I previously posted here about the real diversification benefits of investing in wine and artwork (either directly or via the funds that do).
Anyway I was trawling through old not-so-urgent news and found this. A downturn in the art market? So if the values of residential properties, commercial properties, high-risk asset-backed debt, high-yield LBO debt, investment-grade corporate debt, stocks across the corporate spectrum, and "alternative assets" like artwork and wines seem to move in sync of each other... where are the diversification benefits when it matters the most?
Of course, none of this is really surprising for those who first heard about diversification in undergrad and thought it wasn't all it was cracked up to be (and hence subsequently struggled for brownie points from Investment Management lecturers). I remember in one class, the lecturer began explaining diversification thus:
Lecturer: "Don't put all your eggs in the one basket, that way if you drop one basket, you still have eggs in the other baskets."
Student: "What if all your baskets are in the same cart and it crashes?"
Lecturer (himself not that far out out undergrad): "... then you have a big problem."
ABSOLUTE NONSENSE: There is no truth to the rumours that I sparked the selloff in the art world with my blog entry, which was one month before the Bloomberg report in the above link. Of course, truth is only a small percentage of what moves the markets...
Monday 27 August 2007
Sunday 19 August 2007
Urdhva Dhanurasana for dummies (and other news bites)
It has been a while since the last blog, and the start of the market downturn, and I was tempted to give an update on how awesome it is to watch it unfolding, with my entire watchlist bathed in a sea of blood, and me doing my best re-enactment of Warren Buffett's infamous "oversexed guy", having too much to buy and nowhere near enough money to buy them all with.
But lo and behold I pick up the Sunday paper (for the first time in what must be years), and front page is this article, which I decided is funnier to write about. Justin Hemmes, self-proclaimed god of the totally substandard Sydney nightlife and owner of the no. 1 meat market, The Establishment (or "The Stab" as locals quite appropriately call it...), is throwing a hissy fit that the powers-that-be are not performing the Urdhva Dhanurasana so that his $150M new [meat market] hip strip can get its alcohol licence.
Mr Hemmes is "distressed" that he has taken "100% risk" by developing without certainty of being licenced, somehow thinking that just because he sunk his [i.e. the banks'] money into the development that he is therefore entitled to "the dream" of separating sleazy drunks and their cash. Mr Hemmes' stakeholder relations strategy is interesting, and will likely make for at least a hilarious case study at a local second-tier MBA program. He first pleads with the police not to "stamp out the dream" and then tells them exactly what they should be doing instead of policing the regular alcohol-related problems on George St: "government bodies such as the police should be bending over backwards to help innovative and creative developments." Instant classic.
Anyway, after I wiped up the milk that came out of my nose from laughing after reading that quote, I managed to find a few other, more worthy, articles:
Ms Gail Kelly wins the Westpac chief teller job. Well done (and that wasn't a sarcasm-laced congratulatory remark, either). This means the mighty red-and-white will be headless (much like their football team, really).
Exclusive from Rockett Fuel: Westpac takes over St George Bank. It must be crossing Ms Kelly's mind every ten seconds. They don't even have to change corporate colours! You know I'm right.
Talk about picking the top of the market to sell: check out when RAMS Home Loans (ASX: RHG) listed at $2.50 a couple of weeks ago and how it's gone since. There will be a few PE firms who are ecstatic about NOT buying an asset. The question is, did management see their fate in the tea leaves before they listed, and knowing how hard it would be to refinance their $6B warehousing loans in the ailing credit markets in a few months, decided to sell up?
UPDATE: in another "exclusive interview", NSW Police Commissioner Ken Moroney denies all reports that the NSW Police's lagging performance in their core [in]competency is leading them to diversify into property development, as may have been implied by Mr Hemmes' comments. The Commissioner states that Sydney's egotistas have a competitive advantage in this area and believe the industry (and the Police business model) is better served by maintaining status quo.
For next blog: how much money I lost by being cash-strapped during a stock market correction.
SECOND UPDATE!! Congratulations to everyone who passed their CFA exams (especially Level 2). I will see the rest of you next year hehe.
But lo and behold I pick up the Sunday paper (for the first time in what must be years), and front page is this article, which I decided is funnier to write about. Justin Hemmes, self-proclaimed god of the totally substandard Sydney nightlife and owner of the no. 1 meat market, The Establishment (or "The Stab" as locals quite appropriately call it...), is throwing a hissy fit that the powers-that-be are not performing the Urdhva Dhanurasana so that his $150M new [meat market] hip strip can get its alcohol licence.
Mr Hemmes is "distressed" that he has taken "100% risk" by developing without certainty of being licenced, somehow thinking that just because he sunk his [i.e. the banks'] money into the development that he is therefore entitled to "the dream" of separating sleazy drunks and their cash. Mr Hemmes' stakeholder relations strategy is interesting, and will likely make for at least a hilarious case study at a local second-tier MBA program. He first pleads with the police not to "stamp out the dream" and then tells them exactly what they should be doing instead of policing the regular alcohol-related problems on George St: "government bodies such as the police should be bending over backwards to help innovative and creative developments." Instant classic.
Anyway, after I wiped up the milk that came out of my nose from laughing after reading that quote, I managed to find a few other, more worthy, articles:
Ms Gail Kelly wins the Westpac chief teller job. Well done (and that wasn't a sarcasm-laced congratulatory remark, either). This means the mighty red-and-white will be headless (much like their football team, really).
Exclusive from Rockett Fuel: Westpac takes over St George Bank. It must be crossing Ms Kelly's mind every ten seconds. They don't even have to change corporate colours! You know I'm right.
Talk about picking the top of the market to sell: check out when RAMS Home Loans (ASX: RHG) listed at $2.50 a couple of weeks ago and how it's gone since. There will be a few PE firms who are ecstatic about NOT buying an asset. The question is, did management see their fate in the tea leaves before they listed, and knowing how hard it would be to refinance their $6B warehousing loans in the ailing credit markets in a few months, decided to sell up?
UPDATE: in another "exclusive interview", NSW Police Commissioner Ken Moroney denies all reports that the NSW Police's lagging performance in their core [in]competency is leading them to diversify into property development, as may have been implied by Mr Hemmes' comments. The Commissioner states that Sydney's egotistas have a competitive advantage in this area and believe the industry (and the Police business model) is better served by maintaining status quo.
For next blog: how much money I lost by being cash-strapped during a stock market correction.
SECOND UPDATE!! Congratulations to everyone who passed their CFA exams (especially Level 2). I will see the rest of you next year hehe.
Wednesday 1 August 2007
Dive! Dive! DIVE!!
So how about that market huh?
The ASX 200 starts last week at 6,422.3 and at today's close is sitting at 5,941.2 (-7.5%). Today alone it was down 3.3%. Key factors (in the Aussie market at least) look to be continued uncertainty in the US market due to the subprime debt fallout, and increased risk of another rate rise from the RBA next week.
The subprime debt crisis is the slowest-moving crisis I've seen in my (admittedly short) life. I compare this to watching "House of Wax". Paris Hilton is in the movie. Ergo, she will die. It's just a matter of time. But it doesn't happen fast enough so that you can get over it and get on with the rest of the (crappy) movie. I feel the same way about this subprime thing. I think it will (and in some ways, already does) have a contagion effect. I know it will be bad. Others think it will be bad - the point of contention is the degree of severity. But it just won't happen fast enough so everyone can have a good cry over it and move on to buying up the decent scraps left in the crash.
Notwithstanding some potentially profitable trades now made available to me, the whole situation poses an interesting chicken-and-egg financial conundrum. So whose fault was it - the low-income high-risk borrowers who, in pursuit of happiness or the Great Aussie Dream or some other noble variant, thought it's worth mortgaging everything they own (and then some), lying on their forms, and buying overpriced houses, cars and goods? Or is it the fault of the banks who, seeing an opportunity for profits, went out and met the demands of these high-risk borrowers? Is it those baby boomers who, as they approached their twilight years, demanded ever-higher returns from their investments? Or is it the institutional investors who promised they could deliver it by investing in "safe" packages of loans to risky borrowers?
I'll continue to ponder those thoughts while I await approval for my margin loans. Surely, surely, this approval is a done deal - my job in leveraged finance means I'm a low-risk borrower. Right?
The ASX 200 starts last week at 6,422.3 and at today's close is sitting at 5,941.2 (-7.5%). Today alone it was down 3.3%. Key factors (in the Aussie market at least) look to be continued uncertainty in the US market due to the subprime debt fallout, and increased risk of another rate rise from the RBA next week.
The subprime debt crisis is the slowest-moving crisis I've seen in my (admittedly short) life. I compare this to watching "House of Wax". Paris Hilton is in the movie. Ergo, she will die. It's just a matter of time. But it doesn't happen fast enough so that you can get over it and get on with the rest of the (crappy) movie. I feel the same way about this subprime thing. I think it will (and in some ways, already does) have a contagion effect. I know it will be bad. Others think it will be bad - the point of contention is the degree of severity. But it just won't happen fast enough so everyone can have a good cry over it and move on to buying up the decent scraps left in the crash.
Notwithstanding some potentially profitable trades now made available to me, the whole situation poses an interesting chicken-and-egg financial conundrum. So whose fault was it - the low-income high-risk borrowers who, in pursuit of happiness or the Great Aussie Dream or some other noble variant, thought it's worth mortgaging everything they own (and then some), lying on their forms, and buying overpriced houses, cars and goods? Or is it the fault of the banks who, seeing an opportunity for profits, went out and met the demands of these high-risk borrowers? Is it those baby boomers who, as they approached their twilight years, demanded ever-higher returns from their investments? Or is it the institutional investors who promised they could deliver it by investing in "safe" packages of loans to risky borrowers?
I'll continue to ponder those thoughts while I await approval for my margin loans. Surely, surely, this approval is a done deal - my job in leveraged finance means I'm a low-risk borrower. Right?
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