19.4.16

Druckenmiller & Paulson

Stanley Druckenmiller was born in Pittsburgh, Pennsylvania. He grew up in a middle-class household in the suburbs of Philadelphia. His parents divorced when he was in elementary school and he went to live with his father in NJ. Druckenmiller is a graduate of Collegiate School, Richmond, Virginia. In 1975, he received a BA in English and economics from Bowdoin College (where he opened a hot dog stand with Lawrence B. Lindsey, who later became economic policy adviser to President George W. Bush). He dropped out of a three-year Ph.D. program in economics at the University of Michigan in the middle of the second semester to accept a position as an oil analyst for Pittsburgh National Bank.

In 1988, he was hired by George Soros to replace Victor Niederhoffer at Quantum Fund. He and Soros famously "broke the Bank of England" when they shorted British pound sterling in 1992, reputedly making more than $1 billion in profits. They calculated that the Bank of England did not have enough foreign currency reserves with which to buy enough sterling to prop up the currency and that raising interest rates would be politically unsustainable. He left Soros in 2000 after taking large losses in technology stocks. Since then, he has concentrated full-time on his fund Duquesne Capital. He is profiled in the book The New Market Wizards by Jack D. Schwager. On August 18, 2010, Druckenmiller announced the closing of his hedge fund "telling investors he'd been worn down by the stress of trying to maintain one of the best trading records in the industry while managing an enormous amount of capital." Duquesne Capital Management posts an average annual return of 30 percent without any money-losing year. His funds were down for about 5 percent when he announced his retirement in August. However, they had since erased the losses and closed with a small gain through successful bets that the market would rally in anticipation that the Federal Reserve would announce further "Quantitative Easing" to assist in reducing unemployment and avoid deflation.

John Paulson was born in 1955 in Queens, New York. His father was born Alfredo Guillermo Paulsen in Ecuador to a father of half French and half Norwegian descent and an Ecuadorian mother. Alfredo was orphaned at fifteen and at age sixteen moved to Los Angeles with his younger brother Alberto. Alfredo enlisted in the US Army where he served and was wounded in Italy during World War II. He later changed his surname from Paulsen to Paulson. John's mother was the daughter of Jewish immigrants from Lithuania and Romania who had moved to New York City.

Paulson studied in NYU where he began to excel in business studies. In 1978, he graduated valedictorian of his class summa cum laude in finance from New York University's College of Business and Public Administration. He went on to Harvard Business School, on a Sidney J. Weinberg/Goldman Sachs scholarship, earning an MBA as a George F. Baker Scholar (top 5 percent of his class) in 1980.

In 1994, he founded his own hedge fund, Paulson & Co. with $2 million and one employee. By 2003, his fund had grown to $300 million in assets. Paulson and his company specialize in "event-driven" investments—i.e. in mergers, acquisitions, spin-offs, proxy contests, etc.—and he has made hundreds of such investments throughout his career. In 2010, he set another hedge fund record by making nearly $5 billion in a single year betting against American real estate. However, in 2011, he made losing investments in Bank of America, Citigroup and the fraud-suspected China-based Canadian-listed company, Sino-Forest Corporation. His flagship fund, Paulson Advantage Fund, fell sharply in 2011. In 2013 though some of his funds behaved incredibly well.

Thanks Wikipedia.

Why writing about these two billionaires? Only to let you know that 2 great money machines are strongly betting on gold. For example, according to his last report Druckenmiller holds... 30% of his portfolio in gold (through ETF and derivatives).

11.4.16

SDR, new composition

We have written some posts related to IMF´s SDR (Special Drawing Rights), which is basically a currency basket. SOME SEE THE SDR AS THE FUTURE RESERVE CURRENCY and steps are being made to achieve this goal. The first one was the inclusion of the Chinese currency in the SDR by October 2016.

Please, compare:

The plan (SDR becoming World´s reserve currency) might be accelerating due to the global crisis. Owning gold can help to hedge this financial event.

5.4.16

El índice Gini y su mal uso

Se nos vende que el índice Gini mide la desigualdad de los países y esto no es del todo correcto.

La desigualdad se puede medir por renta, por patrimonio o por consumo. Nosotros creemos que la mejor forma de hacerlo es por consumo, pues es lo que realmente marca la diferencia entre los que viven mejor y peor. El índice Gini de renta es una medida de la dispersión de los ingresos. Aunque no sea ideal, lo aceptamos en aras de la argumentación. Pero si se va a medir la renta, por favor, hágase bien.

Este índice Gini tiene dos fallos garrafales: no tiene en cuenta la vivienda en propiedad ni los servicios públicos. Nos explicamos.

Si no tenemos que pagar alquiler tenemos una renta presunta (como recoge el IRPF) por el dinero que se ahorra. Imaginemos dos grupos, A y B. En A el 60% de las familias tiene vivienda en propiedad y una renta media mensual después de impuestos de 1500 euros. En B solo el 20% de las familias tiene vivienda, el resto vive de alquiler, pero tienen una media mensual después de impuestos de 1600 euros. Si el alquiler medio mensual es de 800 euros, ¿cuál de los dos grupos es mejor para vivir? Todos sabemos la respuesta, sin embargo según el índice Gini el mejor sería... B. No se tiene en cuenta el efecto de la vivienda. Y esta cuestión no es un asunto teórico porque afecta muy profundamente los resultados del índice si se compara España con los países del norte de Europa.

El otro fallo, sin meternos en temas políticos, es que el nivel de renta del índice se calcula después de impuestos, por tanto es justo incluir los servicios públicos que disfrutan los ciudadanos de un país (sanidad, educación y pensiones). Estos servicios serían como un ingreso en especie.

Corregido el Gini con estas dos variables resulta que... España es uno de los países más igualitarios (enlace).

28.3.16

Bitcoin en euros

Hay mucha gente que piensa que la moneda virtual bitcoin no tiene futuro al no estar "fundamentada" en nada. Otros piensan que sí que está basada en una brillante tecnología de distribución y que la lucha contra el dinero al contado va a favorecer la implatación del bitcoin. Realmente nosotros tenemos muchas dudas, en cualquier caso, lo que sí es cierto es que existe un interesante mercado de compraventa.

El gráfico de arriba muestra una corrección muy fuerte desde los 834 del 2013 a menos de 200 del 2015. Parecía que la vertical subida del 2013 era muy exagerada, pero el valle del 2015 ha muy bien podido purgar este exceso. Hay compradores esperando en el entorno de 300.

El futuro del bitcoin está por ver. Nosotros le deseamos la mejor de las suertes.

18.3.16

No tiene por qué ser España

Este artículo solo pretende ser un recordatorio a los inversores en acciones para que no se centren en España. El mundo es muy grande y hay excelentes compañías por ahí en países con fundamentos más sólidos que España.

Cuando se oye la radio española que sigue dedicando una gran parte del tiempo a las mismas empresas del Mercado Continuo, uno no puede dejar de sentir que "se está perdiendo algo".

Los brokers ahora son internacionales y resulta el mismo esfuerzo comprar Repsol que una petrolera australiana. En este mismo sentido y solo a modo de ejemplo, comparen las rentabilidades históricas de los distintos activos en España y en Australia. La diferencia es muy clara.

Australia

España

Algunos podrán argumentar que se tiene más conocimiento o cercanía con las empresas españolas. Puede ser. Sin embargo, hay que preguntarse si ese conocimiento es tan especial como para que el mercado no lo tenga valorado. Por otro lado, hoy en día la inversión en bolsa para el pez pequeño se basa más en acertar sectores, países... que en ninguna otra cosa.

7.3.16

Commodity Index vs. Gold

The problem with commodities is there are many types: oil, aluminum, corn... So some have developed different indexes to track them . First, we have the Goldman Sachs Commodity Index (GSCI), very biased towards oil (energy weights 72% of the total index). There is an ETF related to this index, but with a better sector distribution: GSC (link here) -energy 18%. Second, we can use the Rogers International Commodity Index, linked to an ETF with ticker RJI (link here) -energy 40%.

Of course there should be some correlation between commodity indexes and gold, initially because gold is part of the index basket, but also because gold is also a commodity. However, gold sometimes works as money, basically when investors don't trust Central Banks. And this is what we are seeing lately: gold is breaking the correlation and is starting to move on its own, as we can see in the following charts (red line gold):

Central Banks have a very poor record forecasting inflation and economic growth, however they are more powerful than ever. It might make sense to hedge the risk of Central Bank's miss performing again and buy some gold.

2.3.16

Baltic Dry Index priced in gold

Most of you have heard about the Baltic Dry Index. According to Wikipedia:

"The Baltic Dry Index (BDI) is an economic indicator issued daily by the London-based Baltic Exchange. Not restricted to Baltic Sea countries, the index provides an assessment of the price of moving the major raw materials by sea."

Basically it is an advanced indicator that gives us some hints about the future economic growth. You can find a nice explanation from Forbes magazine here. In his last letter to investors, Warren Buffett talks about the nice recovery America is living. However this is not what the BDI is showing:

We can see the low level of the BDI if we price it in gold (as if it was a currency). This is not showing any recovery, but the opposite. Probably we are sailing adrift and nobody seems to care. The incompetency of our politicians has reach a peak pushed by us, the uneducated voters.

22.2.16

The Gone Fishin' Portfolio

We have already talked about the concept of permanent portfolio. Basically it is an investment portfolio which mixes different asset classes to get maximum diversification. It doesn't try to "time" the market, any moment is as good as another to start with it. Also, at least once a year, it requires rebalancing to set up the percentages as they were at the beginning.

Today we are going to talk about one permanent portfolio in particular: the Gone Fishin' Portfolio. We are going to build it with Vanguard ETFs because of their low fees. The percentages are:

- Vanguard Total Stock Market Index (VTSMX) – 15%

- Vanguard Small-Cap Index (NAESX) – 15%

- Vanguard European Stock Index (VEURX) – 10%

- Vanguard Pacific Stock Index (VPACX) – 10%

- Vanguard Emerging Markets Index (VEIEX) – 10%

- Vanguard Short-term Bond Index (VFSTX) – 10%

- Vanguard High-Yield Corporates Fund (VWEHX) – 10%

- Vanguard Inflation-Protected Securities Fund (VIPSX) – 10%

- Vanguard REIT Index (VGSIX) – 5%

- Vanguard Precious Metals Fund (VGPMX) – 5%

If we analyze this portfolio we see US stocks 30%, international stocks 30%, bonds 30%, REITs (Real Estate Investment Trust) 5% and precious metal mines 5%. Obviously we prefer our own portfolio explained in the book Against the tide, however any permanent portfolio is worth checking out and this one is one of the most interesting. You can find the portfolio's track record here: gonefishinportfolio.com This web is an excellent source of information. On the left you can see the annual returns of portfolio (click over to make bigger) using the S&P 500 as benchmark. Last year the GFP was a little bit down while the S&P was a little bit up, but the difference was negligible.

15.2.16

Against the tide / A contracorriente

Today, we want to give you a present. 2016 is our 10th anniversary and we would like to celebrate it together. 10 years, almost 1000 posts talking about finance, politics, philosophy... is not a bad trackrecord. Last year, I wrote Against the tide, about early retirement and personal finances in general. The idea was to analyze all the variables that affect the preparation for retirement. There is a lot of statistical work behind but the book just shows the conclusions to make it very practical. So, if someone wants to receive a free copy, just send us an e-mail (or use the Contact form on the right) with your e-mail and the language you prefer, English or Spanish. We hope you like it. This is just the beginning of the many surprises that lie ahead...

Hoy queremos hacerles un regalo. 2016 es nuestro décimo aniversario y nos gustaría celebrarlo juntos. 10 años, más de 1000 artículos sobre economía, política, filosofía... no está nada mal. El año pasado escribí A contracorriente, un libro acerca de la preparación de la jubilación y las finanzas personales en general. La idea era analizar todas las variables que pueden afectar el retiro como la inflación, la esperanza de vida, la rentabilidad de la cartera (hablamos de cómo crear carteras con menor volatilidad, más estables) y demás. Hay mucho trabajo estadístico detrás que, en aras de la claridad, no aparece en el libro donde solo se muestran los resultados para hacerlo lo más práctico posible. Así que, si alguien quiere recibir una copia gratis, solo mándenos un correo electrónico (o use el enlace de Contacto de la derecha) con su correo y si lo prefiere en inglés o español. Esperemos que les guste. Esto es solo el principio de las muchas sorpresas que les tenemos preparadas para este año.

6.2.16

Detalles del portfolio 2016

La idea de portfolios permanentes (original aquí) es que puedan resistir momentos duros sin que se vean afectados fuertemente. El ejemplo que estamos usando aquí, sin ser espectacular, lo está consiguiendo. Vamos por partes.

Lo primero, pueden encontrar el ejemplo de cartera siempre en la web a la derecha debajo de Other articles en Our portfolio. También a través de este enlace.

Segundo, por propia filosofía, buscamos invertir en productos que tengan una utilidad clara, que sean tangibles. Entre ellos se encuentra el petróleo. En general, tenemos una exposición indirecta al sector a través de divisas (NOK, la evolución de la corona noruega se encuentra muy marcada por la evolución del precio del petróleo) y bolsa rusa (fondo de inversión Osteuropa). Lógicamente, los precios bajos siguen sin dejar despegar la cartera.

Tercero, les queríamos notificar el cambio de nombre del fondo Pictet Generics a Pictet Health. Lo seguimos manteniendo por su buena evolución y su exposición a un sector tan defensivo. Sí hemos cambiado el UniReserve a Mutuafondo Corto Plazo por la existencia de un hecho relevante que afectaba al primero.

Para terminar, destacaríamos la excelente evolución del oro, que ha permitido mantener el tipo a la cartera en estos malos momentos de bolsa de inicio del año.

30.1.16

CAD/USD Long term

Our Canadian friends have asked us our thoughts on the Canadian dollar.

In general, the outlook is bearish. The CAD had a maximum in 2007 and it has not been able to overpass it.

Since the second try in 2011, it has declined around 40% in a pretty sharp manner, therefore we are expecting some kind of light rebound during 2016 and part of 2017 to continue with the bearish escenario in 2018.

We find support in 0.61 and a final long-term target in 0.5.

25.1.16

EUR/GBP 2016

After reaching the peak in 2008 and almost the parity with the euro, we have seen a big correction in the pair. It could have stopped in 2010 (relative minimum), or 2012, but it didn't. However, perhaps, this time, the rebound is the good one.

If we check a long-term chart (link here), we see that the EURGBP has been trading in an upward channel, and after last year's two lows we might be touching the low part of the channel. 2016 might be a bad year for the pound, which can help the pound mortgage owners who receive the salary in other currencies.

19.1.16

Break the peg!

A petrodollar is a US dollar received by an oil producer usually deposited into Western institutions. After the collapse of the gold standard, US Secretary of State, Henry Kissinger, and the Saudi Royal family made the following agreement: oil was to be sold ONLY in USD (making the USD the reserve currency) and in return USA was to offer military protection to Saudi Arabia. Also the Saudis should invest their surplus in US debt securities. In 1974 the petrodollar system was fully operational and 1 year later the rest of oil producers joined the system.

The rest of non-oil-producing countries favored cheap exports to the US to get dollars they will spend on oil (like Japan). The petrodollar system increased demand for USD and US debt securities.

If the main export of a country is oil and it is going to be priced in USD, the natural solution for the oil producer is to peg its currency to USD. It has happend with the Saudi Riyal (SAR), Azerbaijani New Manat (AZN) or Kazakhstani Tenge (KZT). However, with the recent low prices of oil, the tension to keep the peg to a strong dollar is unsustainable. So far AZN and KZT have broken it:

Just to give a hint, last year AZN devalued 50% and KZT initially less (August 2015), but later the rest until the same 50%.

Now the big question: what is going to happen with the Saudi Riyal? As a rule of thumb, Saudi has an annual deficit of 100B USD (which could increase or decrease -less subsudies, VAT...) and foreign reserves of more than 500B. So, they can resist for a while (IMF thinks only 5 years). But they can extend the number of years of resistance by selling Aramco (biggest oil company in the world). Let say it is worth 1T, and they sell 40% of the company, so 4 more years with deficits of 100B. Do we really think they are going to see their reserves evaporating? Probably no. Taking into account that 50% of the population works for the public sector, therefore being paid in SAR, and the need to arm themselves to be prepared to continue to war against Yemen and probably other surrounded countries, they might break the peg with the US dollar after Aramco's IPO.

The consequences of this break are huge. Probably starting with Turkey and the devaluation of TRY and continuing with the Malaysian ringgit, and so on.

11.1.16

Foreign real estate

It's always tough to look for investing opportunities abroad, and mainly the ones related to real estate. We think it is difficult to manage a rental property close to our home, so imagine to deal with people from a different culture...

However, in certain countries we find good prices, good returns and possibly a bright future. Should we go ahead and buy real estate abroad? Our opinion on this matter is the following:

1. We need to buy a minimum of 3 properties in the same place, so that the effort is worth it.

2. We need to look for good management agents, and use trial and error until we are fully satisfied.

3. We need to set up controls to these agents, such as special locks that track the opening and closing of the doors, or a friend who passes by very often.

An additional advantage is to find countries with a favorable legislation for foreign landlords (Belgium tax free, for instance).

20.12.15

What has happened this year? Nothing

This post is going to be brief and visual. After so much talking about inflation, deflation, QE, interest rates..., during this year the markets show no movement: S&P is slightly down, German DAX slightly up, and EUR/USD down with a strong dollar, we are not so sure it is going to last. The EURUSD started 2015 around 1.21 and now it trades around 1.09. From a European or American investor 's point of view, it almost hasn't mattered to have invested in Europe or USA (losing in the stocks while winning with the dollar). Here you can see the charts:

SPY (ETF which tracks S&P 500)

DAX 30