spain, Greece, and the US fiscal cliff are overdone and sees a better chance of a 20% rally than drop in the next 3-4 months. It also discusses maintaining hedges given rock bottom risk premia and accumulating optionality against potential tail risks in the coming years.
The document provides a bi-weekly market summary and analysis by Fasanara Capital. It discusses the ECB's recent policies to manually remove catalysts from the markets. It argues these policies delay necessary restructuring and add new debt on old debt. The next 6 months will be key to assess outcomes. Fasanara expects continued market resilience but is positioning portfolios with hedges for potential fat tail risks in the coming years from failing European policies.
The document provides an investment outlook from Fasanara Capital for April 2012. It summarizes that in the short term, markets are expected to drift lower due to economic pressures. In the medium term, the author expects policymakers to intervene with more liquidity injections, pushing markets higher again. In the long term, continued monetary expansion is seen backfiring and exposing the financial system to tail risks within a few years.
Central banks have engaged in unprecedented monetary stimulus to support financial markets in the short term. However, this risks fueling opposition in both Germany and peripheral European countries in the medium term that could undermine monetary expansion. The greatest investment opportunities currently are contingency arrangements that benefit from very low prices due to central bank actions.
The document discusses several scenarios that could play out in the global economy and financial markets over the next few years. The base case scenario remains one of slow deleveraging similar to Japan, but the system is vulnerable to shocks that could flip the equilibrium. Six potential scenarios are outlined: inflation, defaults, renewed credit crunch, EU breakup, China hard landing, USD devaluation. The strategy positions the portfolio to withstand most potential outcomes and benefit from "fat tail events" that are currently mispriced. Concerns are raised about high valuations in credit markets and underestimation of risks like rising interest rates.
ATA INVEST- TR BANKS- UPDATE March 2015Derya Guzel
Turkish bank valuations currently appear attractive relative to peers and fundamentals remain healthy. The Turkish banking index is down 10% YTD in Turkish lira and 19% in US dollars. Turkish banks trade at price-to-book ratios of 0.96x and price-earnings ratios of 7.7x based on 2015 estimates, representing discounts of 11-26% compared to peers. The document recommends some Turkish banks as outperform based on valuation and catalysts but removes others from the top pick list due to risks. It also revises 2015-2016 earnings estimates slightly downward and expects average bank earnings growth of 13%.
Senior life settlement policies (SLS) can be used as collateral to back medium-term notes (MTNs). SLS involve selling an unwanted life insurance policy to a third party for a lump sum, with the third party taking over premium payments. SLS policies can be pooled and used to collateralize MTNs, with the maturity dates of the SLS policies synchronized to the MTN term. The value of the SLS-backed MTN is equal to the value of the pooled SLS policies, which will be redeemed at maturity to pay the face value of the MTN. Calculating the present value of the face value and coupon payments shows the SLS collateral would cover around 80% of the M
The 10 Most Important Fundamental Indicators jamesyx
Fundamental indicators make it easier to predict whether a currency is about to increase or decrease in relative value. As opposed to technical indicators, which indiscriminately focus on the numbers, fundamental indicators account for material developments in the real world.
Chapter14 International Finance ManagementPiyush Gaur
An interest rate and currency swap dealer faces several types of risk:
1) Interest rate risk from interest rates changing before unplaced swap positions can be laid off.
2) Basis risk when two counterparties reference different floating rate indices.
3) Exchange rate risk from fluctuating currency rates before unplaced positions are laid off.
4) Credit risk from counterparty default.
5) Mismatch risk from finding an exact offsetting position.
6) Sovereign risk if a country restricts a currency, preventing obligations from being honored.
This document discusses inflation and monetary policy. It begins by defining average inflation over the last 50 years as around 4% according to the Consumer Price Index. It then notes that the market currently expects future inflation to be around 2%, in line with the Federal Reserve's target. However, it expresses concern that monetary policy interventions in response to the financial crisis, which dramatically increased the monetary base, could sow the seeds for higher inflation in the future if banks begin lending out excess reserves more aggressively. Fiscal policy interactions with monetary policy are also flagged as a potential issue to monitor regarding inflation.
Chapter6 International Finance ManagementPiyush Gaur
The document contains sample questions and solutions related to international parity relationships and foreign exchange rates. It includes definitions of concepts like arbitrage and purchasing power parity. It also derives relationships such as interest rate parity, purchasing power parity, and the international Fisher effect. Sample problems are provided and solved related to covered interest arbitrage opportunities between currencies.
This document provides an overview of time value of money concepts including present and future values of lump sums and annuities, interest rates, loan amortization, and uneven cash flows. The objectives are to explain time value, calculate present and future values, identify annuity types, compare interest rates, and develop loan schedules. Key concepts covered include compound interest, discounting cash flows, and solving for unknown variables like interest rates and time periods.
The document analyzes the investment performance of rare U.S. coins from 1979 to 2011. It finds that over this period, rare coins and stocks achieved the highest average annual returns despite being the most volatile assets. Rare coins had a stronger positive correlation with inflation than gold or other assets, suggesting coins may be a better hedge against inflation. Adding a modest allocation of rare coins to portfolios containing stocks, bonds and bills generally improved returns and reduced risk over the long term.
The EIU has updated its economic forecast for January. Highlights since December include: raising GDP growth forecasts for both the US and euro zone, China's slowing economy, and commodity price and demand outlook.
The DotCom Bubble in California
The document discusses the DotCom bubble which occurred from 1995-2000 when stock markets saw rapid growth in technology companies and internet startups. Venture capitalists heavily funded many dotcom startups, causing stock prices to soar. However, the bubble eventually burst in 2001 when it became clear many of these companies were overvalued and unprofitable. The bubble bursting triggered an economic recession as many investors lost money and dotcom companies failed. While the crash devastated the stock market, over half of dotcom companies still survived in the following years.
The DotCom Bubble in California saw rapidly increasing stock prices in internet companies from 1995-2000, creating an environment where investors overlooked traditional metrics in favor of technological advancements. Many individuals and companies suffered when the bubble burst in 2001 as the majority of dot-com companies ceased trading after burning through venture capital without becoming profitable. The bursting of the housing bubble in 2007 also impacted the financial sector by triggering a complex interplay of valuation and liquidity problems in the U.S. banking system.
Carlyle Financial crisis- Super Return 2008 10 15gueste519a
The document discusses the financial crisis that began in 2007 and its causes and effects. It identifies excesses in the US housing and mortgage markets, including risky subprime lending, as root causes. Mortgages were then packaged into complex financial products and widely distributed, while leverage levels throughout the financial system rose to unprecedented heights. When housing prices declined and default rates rose, trillions in losses were revealed, precipitating a global credit crunch and economic slowdown.
Fasanara Outlook Sept Investors Presentation 2013 | Artificial Markets are St...Fasanara Capital ltd
This document provides an investor and media kit from Fasanara Capital Ltd dated September 19th, 2013. It includes an investment outlook and discussion of portfolio positioning. Key points include:
- Markets remain structurally fragile due to overleverage, low liquidity, and optimism. Tapering will eventually happen but recent postponement led to a short-lived relief rally.
- Rates are the biggest risk to equities as tapering and rising rates could negatively impact markets. China's corporate debt is also a concern if growth slows.
- The portfolio has hedging, value, and tactical books. The hedging book seeks opportunities in volatility and downside protection. The value book
Abstract from MARCH 2012 fasanara 'fat tail risk hedging programs' FTRHPsFasanara Capital ltd
This document discusses portfolio hedging strategies, including security-specific hedging, macro overlay hedging, and Fat Tail Risk Hedging Programs. It provides examples of strategies to hedge various tail risks, such as short positions in Japanese equities and currency to hedge risks of a credit crunch or default scenario. Short positions in shipping companies and rates are discussed to hedge risks associated with a decline in China's commodity imports. Purchasing out of the money options on currencies like the Swiss Franc and Danish Krone are presented as ways to hedge against an EU break up scenario. Short positions in Japanese rates and long gold are discussed as hedges against an inflation scenario. Declining Chinese export growth is cited as
The document discusses the Dot-Com bubble that occurred in California from 1995-2000. It began as venture capitalists invested heavily in new Internet companies and their stock prices soared. Many companies spent heavily to expand without regard to profits. However, the bubble burst in early 2000 as many Internet companies reported poor earnings and 50% of dot-com companies eventually failed. While the stock market declined, over half of dot-com companies survived in the long run. The bubble demonstrated the risks of speculative investing in emerging technologies.
The document provides an investment outlook from Fasanara Capital. It discusses cutting directional risks in the short term and maintaining a neutral beta portfolio while keeping relative value plays across markets. It maintains the view that risks in Spain, Greece, and the US fiscal cliff are overdone and sees a better chance of a 20% rally than drop in the next 3-4 months. It also discusses maintaining hedges given rock bottom risk premia and accumulating optionality against potential tail risks in the coming years.
The document provides a bi-weekly market summary and analysis by Fasanara Capital. It discusses the ECB's recent policies to manually remove catalysts from the markets. It argues these policies delay necessary restructuring and add new debt on old debt. The next 6 months will be key to assess outcomes. Fasanara expects continued market resilience but is positioning portfolios with hedges for potential fat tail risks in the coming years from failing European policies.
The document provides an investment outlook from Fasanara Capital for April 2012. It summarizes that in the short term, markets are expected to drift lower due to economic pressures. In the medium term, the author expects policymakers to intervene with more liquidity injections, pushing markets higher again. In the long term, continued monetary expansion is seen backfiring and exposing the financial system to tail risks within a few years.
Central banks have engaged in unprecedented monetary stimulus to support financial markets in the short term. However, this risks fueling opposition in both Germany and peripheral European countries in the medium term that could undermine monetary expansion. The greatest investment opportunities currently are contingency arrangements that benefit from very low prices due to central bank actions.
The document discusses several scenarios that could play out in the global economy and financial markets over the next few years. The base case scenario remains one of slow deleveraging similar to Japan, but the system is vulnerable to shocks that could flip the equilibrium. Six potential scenarios are outlined: inflation, defaults, renewed credit crunch, EU breakup, China hard landing, USD devaluation. The strategy positions the portfolio to withstand most potential outcomes and benefit from "fat tail events" that are currently mispriced. Concerns are raised about high valuations in credit markets and underestimation of risks like rising interest rates.
Fasanara Capital | Investment Outlook June 2012 (published May 25th)Fasanara Capital ltd
1) The document provides an investment outlook from Fasanara Capital discussing recent market movements and their views on the European sovereign debt crisis.
2) They expect further market declines are needed to motivate coordinated policy intervention, but maintain shorts as catalysts like political tensions could accelerate declines and trigger action.
3) Long-term structural issues in Europe like high unemployment and economic imbalances remain unresolved and increase the risks of scenarios like inflation, defaults or countries leaving the Euro.
The document provides an investment outlook from Fasanara Capital for May 2012. It anticipates three phases in the markets: (1) short-term weakness, (2) medium-term intervention and credit expansion following a more pronounced sell-off, and (3) long-term "bursting of the bubble" leading to defaults or inflation. It argues the recent ECB liquidity is already evaporating and fresh intervention will be needed. It also discusses factors that could trigger a larger market move and the opportunities in hedging tail risks.
Quarterly report for our investors - Third quarter 2020BESTINVER
The document is Bestinver's third quarterly report to investors. It discusses the continued economic recovery from the impacts of Covid-19, supported by major fiscal and monetary stimulus programs. It also notes the European Union's approval of a large budget and recovery fund financed by bonds, representing greater fiscal integration. The report examines factors behind recent underperformance of value investing, including the effects of low interest rates in enabling less productive "zombie" companies. Bestinver remains focused on high-quality companies purchased at attractive prices to generate long-term returns and protect against inflation and rising rates.
The document provides an investment outlook from Fasanara Capital. It expects the ECB and Germany to find a short-term solution to avoid a disorderly Greek default, despite remaining bearish long-term. It anticipates using massive ECB liquidity to hedge against negative scenarios through selective shorts and hedging programs. Opportunities also exist in industries vulnerable to banking retrenchment and slowing Chinese imports.
The document provides an investment outlook and analysis of the European markets and economy. It discusses three main points:
1) In the short-term, valuations in Europe are expected to remain supported through the end of the year due to central bank intervention, with the possibility of further gains if sovereign bond spreads compress further.
2) In the medium-term, the author believes the European crisis is likely to flare up again in early 2013 due to austerity measures negatively impacting economies or a rejection of bailouts by Germany.
3) Long-term, central bank attempts to reduce risks may have unintended consequences of creating larger potential impacts in the future through more extreme outcomes. The author discusses several scenarios that
The document discusses several issues impacting investment decisions including increased market correlations, eurozone debt problems, and economic growth concerns. It also describes Xenfin Capital's foreign exchange trading strategy and how the weakening euro could present opportunities in 2011, though this depends on actions by European authorities and maintaining political coordination.
The document provides an investment outlook and analysis from Fasanara Capital. It summarizes that:
1) Markets are expected to continue rallying in the short term but correct markedly in the next few months once the EMU crisis flares up again.
2) Positions in Europe will be held with incremental hedging, as the rally is based on false assumptions and will be terminated prematurely.
3) Italy may provide opportunities around national elections in late February as volatility is expected to rise.
The document provides a quarterly investment outlook and discusses recent volatility in financial markets. It notes that sentiment has been swinging between irrational optimism and excessive pessimism. While most equity markets have rebounded in recent months, bond prices have also risen due to deflation fears. The document discusses the debate around whether the threats are inflation or deflation and argues that subdued growth does not necessarily mean deflation will take hold. It outlines some areas where investment opportunities still exist, such as global equity income funds and Japanese equities, and concludes by emphasizing the need for diversification given the current environment of low predictability.
This document provides an investment outlook and analysis from Fasanara Capital. Some key points:
1) Bernanke clarified the Fed's timeline for tapering QE, which removes the double benefit of QE and GDP growth. Markets may be range-bound or fall over the summer.
2) Interest rate increases pose a major risk to equities. Correlations between equities and bonds may shift to be positive rather than the current negative correlation.
3) Japan remains short yen and rates, and now adds a tactical long position in Japanese equities expecting a positive July. Short yen is the largest position.
4) China's vulnerability and potential for more stimulus are noted as
This document provides an investment outlook and analysis from Fasanara Capital. Some key points:
1) Bernanke clarified the Fed's timeline for tapering QE, which removes the double benefit of QE and GDP growth. Markets may be range-bound or fall over the summer.
2) Interest rate increases pose a major risk to equities. Correlations between equities and bonds may shift to be positive rather than the current negative correlation.
3) Japan remains short yen and rates, and now adds a tactical long position in Japanese equities expecting a positive July. Short yen is the largest position.
4) China's vulnerability to slowing growth and credit issues could impact
• Spread sectors continued to rally as investors focused more on opportunities than on risks.
• The Fed maintained its stance, but new questions emerged about how much further influence the central bank can exert.
• With tax rates fixed for the near term, policymakers turned their attention to spending cuts.
• Despite tighter valuations in corporate credit, we foresee continued solid demand and fundamentals.
Fasanara Capital | Weekly Investment Outlook | December 17th 2011Fasanara Capital ltd
The document provides an investment outlook and analysis of the European sovereign debt crisis and financial markets. It discusses the failure of recent ECB actions to restore confidence, predicts a confidence collapse scenario. It examines debt flows and stock levels facing European countries in 2012, risks to bank deposits and consumer spending. It argues that Germany will be left alone to handle the crisis but faces opposition from struggling countries and its own economic problems, making large-scale solutions difficult to achieve.
1) The author remains positive on equity markets in the short term but believes the rally is built on shaky foundations due to central bank liquidity and is sensitive to shocks.
2) Central bank liquidity is the chief driver of market performance, making rallies nominal rather than real. The author advocates differentiating between real and nominal rallies.
3) One of the author's key concerns is an inflation scenario brought on by currency debasement and debt monetization, which they believe may be in its early stages.
The document summarizes a presentation given by the Financial Management Association of New Hampshire on safeguarding cash and investments during turbulent economic times. The presentation addressed the current financial crisis, economic outlook, condition of the financial industry, cash management options, and investment policy guidelines. Panelists discussed issues like capital adequacy, the future of securitization and universal banking, and strategies for preserving capital while generating yield.
Similar to Fasanara Capital | Investment Outlook | October 5th 2012 (20)
Fasanara Capital | Investment Outlook
1. Fake Markets: How Artificial Money Flows Kill Data Dependency, Affect Market Functioning and Change the Structure of the Market
Hard data ceased to be a driver for markets, valuation metrics for bonds and equities which held valid for over a century are now deemed secondary. Narratives and money flows trump hard data, overwhelmingly.
‘Fake Markets’ are defined as markets where the magnitude and duration of artificial flows from global Central Banks or passive investment vehicles have managed to overwhelm and narcotize data-dependency and macro factors. A stuporous state of durable, un-volatile over-valuation, arrested activity, unconsciousness produced by the influence of artificial money flows.
- Passive Flows: The Prehistoric Elephant In The Room
- ETFs Are Taking Over Markets
- The Impact of Passive Investors on Active Investors: the Induction Trap
- How Narratives Evolve To Cover For Fake Markets
- Defendit Numerus: There is Safety in Numbers
- What Could We Get Wrong
2. Be Short, Be Patient, Be Ready
Markets driven by Central Banks, passive investment vehicles and retail investors are unfit to price any premium for any risk. If we are right and this is indeed a bubble (both in equity and in bonds), it will eventually bust; it is only a matter of time. The higher it goes, the higher it can go, as more swathes of private investors are pulled in. The more violently it can subsequently bust.
The risk of a combined bust of equity and bonds is a plausible one. It matters all the more as 90%+ of investors still work under the basic framework of a balanced portfolio, exposed in different proportions to equity and bonds, both long. That includes risk parity funds, a leveraged version of balanced portfolio. That includes alternative risk premia funds, a nice commercial disguise for a mostly long-only beta risk, where premia is extracted from record rich markets that made those premia tautologically minuscule.
Fasanara Capital | Investment Outlook
1. The Future Is Wide Open: Avoid The ‘Illusion Of Knowledge’ Trap
The single most dangerous thinking trap / optical illusion for investors today is to look at Trump, Brexit and Italy Referendum as non-events, buried in the past. We believe that 2017 may likely be driven by the same factors that failed to shape 2016. The non-events of 2016 are likely to be the drivers of 2017. Finally, we will get to find out if Brexit means Brexit, if Trump means Trump, if a failed Italian referendum means early elections and a membership of the EMU in jeopardy down the line.
2. Structural Shift: These Are Transformational Times
The macro outlook of the next years will be influenced the most by these structural trends:
› Protectionism, De-Globalization & De-Dollarization. In Pursuit of Inclusive Growth
› End of ‘Pax Americana’. The ascent of China. Geopolitical risks on the rise
› End of ‘Pax QE’. Markets without steroids, but still delusional.
› 4th Industrial Revolution: labor participation rate falling from 63% to 40% in 10 years?
3. Our Baseline Scenario: Bubble Unwind, Equities and Bonds Down
Starting this 2017, our major macro convictions are as follows:
› Global Tapering to progress
› US Dollar to keep grinding higher
› European Political Instability to worsen
› US Equities to weaken
1. Reflation Phase To Be Temporary, More Downside Ahead
Earlier on in 2016, ‘random and violent markets’ went off to panic mode out of (i) fears over China’s messy stock market and devaluing currency, (ii) plummeting oil price, (iii) strong US Dollar. Today, we believe complacent markets are similarly illogical and over-shooting, this time on the way up. As we re-assess the validity of the underlying risks, we expect a shift in narrative in the few months ahead and a sizeable sell-off for risk assets.
2. Four Key Conviction Ideas
We analyze below our key ideas for the next 12 months:
Short Chinese Renminbi Thesis. In Q1, China only managed to keep GDP in shape by means of graciously expanding credit by a monumental 1 trn $. Unsurprisingly, at 250% total debt on GDP, you cannot borrow 10% of GDP per quarter for long, without a currency adjustment, whether desired or not.
Short Oil Thesis. Long-term, we believe Oil will follow a volatile path around a declining trend-line, which will take it one day to sub-10$. Within 2016, we expect global aggregate demand to stay anemic and supply to surprise on the upside, inventories to grow, primarily due to the accelerating speed of technological progress.
Short S&P Thesis. To us, the S&P is priced to perfection, despite a most cloudy environment for growth and risk assets, thus representing a good value short, for limited upside is combined with the risk of a sizeable sell-off in the months ahead.
Short European Banks Thesis. We believe that micro policies at the local level, while valid, are impotent against heavy structural macro headwinds, and only the macro environment can save the banking sector in its current form in the longer-term. Macro structural headwinds for banks these days are too heavy a burden (negative sloped interest rate curves, deeply negative interest rates, deflationary economy, depressed GDP growth, over-regulation, Fintech), and will likely push valuations to new lows in the months/years ahead.
‘Deflationary Boom Markets’
‘Deflationary Boom Markets’ is the name of the game. Deflation forces Central Banks into action. Central banks to push Bonds and Equities higher, inflating the bubble some more, although on a rougher path and with higher volatility than we got accustomed to in recent years.
This document provides an investment outlook and analysis from Fasanara Capital. It discusses recent volatility in the bond markets, particularly the German bund market, and provides Fasanara Capital's medium and long-term views. In the medium term, they expect bund yields to fall further, European government bond spreads to tighten, and European equities to rise. In the long term, they believe deflationary trends will continue in Europe and central banks will need to continue monetary stimulus to prevent economic deterioration, which could eventually lead to a break in the euro currency peg.
Fasanara Capital Investment Outlook | February 1st 2015
1. Seismic Activity On The Rise
2. No Volatility No Gain
3. The Role Of Optionality
4. Crystal Ball
5. Deflation Is A Multi-Year Process
6. Three Big Trades for 2015
The document discusses investment outlooks for 2015, focusing on three defining market features and three major trade opportunities. Regarding the defining features, it argues that deflation is just beginning in Europe and will continue driving European Central Bank policy in 2015. It also notes that competitive policy responses among countries are becoming increasingly confrontational. Finally, it suggests Keynesian views advocating government intervention are gaining prominence over Austrian views in academic debates. The three major trade opportunities discussed are related to European deflation, peripheral European bonds offering optionality, and further monetary easing in Japan under Abenomics.
- Tensions with Russia over Ukraine are seen as transitory but could cause market volatility in the near-term. Deflation in Europe is viewed as a more structural issue that will affect markets for the long-term.
- The ECB is expected to take a three step approach - enhancing terms for T-LTROs, finalizing stress tests, and delivering their own version of quantitative easing.
- Three top investment opportunities are seen in European deflation trades benefiting from ECB action, peripheral European equity with upside from an inflated bubble, and Japanese equity benefiting from further stimulus.
The document discusses the investment outlook and portfolio positioning of Fasanara Capital. It states that despite weak economics and high valuations, the path of least resistance for markets in the short term is higher, as long as tensions in Ukraine do not escalate. Within equities, the portfolio prefers Italy, Greece, and Japan over US markets. The portfolio is positioned for a scenario where Russia de-escalates tensions in Ukraine, allowing markets to rise to new highs, especially in peripheral Europe. However, it remains hedged for a potential escalation causing a more significant market correction.
This document provides an investment outlook and analysis of opportunities for 2014. It maintains a strategy of being long certain equities outside the US while preparing for volatility. The US and Europe are seen as in bubble territory for stocks and credit. Japan is pursuing aggressive monetary policies that could drive further equity gains and yen weakness. China's growth is positive in the short term but credit risks loom in coming years. Corrections are anticipated, with tapering, disappointing data, or earnings declines as possible catalysts. The document recommends hedging positions and selectivity in international equities and commodities tied to China.
- The document provides an investment outlook and analysis of global markets from Fasanara Capital.
- It warns that markets have become too optimistic in the face of political and economic risks, making them fragile, and advocates maintaining hedges against a potential downturn.
- While near-term risks in Europe and the US have been postponed, the author believes volatility will increase and markets will experience a steep 10-20% correction when risks materialize.
The document discusses recent market trends and the relationship between two opposing forces - the "Bubble Chain" and the "Deleveraging Chain".
The Bubble Chain refers to rising asset prices driven by central bank liquidity, moving from government bonds to corporate credit to equities. However, a Deleveraging Chain is also occurring, shown through weakness in commodities, emerging markets, and gold. These two chains send inconsistent signals about the economy.
The document argues one chain will have to give way at some point, allowing for a realignment. It also analyzes gold's recent sharp decline, putting forward several hypotheses for what triggered it and what implications it could have. The author remains uncertain about which
The document discusses recent political events in Italy and Cyprus and their implications. It says that irrational political behavior has increased the potential for policy mistakes in Europe. Both Italy and Cyprus saw illogical decision making in their handling of political and financial issues. This raises concerns that volatility in politics and markets will increase going forward. The document recommends hedging against the risk of a break up of the eurozone given the rising divisions within Europe and potential for more countries to rebel against austerity.
1) Italian elections resulted in a hung parliament, increasing political uncertainty and vulnerability in European markets in the coming weeks. However, the author remains broadly positive in the medium term.
2) Germany may ultimately loosen its stance on austerity to gain approval for a grand coalition government in Italy, as talk of policy changes can be effective in calming markets.
3) The potential failure of OMT interventions in Italy could trigger a disastrous market reaction and move the region closer to a disorderly break up of the Eurozone, one of the author's tail risk scenarios. Overall the author sees more volatility ahead due to Italy but remains positive in the medium term.
Biotech valuations have reached levels comparable to the tech bubble of the late 1990s according to an analysis of biotech equity valuations against broader market indexes. Biotech companies now comprise over 20% of the NASDAQ index, representing hundreds of billions in total market value. Concerns were raised that some biotech firms have promising science but their current valuations far exceed anything justified by their actual business fundamentals.
Italy-Germany Government Bond Spreads shows the difference in yields between 10-year Italian bonds (BTPs) and German bonds (Bunds). Currently, BTP yields are higher than Bund yields, indicating that investors require a higher return to take on the risk of owning Italian debt versus German debt. The widening spread reflects increasing concerns from investors about Italy's fiscal situation and long-term economic prospects relative to Germany.
Misery Index in Europe: Unemployment Rate plus Inflation RateFasanara Capital ltd
The document discusses unsustainable imbalances in the Eurozone as measured by the misery index, which adds the unemployment rate to the inflation rate. High unemployment and inflation indicate economic troubles for Eurozone countries. Reducing these rates would help correct imbalances in the Eurozone economy.
Budgeting as a Control Tool in Government Accounting in Nigeria
Being a Paper Presented at the Nigerian Maritime Administration and Safety Agency (NIMASA) Budget Office Staff at Sojourner Hotel, GRA, Ikeja Lagos on Saturday 8th June, 2024.
Explore the world of investments with an in-depth comparison of the stock market and real estate. Understand their fundamentals, risks, returns, and diversification strategies to make informed financial decisions that align with your goals.
Discovering Delhi - India's Cultural Capital.pptxcosmo-soil
Delhi, the heartbeat of India, offers a rich blend of history, culture, and modernity. From iconic landmarks like the Red Fort to bustling commercial hubs and vibrant culinary scenes, Delhi's real estate landscape is dynamic and diverse. Discover the essence of India's capital, where tradition meets innovation.
Dr. Alyce Su Cover Story - China's Investment Leadermsthrill
In World Expo 2010 Shanghai – the most visited Expo in the World History
https://www.britannica.com/event/Expo-Shanghai-2010
China’s official organizer of the Expo, CCPIT (China Council for the Promotion of International Trade https://en.ccpit.org/) has chosen Dr. Alyce Su as the Cover Person with Cover Story, in the Expo’s official magazine distributed throughout the Expo, showcasing China’s New Generation of Leaders to the World.
What Lessons Can New Investors Learn from Newman Leech’s Success?Newman Leech
Newman Leech's success in the real estate industry is based on key lessons and principles, offering practical advice for new investors and serving as a blueprint for building a successful career.
In World Expo 2010 Shanghai – the most visited Expo in the World History
https://www.britannica.com/event/Expo-Shanghai-2010
China’s official organizer of the Expo, CCPIT (China Council for the Promotion of International Trade https://en.ccpit.org/) has chosen Dr. Alyce Su as the Cover Person with Cover Story, in the Expo’s official magazine distributed throughout the Expo, showcasing China’s New Generation of Leaders to the World.
Monthly Market Risk Update: June 2024 [SlideShare]Commonwealth
Markets rallied in May, with all three major U.S. equity indices up for the month, said Sam Millette, director of fixed income, in his latest Market Risk Update.
For more market updates, subscribe to The Independent Market Observer at https://blog.commonwealth.com/independent-market-observer.
Monthly Market Risk Update: June 2024 [SlideShare]
Fasanara Capital | Investment Outlook | October 5th 2012
1. October 5th 2012
Fasanara Capital | Investment Outlook
1. Short-term, we believe markets will be supported well into year-end by
open ended Central Banks activism, which we expect to outweigh the
downside risks arising from Greece, Spain and the likes.
2. Upon some concessions to the ECB over conditionality, at some point an
attempt will be made to compress spreads further for peripheral Europe
into a level which would trigger further sizeable reflation across financial
assets (e.g. to sub 300bps for spreads of 10yr BTPs vs Bunds).
3. Recent market weakness was likely driven by quarter-end profit taking,
as investors rushed to crystallize a positive performance for the period.
From here, we expect the market to be more supported on Central Bank’s
natural floor on valuations, in volatile range trading with an upward drift
bias, allowing for short-term tactical yield-enhancement strategies.
4. Longer-term, we intend to capitalize on the fictitiously sustained
valuations and rock-bottom Risk Premia to amass cheap optionality on the
six pre-identified Fat Tail scenarios we anticipate in the few years ahead,
under our Multi-Equilibria market outlook
In our last write-up we detailed the outlook over the short term, the medium term and
the long term horizon. In a nutshell, in the short-term we believe markets should be
able to reflate further on Central Banks’ liquidity or under the threat of their
intervention, which should serve as a natural floor of some sort to the markets.
Medium-term, possibly not earlier than next year, we see the fundamentally
impaired markets and economy to show vulnerability to one of two polar forces:
from the top, German taxpayers rebelling to subsidies, or from the bottom, with
peripheral Europe’s taxpayers rebelling to austerity. Longer-term, we expect the
markets to reneging on Mean Reversion, under our Multi-Equilibria theory, and a decent
probability for them to implode in either a Default Scenario (real defaults) or his
polar opposite of an Inflation Scenario (nominal defaults). For a more detailed
rendering of each scenario please refer to the link attached.
2. In this brief Outlook, we would just like to add a few elements to our short-term view.
Over the past fortnight, in our eyes, the market weakness is to be attributed to the
quarter end and investors rushing on the opportunity to close a positive period in a
rocky year. From now on, and possibly into year end, we suspect the markets might
respond to the Central Bank liquidity in reflating further, although with hiccups and
volatility along the way. The trigger for a more sustained rally might derive from
further compression of government bonds spreads for peripheral Europe,
relieving tail risk on investors’ mind. Central Bank liquidity acts from various fronts,
from the ‘top real dollars’ spent monthly by the FED to the ‘hypothetical euros’ the
ECB is willing to spend, upon concessions over conditionality and budgetary controls by
money recipients. Counter-intuitively, we would not be surprised to see ECB’s
‘expected euros’ proving to be more impactful than FED’s ‘actual dollars’, over the
short term. Not only because the FED is at his third round of a flawed intervention
policy, whose diminishing returns are more and more evident. But also due to short
term noise from elections, discussions over debt ceiling and fiscal cliff, and peak-ish
valuations (pre-Lehman levels) on record profit margins.
In Europe, we expect an agreement over conditionality to be reached, and without
the need for dramatic price action to trigger it. The ECB cannot transform ‘expected
euros’ into ‘actual euros’ whilst unleashing its OMT operations with no strings attached.
That would be the one single biggest misstep paving the way for Germany
unplugging from Europe’s assistential model, on realization that Weidmann’s stance
was indeed insightful. Draghi’s boldness in front-running inactive fiscal agents, risking
the Bundesbank’s anger in offering unlimited paper cash against troubled assets, is not
to be wasted too quickly too blatantly, as the immediate loss of credibility would be fatal
to the European fragile construct. We believe Spain, and surely Italy, know that best and
will succumb to soft brinkmanship policy by the ECB with no need for tragedy. Which
leads us to believe that the then top euros spent by the ECB will attempt first at
compressing yields and spreads to Germany quickly to a level which would likely trigger
a significant reflation over all asset classes in Europe in the few months ahead. Should
spreads of BTPs to Bunds be manipulated to below 300bps, for example, it is
likely for the markets to re-price positively in anticipation of a de facto Debt
Mutualisation across Europe. To be sure, to us, for what is worth, such interpretation
will be erroneous or premature, but we can see the market taking that view for a while,
in the short term outlook, until further notice from the real economy (for those who
have read us before, we are in what we called ‘Phase II: Reflation following new
intervention’, which is to be followed by ‘Phase III: Bursting of the Bubble’).
In the medium term, as extensively explained in previous write-ups, austerity will
press its grip on the largest economies in peripheral Europe, with evident
3. potential consequences. Such economies have so far only tasted the preliminary
flavours of austerity, but we are 6 to 12 months away from it exercising its full wrath.
Greece’s sequencing comes handy in detecting timing and inflection points for
Spain and Italy. Germany’s support itself is at risk in the medium term: if current
‘expected euros’ together with the first ’real euros’ spent were to fail to kick-start the
economy and build quickly on the positive momentum, then we can see Germany
openly opposing or unplugging outright, as we believe the numbers still support such
turnaround, as of late (please refer to previous Outlooks for our calculations over this
matter).
In the long term, after such an overdose of credit expansion, we shall look at the
patient and see if any productivity / real GDP / industrial production /real wages
and output growth was engineered out of all of it, or whether the ‘debt overhang
without growth’ is still there and way bigger than before, without any more
humanly-devisable monetary treatments to dispose of. At that point, the baseline
scenario of a Japan-style multi-year slow deleverage, could leave the stage for what we
called Multi-Equilibria markets, under which the market finds its new equilibrium in a
completely different place than where mean-reversion would suggest. Without boring
who has read us before, for easiness of understanding and at the risk of oversimplifying,
our six strategic long-term scenarios are the following: Inflation Scenario, Default
Scenario, Renewed Credit Crunch, EU Break-Up, China Hard Landing, USD
Devaluation.
Let us clarify our thoughts for the long run. We do not position for Fat Tail
events and pay for Contingency Arrangements because we expect the
European construct to surely implode and imminently so. We do it because
it may happen. Because stuff happens. That is why you take out insurance. And
we do it because, in this instance, insurance is absurdly cheap, undervalued
and mispriced, by virtue of the same Central Banks’ actions and their
desperation to compress insurance premiums themselves in an attempt to
demonstrate that tail risks have been removed outright and all bets on it are off.
It reminds us of the price of wanna-be AAA paper during the credit bubble
few years ago, under the sign-off of bullet-proof Rating Agencies
calculations. At that time too, shorting credit was made inexpensive. Timing for
the bubble to burst was uncertain, as it is now, but inexpensive means that it did
not matter that much after all. This time around, it is not the Investment
Banks pushing credit into unsustainable territory but the Central Banks
themselves - with obviously more margin for error, but not infinitely so.
True, the deleverage which has taken place in between provides for some
4. cushion, but such leeway is rapidly evaporating and leaves us in a similar
situation to then, using the same flawed remedies whilst hoping for a different
outcome.
The by-product of their acts is a cheapening of insurance premium themselves,
to levels where it is made inexpensive to position for such tail events, in a self-
financing way, despite low yield environments on the long only side of the
portfolio. In a way, compression of risk premia, the demise of volatility, the
increase in correlation across asset classes helps counterbalance a low yield
environment and low carry at hand to finance cheap proxy options, leaving us
with heavily asymmetric profiles and large positive convexity.
The reason why we position for Fat Tail events is also because we know
that the experimental Central Bank policy has a chance of success nowhere
near par. Central Banks themselves have upped the stakes to un-precedent
levels for peacetime finance history and have no way to be in safe control of
the unintended consequences of their bold moves. Money don’t grow on
trees, balance sheet is itself a finite resource, it is not cost-free and surely
not risk-free. Rephrased: “‘none of us really know why the economy has
performed so poorly, why the tools we have been putting at work didn’t work,
and by the way none of us has ever been here before as central bankers…how we
are gonna come back…we have the theoretical tools but we have never been here
before, neither the ECB has’’. It is not us talking but the Federal Reserve Bank of
Dallas President Richard Fisher.
Opportunity Set
Certainly, the right-tail event “Inflation Scenario’, included in our list of six
scenarios (under our Fat Tail Risk Hedging Programs) is today made more probable
by the combined actions of the ECB and the FED. The firm commitment to pursue
Debt Monetization and interest rates rigging through open-ended balance-sheet
expansion and negative real rates, may result in disorderly/unsterilised actions and
provoke heavy Currency Debasement, at some point along the way.
Despite the fact that an Inflation Scenario is today made more probable, its rising
probability is all but reflected by the markets. If anything, it is price in as less
probable than the day before. The same indicators that should price and reflect it are
5. indeed compressed by CB’s activism and their objective of crushing volatility and
compressing Risk Premia (Draghi spoke of the ‘Convertibility Premium’ for Spain as if it
was a disease, instead of a fair reflection of risk). Critically, such premia are one of the
very few ways, at least in trade-able instruments, to protect oneself from the unintended
consequences of current policies. Resulting in the greatest value opportunity of all,
which is to amass such effectively Cheap Optionality to hedge (and over-hedge)
the portfolio for the years to come.
More generally, as previously argued, Risk Premia are nowhere near where they ought
to be should one factor in the even vague possibility of partially failing European policy
making. Our leit-motiv remains to take advantage of current market manipulation
and compressed Risk Premia to amass large quantities of (therefore cheap)
hedges and Contingency Arrangements , thus balancing the portfolio against the
risk of hitting Fat Tail events in the years to come. If we do not hit them, then great,
it will be the easiest catalyst to us hitting the target IRR on the value investment portion
of our portfolio (what we call Safe Haven, or Carry Generator). If we do hit one of those
pre-identified low-probability high-impact scenarios, then cheap hedges will kick in for
heavily asymmetric profiles (we typically targets long only/long expiry positions with
10X to 100X multipliers). Such multipliers are courtesy of market manipulation and
‘interest rate rigging’ provided for by Central Bankers. Look no further than that, as
we believe that they represent the only truly Distressed Opportunity right now in
Europe. Timing-wise, the next 6 months may provide the most interesting window
of opportunity. Beyond that, perhaps within 18 months, that may be the next most
crowded trade.
Portfolio Update
Money printing has pushed the price of the senior secured paper we hold to
bubble levels. Thank-you Central Banks. In a way, the fundamentals of our invested
companies deteriorated less than the fundamentals of the Central Banks’ balance sheets,
resulting in higher prices for our paper. We now have almost no paper left sub-par.
The risk of MTM volatility has risen with the rise in current prices, and we consequently
now effectively face downside risks-only going forward, as any potential further
appreciation on lower discount rates is limited. We are therefore forced into taking
profits, reduce positions, and getting even more under-invested.
Getting lower in the credit quality scale is not an option. At some point that same paper
may become the best short out there. At a time where Central Banks monetize every
sovereign risk asset onto their balance sheet (reducing the amount of quality
6. collateral available), you want to short first something that has less of a chance of
being monetized, outright or in relative value, if you can minimize negative carry.
Senior paper has been a pillar of our portfolio since the beginning of the year. At
current rates, let alone few special sits, we may have to look beyond that and
move away from it, at least in part. With open-ended easy credit, also the classical
distressed opportunity executed via fire-sales of portfolio is postponed to a later
date to be defined. Should Japan be any guide to European matters, with his stagnation
and mild stagflation, then we eye certain equities and certain commodities for the
Cash Generator portion of our portfolio, together with more active yield enhancement
strategies.
But, as we repeated ad nauseam, in our eyes the real opportunity, the truly distressed
opportunity in Europe right now is FTRHPs. The classical Value investment
opportunities into long-only bonds or equities, when adjusted for risk, at such anemic
returns, is hardly a smart trade. It might still perform (and we would miss that rally),
but as a bold high-octane strategy. We try to be more prudent than that.
On the scenario of China hard landing, we took all profits and closed positions, for
the time being. Although we still believe in the idea (which is confirmed by data on
Taiwan exports, Shipping and Mining flows), and have been proven right by the markets
in the first half of 2012, we currently witness heavy money supply and China itself
restarting fixed investment to stimulate the economy (building totally nonsense
overcapacity, but nobody seems to care). In a way, recent scandals there may create
more of a case for the opportunity of additional monetary stimulus. We expect a short
term rebound there. If it materialize, we would like to reinstate positions, this time
expanding the scope to the Australian dollar, the banking sector in Australia, and the
Luxury industry, in addition to Shipping, Mining and the likes.
Portfolio Roadmap
Our personal roadmap to successfully riding current financial markets is based on the
following portfolio guidelines:
- Keep the Dry Powder, on a slim and nimble liquid portfolio, heavily
under-invested
- Accumulate nominal returns, on safe senior-secured short-dated
corporate exposure from northern Europe (Value Investment section of
the portfolio).
7. - Unload it fast on triggering target IRRs and meeting Carry Accumulation
plans. We are now unloading, indeed, and reloading on select stocks with
most similar characteristics to senior secured exposure.
- Amass large quantities of long-only long-expiry heavily-asymmetric
profiles to insure and over-hedge against pre-identified Fat Tail
Scenarios. Accumulate a treasury of optionality over time, banking on
system-wide dislocations and mis-pricings (across its four dimensions of
Cheap Optionality, Select Shorts, Embedded Options and Dislocation
Hedges)
- Follow methodically and meticulously the list of pre-identified Fat Tail
Scenarios and match it to the list of pre-identified Eligible Instruments
(Fat Tail Risk Hedging Programs section of the portfolio)
From here, on this construct, two outcomes are we prepared for:
- Pitfalls in Europe on the way to restoring imbalances due to under-
execution of austerity programs, and ‘adjustment fatigues’, leading to the
possibility of steep market corrections and the chance for us to reload
fast on the Value Investing part of the portfolio, at cheaper, safer and
more sustainable valuations (acceleration of the ramp up of the
portfolio)
- Fast forward to Tail Events: best case scenario for our strategy
What I liked this week
France facing double-dip recession Read
Another domino falls as Hollande pushes France into depression - Telegraph Read
8. The truth about current inflation stats. Shadow statistics reflect estimate of inflation
for today as if it were calculated the same way it was in 1990 Read
What the Fed's Historic Bet Means for You – El Erian Read
W-End Readings
Fasanara Capital Interview on CNBC Video
With Banks Skittish, Europe’s Private Equity Firms Look Elsewhere Read
Fed's policy is not going achieve projected unemployment levels Read
Defecting Iranian cameraman brings CIA priceless film of secret nuclear sites Read
Dealing with financial systemic risk: BIS Working Paper
Currency intervention and global portfolio balance effect: Japanese lessons
Working Paper
China: “Sales are down because no-one knows who to bribe.” Read
Francesco Filia
CEO & CIO of Fasanara Capital ltd
9. Mobile: +44 7715420001
E-Mail: francesco.filia@fasanara.com
16 Berkeley Street, London, W1J 8DZ, London
Authorised and Regulated by the Financial Services Authority
“This document has been issued by Fasanara Capital Limited, which is authorised and regulated by the
Financial Services Authority. The information in this document does not constitute, or form part of, any offer to
sell or issue, or any offer to purchase or subscribe for shares, nor shall this document or any part of it or the
fact of its distribution form the basis of or be relied on in connection with any contract. Interests in any
investment funds managed by New Co will be offered and sold only pursuant to the prospectus [offering
memorandum] relating to such funds. An investment in any Fasanara Capital Limited investment fund carries
a high degree of risk and is not suitable for retail investors.] Fasanara Capital Limited has not taken any steps
to ensure that the securities referred to in this document are suitable for any particular investor and no
assurance can be given that the stated investment objectives will be achieved. Fasanara Capital Limited may,
to the extent permitted by law, act upon or use the information or opinions presented herein, or the research or
analysis on which it is based, before the material is published. Fasanara Capital Limited [and its] personnel
may have, or have had, investments in these securities. The law may restrict distribution of this document in
certain jurisdictions, therefore, persons into whose possession this document comes should inform themselves
about and observe any such restrictions.