Under Pressure

Today the person who started the first hedge fund at Nomura Capital died aged 46. Recently the newspapers were filled with an equity trader at Deustche bank who committed suicide. He was aged 24. I don't know which Billy Joel song suits this better. "Under Pressure" or "Only the good die young." Either way the banks will be singing "We didn't start the fire."
Will the pressure of working in the Hedge Funds and Equity affect me? I know it nearly killed me. During the financial crisis I must have hardly slept for 3 hours a day and possibly 18- 20 hours on the weekend. My whole life revolved around Bloomberg. I would be awake for the opening of the European markets at home. I would be at work for the opening of the US markets. I would see the close of the American markets at home. I would be awake for the Asian markets. I was going through my Divorce at the same time. I am really surprised that my heart did not give in. I put on tonnes of weight though. I went for a weight loss programme in India and it helped me. I went from a 46 inch waist to a 36 now. After that there were checks and balances I put into place. Writing this blog was one of them. The other is I do not deal with work from Friday evening when I leave work unless it is an absolute emergency. I do not watch any news from Friday evening to Monday morning. 
When I was 7, the famous mathmatician and astrologer predicted that I would be in the finance world. Apparently my parents laughed it off. 20 years later I landed in the heart of it. Few years back I met her. She said I would be a big man and would live to be 86. I believe in numerology more than astrology. In case I do die this year then I have written a note and sealed it. If things change then I may destroy it. Otherwise it is good till the year end.

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Olympic Air

How can I not write something today? I am in Olympic Air right now on my way to Athens. I have just about started my journey and it is as if the entire economic condition of Greece has flashed before my very eyes. At the airport counter, the lady was old. There was only one announcement saying that passengers with infants, business class passengers and economy passengers seated between seats 20 and 27 should board. I left towards the end. I had sufficient place to stow my luggage so it didn't matter to me. When we entered the flight none of the airhostess greeted us. Then for some reason which I cannot fanthom; they discretelly removed their jackets and did the safety features in a sleeveless green dress. This was probably the second time since 1999 that I actually looked and listened to the safety protocol. Though my thoughts were on anything but the safety features. Once the safety announcements were over those jackets came back on to the disappointment to all the guys including myself. For that period I even forgot that the reclining function on my seat does not work. The toxic smell of the fat Greek guy next to me seemed light years away. I honestly cannot make out which orifice is eminating it.
Dinner is served. Italian biscuits,Danish butter and Austrian cheese. God only knows the origin of the main course and Greek salad. A passenger on the aisle is made to carry his own food and fold his tray after being served so that the food trolley can pass. Are there other flights available that may be better than Olympic? I would say definitely. However there is just one flight that leaves late in the night and that is the one that I am on.
What does this have to do with the current scenario in Greece Well everything. 10 years back Greece was an ageing economy. Then the Olympics happened in 2004. That spiced up Greece and presented it in a fresh way. To get the Olympics, Greece portrayed itself as this fresh young country. It somehow managed to sneak into the EU. In the 2008 crisis; Greece along with Ireland were the first countries to guarantee that no person having deposits in any bank in Greece will lose money if the bank defaults. One and a half years on and Greece has come to the Chinese and the EU with a begging bowl. The EU had no choice but to bail Greece out. Apparently the EU have placed strict regulations for the bail out. Bollocks. I doubt that Greece will be able to conform or meet those demands. I was not surprised when my fat co-passenger asked for a second meal. The Greeks may be back asking for more money. They'll probably get it too. So once again Greece will be ruled by a foreign power. Stripped bear of its culture. Hopefully atleast the women and wine continue to be Greek. If these two have to get adulterated then Greece will be better off surrendering its EU and Euro membership and giving it to Turkish Cyprus.

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Captaining the ship

I have kept strangely quiet on the sex scandal surrounding John Terry. First I must clearly state that I am a Chelsea supporter. Secondly I support England. So considering this I will state that it will not matter whether Terry or Rio Ferdinand wears the Captains armband for England. The role of a Captain hardly amounts to anything. It is not like in Cricket where the Captain is pivotal to the success of the team. However I am shocked that Terry did something like this. Terry's wife looks anyday better than the lady he slept with. It was stupid. All of us our guilty of it. I don't mean that each person is ready to jump into bed with someone else. What I do mean though is that a lot of us try to take that little extra unnecessary risk to get that extra return which in reality we really do not need. If we are invested in a long/short equity hedge fund and a good active equity manager then is there a need to purchase a two times leverage ETF that shorts the DOW? In the long run your equity hedge fund manager will provide the best risk adjusted return. Things can go very wrong with Short ETFs. Experts are saying that this escapade would cost him Five Million Pounds and a wife and his twins. I hope she was worth it. Everything in life has a value associated with it. The trick is to judge the right future value.

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The Volcker Rule.

I have been down with a fever ever since I came back from India on the 18th. However it looks like The Volcker Rule has scared the fever out of me. The markets have reacted negatively. Personally I am not sure what to make of it. Curbing the power of the proprietary desk is in a sense good but extending that to not investing in Hedge Funds or Private Equity is not good. If the Volcker Rule is implemented then in the future there will be very little to base a decision on whether the banks are putting their money where their mouth is. That is however the least of my concern. The greater and more immediate fear is if the banks have to pull their money out then the investor will get hit because the managers of the funds will have no choice but to sell. This will result in the same deadly spiral that we saw in September and October of 2008. I will be highly disappointed if banks are forced to sell immediately. I think I will be on my toes until things become clearer. There will be no knee jerk reaction from my side but I will be hesitant. It is Friday evening and it is time to switch off.

Snowed In

I was supposed to be at a business conference in London right now. Instead I am in Bangalore as I had difficulty getting the flight back to London due to the snow. Somehow that seems to mirror the economy. Over here it is a nice pleasant 28 celsius. In London it is freezing. People are hiring here and money is being spent by the common man. The infrastructure and real estate projects coming up in Bangalore are amazing. Some of the residential apartments coming up here and a more refined touch than some of the places in Central London. Being in India you can see why there is such a huge potential for growth. You can also see why the price of gold goes so high. People talk about the price of gold rising because it is a safe haven from the weakening currencies. However I believe that no matter what happens to the major currencies, the price of gold will rise because people in countries such as India will continue to buy it.

BASIC BRIC

The year has more or less come to an end with 4 trading days left. The major seismic change for me this year was the emergence of the so called emerging markets. The G7 and G8 have lost its power. The G20 is the way forward. Apart from that the countries that will hold the most power in global policy whether economic or otherwise will be China ,India, Russia, Brazil and South Africa. The climate conference in Copenhagen saw the replacement of Russia with South Africa to form a new group called BASIC. Next year will see a lot of funds focussed on these countries.   Now the sharpe or sortino ratio of these funds may not be as high as the BRIC or global funds but the long term annualised returns will be extremelly attractive. A fine balance will

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What's new pussycat?

Today's events reminds me of the Tom Jones song. Abu Dhabi's bail out of Dubai has in a sense made me paranoid. There has to be a catch. I cannot believe that Abu Dhabi will give US$ 10 billion just like that. The bonds jumping nearly double in value and the dubai stock market jumping by nearly 10%. This is unreal. There has to be some kind of logic to the emotions behind the results. Then there is the news that Goldman is planning a 1 billion IPO of an energy company that has no proven oil reserves. I am no oil experts but after listening to my colleagues around me I would say I have got some kind of knowledge. Even companies with proven oil reserves run a fine line as far as profitability is concerned. However one piece of news saying that they have proven reserves could make a big difference.
It is nearly one year since my divorce. What a year it has been. A whole emotional roller coaster. I know the new year will bring in something special. I do not want to reveal it yet. Last year I was like a company facing chapter 11. In between there were some attempted mergers but I think the new year will bring more than proven reserves.
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Death and Taxes

The first thing my first accounts teacher said to our class was "The only certainties in life are death and taxes." I do not think that my professor had this in mind but I think that Darling has sounded the death knell of the City by announcing the new tax increases. I have always maintained that bonuses should be paid. It does not matter whether they are short term or long term in nature. Bankers usually do not save their money by putting it in an ISA. They will spend most of it. Whether ploughing it back into the stock market or spending it in Spearmint Rhino. Creating another tier of taxes is not effective. If you think that Bankers are being paid more than they are due then give them the incentive to contribute part of their earnings in the form of a charity. The government may not be getting that income directly but it will help them save a lot by putting in money earmarked for certain causes elsewhere. Bonuses of bankers should not be taxed at a higher rate than the others. Instead create a more liberal policy so that people who have moved to Geneva or are in Dubai will come back to London. If the U.K. wants to become a powrhouse again then more benefits should be given to people working in the financial sector not less.
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Dragging the Dog

I was met by an interesting sight as I left the office. An elderly man was "walking" a Lhasa Apso. However the dog just refused to budge and ended up being dragged. The battle between the rest of Europe and U.K. is similar. Now I have to state that by no means am I calling the U.K. a dog. Nicolas Sarkozy made a big mistake by hailing the appointment of Michael Barnier as a victory for the French European economic model and that they will be in control of the City. I have not been to the equivalent of the City in any other country except for America. There is no charm or beauty on wall street or the areas surrounding the site that previously held the World Trade Centre. The area is like a huge monolith. It does not have any character. You know it is there and hope it stays in place and does not come crashing on you. The City on the other hand is like a beautiful panther. Beautiful, full of mystery and most dangerous when injured. It may face extinction but it will go down fighting and there will be humans that will try their best to help its population grow. The Euro Zone are like poachers. They will try their best to kill the panthers off. However if they succeed well they are going to go out of a job. The City may get hurt especially if Darling introduces the 50% income tax on wealthy individuals. However I think the beneficiary of that will be Switzerland rather than Europe. When the dollar weakened, people shifted to Gold rather than the Euro or Pound. I support Gordon Brown for not being able to talk to Sarkozy due to his calendar being full. First Hienry pushes France into the world cup and denied Ireland the opportunity. Now Sarkozy has decreased the goodwill (Was there any left after France lost the 2012 Olympic bid?). You may try to drag a dog but be aware that the dog will be behind you and you have a good chance that the dog will take more than a nibble of your arse.
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Dragging the Dog

I was met by. An interesting sight as I left the office. An elderly man was "walking" a Lhasa Apso. However the dog just refused to budge and ended up being dragged. The battle between the rest of Europe and U.K. is similar. Now I have to state that by no means am I calling the U.K. a dog. Nicolas Sarkozy made a big mistake by hailing the appointment of Michael Barnier as a victory for the French European economic model and that they will be in control of the City. I have not been to the equivalent of the City in any other country except for America. There is no charm or beauty on wall street or the areas surrounding the site that previously held the World Trade Centre. The area is like a huge monolith. It does not have any character. You know it is there and hope it stays in place and does not come crashing on you. The City on the other hand is like a beautiful panther. Beautiful, full of mystery and most dangerous when injured. It may face extinction but it will go down fighting and there will be humans that will try their best to help its population grow. The Euro Zone are like poachers. They will try their best to kill the panthers off. However if they succeed well they are going to go out of a job. The City may fail especially if Darling introduces the 50%
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True Lies

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Credit where credit is due

I have a lot of ideas running in my head. I will start off with this. I mentioned earlier that one of our relationship managers mentioned a square root recovery. He sent me the following link and made sure to point out that it was after he told us about it. I told him that I said his description was nothing short of genius and I stick by it.

Epileptic Disaster

I have had epilepsy since I was a kid. For a brief period I was drug free but had a relapse when I had an accident. Now I have resigned myself to the fact that I will have to take my medicines for the rest of my life. Why am I revealing this? The reason is that an epileptic dance artist is planning to induce a seizure on stage by fasting, not taking her medicine and by having strobe lighting. In financial terms it would be like giving money without sufficient collateral then not hedging your portfolio and then leveraging your investment. It sounds crazy right? However that is exactly what happened. The result was to be expected as the world went through a massive epileptic fit. Once you get an epileptic attack you have to be attack free for 5 years before then can consider gradually reducing the medicine. Then small things like your weight can make a big difference. Cut the medication too fast and it will harm the patient. Similarly all this talk about the pace of Quantitave Easing is interesting. My opinion is that it should be done gradually otherwise we will see a relapse. The effects of the crisis has not been felt as yet. It will take time to see the markets stabilize in a proper fashion. Of course in 5 years time we could see another crash.
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Square Roots and W's

These times are different and they express recovery in different ways. You have the traditional J curve which is unrealistic. A W is possible but the latest research indicates a square root. I read a 2010 analysis which implied this. One of our relationship managers described this as a square root recovery. I thought his description was nothing short of genius. I have always respected his opinion and have had some interesting debates with him. I have disagreed with him on the the timing of investments. However today I shared most of his views. Marriage changes a man. After my divorce he gave me probably the best words of wisdom. He said that there was a choice of going out drinking with the boys and get deppressed or get fit, enjoy life, find someone and be happy. Today he is happily married. I followed his advice. Maybe I will be happily married sooner than I expect. Like the markets; we may be already in November but January 2nd has not come yet.
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"Blondes are more expensive to maintain that Ferraris"

Not my words!!! It is one of the many "jokes" that was circulated by Mark Lowe. I do not think that is true. A blonde can purr as nicely as a Ferrari and requires as much maintenance as a Toyota. Now by this I am not saying that Blondes are cheap. What is expensive though is a Ferrari engine in a communist or socialist car. Give me a simple "blonde" fund over an overleveraged bad fund anytime. However sometimes we can get blinded by the returns and forget about the structural integrity. Sometimes you just don't know whether your decision is right or wrong. In the long run which will perform better. Every rule has its exception and right now even though I think that a normal fund is better; I have taken a big risk by going in for the over leveraged vehicle. Only time will show me whether it is the right move. If something wrong happens then all I can say is that I would be stranded in a desert not knowing where the mirage starts and where the oasis are.
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Sex and the city

The other day as I read a headline of a lady claiming that a hedge fund manager in the city had sexually harassed her. As I read the article I saw the name Mark Lowe. The name sounded familiar and I panicked. I practically ran to my desk and checked my business cards but could not find any reference to him. I checked by emails and then I noticed that emails from him regarding his fund. I cannot recollect if I met the person but in the time that I have been in the industry, I never was taken out by anyone to a gentleman's club or were introduced to willing ladies. This I do not say with any regret. I do not know what I would have done if I was made such offers. However I can say with a clear heart that I have not taken any decision with regard to investments based on any action that could be classified as a gift.
I was and I guess I still am sheltered. However I have heard sufficient stories to know that these things do happen in the city. It is a deadly spiral. Banks want more of their clients money. Clients must be kept happy. If certain clients can be kept happy by providing sex then it will be done. In the end the bank is happy for getting the profit. The relationship manager has a more plush cushion. Part of the clients need has got satisfied. If the investments do well then that is an extra bonus.
I do not need to be taken out to keep me happy. Provide me with good ideas, warn me when something bad is going to happen and be truthful to me. Trust is a very fragile commodity. Quite a few times it has been broken by people I least expected to. Now I have learnt that I have to be careful with everyone. I hope the people that broke my trust never find out. They will act as if they love me and I will do the same. However deep down and behind closed doors we know which way the current flows.
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Emerging Markets?

Today there is no other alternative but to invest in alternative investments. However more and more banks and financial institutions are distinguishing investments by those that provide alpha and those that provide beta.
Similarly the last year and a half has seen the metamorphis of the emerging market. Exposure to BRIC and other emerging markets should be an essential part of a portfolio. If you buy into vodafone then you are by no means buying a developed market U.K. based company. Conversely you may actually be buying a company that depends more on the Asian and Eastern European markets for growth, while they lose market share in their traditional markets where O2 which is owned by Telefonica gets all the exclusive deals.
In the coming years I think the markets currently classfied as emerging will outperform the developed markets with a better risk adjusted return. I do not think that we will see years where the return would be greater than 50% but if the US markets are giving 8% with a 5% volatility and the Asia market are giving 10% with an 7% volatility then surely it will be better to go in for the latter.
This financial mess was cataclysmic and requires a paradigm shift in our thinking of investments. Are fixed income or even. Government issued bonds safe? Are investments backed by real assets safe? Are hedge funds really riskier than equities?
If it was up to me then I would get my entire exposure to the asset classes through hedge funds and ETF's. Hedge Funds I believe are flexible in nature even if they are not liquid for investors. ETF's gives you access to the broad market and asset classes. You get your beta from the ETF's and alpha from hedge funds. You don't end up paying unnecessary fees to managers. I would rather see the profits of those investments increase by the non payment of fees rather than fatten their pockets. Besides I do not think that banks actually provide sufficient service to justify their fees. But sometimes you just don't have a choice. A small sized family office will not have the manpower to do the due dilligence of a fund properly. It is not cost effective. When stuck between the devil and the deep sea it may just be better to sleep with the devil than risk drowning in the process of finding out if you can swim in the deep sea.
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Regrets

"Regrets? I've had a few,
But then again, too few to mention.
I did what I had to do
And saw it through without exemption."

I have started reading a book called "Too big to fail." So far it is really good. It deals with the months prior to the collapse of Lehman, AIG and how the other banks were "saved". It is a perfect scary halloween read for people in the investment field. I wonder whether any of them regrets any of the decisions they made.
I do not believe in regrets. So far I do not have any. This includes my divorce. However lately I am starting to regret one episode. This one episode is something I regret professionally and personally. The funny thing is that if I had not taken that business decision then I would not have had the regret in my personally life but that decision was followed by one of the best periods of my life. There is a possibility that in both these cases I acted too fast. I do not know. However that whole episode has made me hesitant and made me less trustful of others. I hope this does not effect me too much but I know that a lot of dreams I had were dashed. Now I am afraid to dream. I do not want to dream because I do not want my hopes to fall like a pack of cards. I am also scared to dream because a lot of my dreams come true. Sometimes I do not want to sleep because of that. The curse of the number 8. A highly spiritualistic number, a number that personifies struggle, a number that can bring success but at a cost. Sometimes the cost can be too great and I know that I may have to pay a high cost. I think right now my life reads more like "When Geniuses Fail." rather than "Too Big to Fail."
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The Doppelgänger

It disheartens me to say this but a lot of private wealth managers and client relationship managers are doppelgängers. Most of them smile when they are in front of you but once they get out of sight then you hear about their evil deeds and see their actions unfold. Most of them do not have their clients interests are at heart. These are times of great opportunity. Those doppelgängers and banks they work for can make a lot of money by offering products that seem secure. However the bankers would never have created the product in the first place if there wasn't a significant profit to be made. The relationship managers would not have pushed those products if it did not fatten their pockets. I am not against bankers getting bonuses but what I do not like and appreciate is selling products which even a lay person can make out will do significantly better than the maximum cieling on the return that can be maintained.It is an insult to my intelligence. Safety is an apparition. Either you believe in an investment and get completely into it or you stay out. Wading in a shallow beach wearing a scuba kit which includes an oxygen tank just because a Tsunami hit the land a year back is stupidity. You end up with a hurt back and the person who sold the gear has more money to fill the tills. Get into your swimming trunks or your 2 piece bikini and enjoy the water. The tsunami may come or you may get stung by a jelly fish but the reward you get for taking that risk is far greater than what you will get if you protect yourself.
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Remembering our soldiers

Veterans day is coming and the poppy has started to accesorize everyones clothing. I hope that what I write today will not come back to bite me in the future.
I admire the soldiers and what they do and did. One of my favourite Indian song is in Kannada and it is called Madikeri Sipahi (Soldier from Madikeri) My favourite hymn is "Glory Glory Hallelujah". My favourite sport anthem is "Jerusalem." All of these are songs dealing with war. I support the poppy appeal. However I also believe that there should be charities for those people who lost their jobs in the financial crisis. In fact I think we should hold a minute silence to mourn the collapse of Lehman Brothers.
I am in no way putting the soldiers down or elevating the status of those that worked in the financial sector. However when you join the armed forces then you know that at some stage you will be sent to the front line and will be killed. The maximum possible loss is your life. When a trader walks onto the floor then you know that your job will be at risk with every trade you make. You don't take sufficient risk then you are fired. You make a huge loss then you are fired. You make a profit then you live to fight another day. Investing is war. You have to form your strategy and hope you are right. You fight the market. You may be able to have a comprehensive victory against human enemies but you can never beat the market. The market will always exist in some form or the other. Spare a thought for the misunderstood warriors. The people who used to work in the square mile.
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