It’s Time For A High-Low Game…

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Alternative Asset Opportunities, baby boomers, consumer spending, cost advantage, discount shopping, economic moats, high-end, low-end, luxury goods, middle class, Millennials, pricing power, Yuppies

Following on from my last post, I’ve been keeping quiet, but busy… My short term objective of raising cash was achieved, in spades – while I continued to trim a couple of minor/legacy positions, I was pleasantly surprised by two corporate events in quick succession:

i) Alternative Asset Opportunities (TLI:LN) announced a sale of its portfolio (see here & here). Granted, the board announced preliminary discussions in June, but after the drip feed of bad news & near-incompetence in the last few years, I had little faith they’d manage a sale…let alone a good sale! [Despite TLI’s NAV discounting a constant cycle of LE re-evaluations & a 12% IRR]. But in the end, they actually sold the policies at an average 6% NAV premium.

With most of the consideration now in escrow & a successful EGM approval, the company will shortly propose a wind-up to yield an estimated GBP 54.4p per share capital return (reflecting a 1.2191 GBP/USD rate) for shareholders. Counting 4p of distributions, that’s actually a 50%+ return vs. my original write-up almost 4 years ago…not too shabby an outcome, notwithstanding the upside I initially anticipated (& well ahead of the naysayers’ dire predictions!). Since the shares still trade at a discount, I’m in no rush to sell here, and I’m unconcerned about further FX volatility as I already consider TLI part of my dollar ‘bucket’.

ii) A takeover offer was also announced for another of my holdings. In fact, it had actually evolved into my largest position (yes, ahead of Zamano..!), as a result of continued/incremental purchases & sustained price appreciation – it was my best-performing stock YTD – in the end, the offer was just icing on the cake! Unfortunately, I could never quite catch up with it, in terms of nailing down an investment write-up – yep, apologies, it was an undisclosed holding – and it contributes nada to my portfolio performance here on the blog.

But hey, who’s complaining..?! 😉

On assessing the specific circumstances of the deal, I subsequently sold out of my entire position (actually at a premium to the offer).

Totting up all of the above, my total cash allocation (inc. TLI as quasi-cash) recently maxed out at approx. 25% of my entire portfolio – since then, I couldn’t resist pulling the trigger on a new starter position. [How often do you encounter a company consistently growing revenue at a 21% CAGR for a decade & a half, trading on a sub-15 P/E, and sporting zero ifs & buts?!] Which is probably a good start…as the second part of my near term game plan, i.e. Sep/Oct market volatility, is showing little sign of playing out here (um, never say never!?). In the end, Yellen genuflected to the White House & the September Fed meeting passed without incident, the November meeting’s an obvious non-event, and Trump may finally have pressed the self-destruct button once too often.

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Baby Boomers…Yes, It’s All About Them!

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alternative assets, American Dream, austerity, baby boomers, consumerism, emerging markets, entitlement spending, fall of communism, frontier markets, globalisation, Japan, Me Generation, Millennials, USA

In my last post, I acknowledged logic tends to fly out the window in a market correction, and fear & greed take over the driving. My advice was to take a deep breath, just accept the fact we don’t always know what’s coming next, and to positively transform the compulsion to do something anything to relieve your market-induced stress. Because a correction’s a wonderful upgrade opportunity, a chance to (re)deploy your weaker portfolio holdings & cash into higher quality growth companies – those compounders you hardly ever get to buy. Happily, things look a little rosier now (a special thanks, Japan!), and hopefully we’re now heading into a traditional year-end rally…

Of course, long-term performance is the best reminder to always remain invested in the market. Unfortunately, fear & greed can quickly undermine such compelling logic. Companies face a similar issue – it takes a great leader to keep a company set on its long-term growth trajectory, despite all the setbacks it will obviously encounter. The idea great leaders are great storytellers is interesting in this context – it suggests numbers & analysis aren’t enough, people often require a compelling narrative to motivate & help them stay the course. In terms of the markets, the more you can interpret & understand the narrative of the past, the better equipped you will be to see the long-term narrative arc & how it might continue playing out in the future.

So, let me share some of my market narrative. Remember, it’s a story – it doesn’t require proof, and it won’t necessarily remain set in stone. [Accordingly: I’m sure I’ll include plenty of links, but I’ll try resist the temptation to jam this post full of graphs & figures]. You may nod your head, agree, and ponder the implications for your own portfolio – or you’ll replace it with your own narrative…and that’s good too. I’m going to focus on the US here: i) because it’s the growth-engine of the world, and ii) where the US goes, much of the world tends to follow. I’ll also focus on the Baby Boomers – because they bloody deserve the blame…for just about everything! [I promise you’ll hear this more & more in the years to come]:

The Boomers grew up to a constant refrain: A never-ending list of the immense sacrifices and hardships their parents & grandparents endured during World War II & the Great Depression before it. Quite a dose of survivor guilt to be saddled with… Except when they started to come of age in the ’60s, they looked ’round and saw they were actually living in the richest & most powerful country on earth. Hardship and sacrifice seemed like rather quaint & irrelevant concepts, while sexual & political liberation beckoned as a far more enjoyable way to embrace young adulthood. Unfortunately, just when getting a job, getting married, and having kids began to enter the equation, everything turned to shit…

So, Where’s The Bloody Inflation..?!

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baby boomers, banks, Bernanke, budget deficit, capital ratios, de-leveraging, debt monetization, Debt/GDP Ratio, ECB, Europe, European sovereign debt crisis, Fed, financial crisis, fiscal deficits, Flub-Med, GDP growth, Hunt brothers, income/dividend bubble, inflation, Japan, multiplier effect, Occupy Wall Street, politicians, quantitative easing, real assets, risk aversion, savings rate, stagflation, US, Volcker

I was beginning a new post in my recent Hitting the Century series (and here), and realized my next 3 investment allocations were to real assets – Natural Resources, Agri & Property. This v quickly got me thinking about inflation, enough to devote myself to this post instead:

Along the way, dear reader, you may have noticed my pronounced distaste for fiscal & monetary policy in the developed world. Particularly in the US... That’s not intended to be a US slap-down…and certainly not praise for Europe either! It’s simply a pretty inescapable conclusion if you compare the US & (the hard-core of) Europe over the past 4 decades. Jesus, I struggle to think of somebody with any real power in the US who truly gives a flying f**k about their accelerating debt burden, debt monetization, or the long-term external value of the dollar. In contrast, the ECB & certain Eurozone countries still actually exhibit a painful reluctance to take that road to monetary & fiscal oblivion – even in the face of a European sovereign debt crisis!

US Economy, Government Finances & Debt – The Final Gory Details (IV)

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% of GDP, average debt maturity, baby boomers, budget deficit, Debt/GDP Ratio, European sovereign debt crisi, fiscal cliff, fiscal deficits, Intragovernmental Holdings, Reinhart & Rogoff, Sell in May, Social Security, US Congress, US government finances, US government revenues, US government spending, US Treasury

Continued from here.

Apologies, readers. Deficits left me feeling a little nauseated, I had to take a little breather on this series! In my last post, I highlighted the 2010 total US budget deficit (ignore the primary deficit, it’s irrelevant) was a whopping 8.9% of GDP. In the past half-century, this is the 2nd largest deficit on record (2009 being the winner), but it’s in good company. Nine of every 10 years politicians have outspent revenues, and in 2009-12 the deficit’s expected to consistently exceed $1 trillion (and 7.5% of GDP). It’s no longer surprising how quickly politicians can turn the truly exceptional into the simply mundane…

I think I also sidestepped the quicksand of Republican vs. Democrat debate?! This debate, and their respective philosophies, seem utterly pointless when there’s no credible attempt to eliminate deficits – it’s just moving the deck chairs ’round the Titanic. And deficit rhetoric’s always presented as ‘spending cuts, no tax hikes‘, or vice versa. Such one-sided (and unworkable) solutions are ludicrous – the only sensible solution is a deficit elimination plan based equally on tax hikes & spending cuts.