EIIB…Ex-Bank – Love It!

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Arab Spring, asset managers, AUM, banks, de-leveraging, DiamondCorp, EIIB, European Islamic Investment Bank, frontier markets, GCC countries, HBG Holdings, inflation, Islamic finance, John Burbank, MENA, NAV discount, oil, Rasmala Holdings, real assets, Saudi Arabia, Sharia'a, TBTF, Zak Hydari

I have a long-standing aversion to banks. To me, they represent the perfect collision of two really bad ideas:

i) Regular investment in bonds & loans – a strategy offering little prospect of capital gain, but which will (quite often) attempt to wipe out your capital. And the paltry yield you earn offers little compensation. I’ve never understood how people ever find this ridiculously biased risk/reward proposition attractive.

ii) The answer lies in leverage, I guess… Another terrible idea, but this is the incredible solution people usually seize upon to juice low returns. And it usually works just long enough for everybody to forget how savagely leverage can impact liquidity & solvency, when things take an inevitable turn for the worse.

Banks, of course, take this bad marriage to its ultimate & ludicrous extremity. [And require even more leverage to overcome the drag of their cost:income ratios]. But consider the private & public incentives – why wouldn’t they?! When times are good, leverage multiplies profits…which multiplies bonuses! And leverage makes it far easier to reach that ideal bank status: TBTF, where the taxpayer’s forced to pay for your mistakes (& bonuses).

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Fastnet – What’s the Forecast?

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2P Reserves, Aventine Resources, Bruce Rowan, bubbles, Cathal Friel, Cove Energy, FAST, Fastnet Oil & Gas, Independent Resources, Island Oil & Gas, John Craven, Jubilee Field, junior resource stocks, Kosmos Energy, Michael Nolan, Minco, Minmet, Mizzen Basin, Molly Malone Basin, oil, Oisin Fanning, Orogen Gold, Paul Griffiths, Petroceltic, prospective resources, Raglan Capital, Rathdowney Resources, San Leon Energy, shipping forecast, short sellers, shorting, Sterling Green Group, Terra Energy, TGISVP, Tiger Resource Finance, US Oil & Gas, USOP, value investing

I eyed up US Oil & Gas (USOP) here (‘I swear, yer ‘onor, I wuz just looking…I nevah touched ‘er!‘), and promised to return to Fastnet Oil & Gas (FAST:LN)… Ooh er, collywobbles – what’s he going to say about this one? Well, I really don’t know, we’ll just have to see where this post takes us – a reminder I never have an agenda when taking a first look at a company. My only wish is to find an undervalued & interesting company, regardless of sector or business. That, to me, is sheer bliss..! On the other hand, finding a ridiculously overvalued company is simply a fascinating glimpse of (in?) humanity. Because shorting such a stock would be all too rare for me.

And no, I don’t think shorting stocks is the inverse of good (value) investing. In fact, I can’t emphasize that enough! I believe there are v few investors with the aptitude & fortitude to regularly short stocks successfully. And there’s whole other dimensions to that skill, anyway – as I’ve noted about overvalued stocks:

‘…there’s always a chance, on their journey to oblivion, that they’ll bubble higher & longer than you might ever expect. After all, you can’t analyze irrationality, and you certainly can’t analyze stupidity…’

Right, back to the job at hand: Aah, Fastnet… That really conjures up childhood memories of the shipping forecast. ‘Specially on a stormy night. It’s amazing the drama one could wring from such rigid & clipped broadcasts. Comfortably sprawled in front of a blazing fire – half asleep before bed-time… Drifting away to the cadence of the names – Fastnet, Malin Head, Dogger. Thoughts of far-off barren rocks, mournful lighthouse flashes, giant crashing waves, and lonely fishing boats adrift in the black night, were sure to send a delicious thrill down one’s spine. Seems I’m not the only one who fell under this spell – just take a look here: ‘Influences on Popular Culture’. Here’s another fond tribute... And finally, here’s a marvelous Economist piece on the Fastnet lighthouse.

Hitting The Century (VII – Natural Resources)

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agri-business, BP, bubbles, correlation, garbage stocks, gold, Howard Marks, idiots, inflation, junior resource stocks, miners, natural resource stocks, oil, Petroneft Resources, QE, quantitative easing, Richland Resources, silver, Statoil, Total

In my recent Inflation post, I elaborated on my conclusion that, contrary to widespread (and my prior) opinion, inflation was likely to prove a fairly distant threat. Despite the smoke rising from the bloody printing presses… And despite the Fed since confirming their long-expected QE III – or should I say: QE Forever, QE Infinity, QE God Fucking Save Us… Take your pick! You know, the mind boggles – how/why on earth does the Fed confidently expect Agency MBS purchases to smoothly flow through into improved labour conditions?!

No real need to revisit my post, just read Howard Marks’ latest instead, which came out a few days later. In his memo, he covers much of the same ground – probably in a far better & more relentless manner… [And apologies if I ramble on: Remember, with this series, my intention isn’t to necessarily write about specific stocks here, old or new. Rather it’s to give you some deeper insight into the thoughts, logic and pros & cons underlying each of my allocations].

Bullish on Oil? – Another Way to Play

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Adam Smith, Brent-WTI spread, daily oil consumption, Guggenheim Solar ETF, Investcorp, oil, Qatar Investment Fund, recycling petrodollars, sukuk

I’m a long term bull on oil, and consider $70-75 as pretty much the lower bound on prices, coupled with frequent and ultimately sustained price spikes above $100. I see WTI at $98.99 right now, and it looks like it’s finally ready for another $100 break. This will probably further narrow the current $15.17 Brent-WTI spread. You know, I generally believe in the mean reversion of historical spreads and correlations, but the mind boggles at the history of this spread! For 10 years the spread averaged zero, with about +/- $5 of noise, and then it exploded in 2011! I shudder to think how much money has been lost playing against this spread – a real lesson in risk control – I’m convinced we’ll see the spread back to zero, but if you were in a trade like this would you bail out when the spread blew through, say, a $10 stop loss to avoid further pain, or grit your teeth and attempt to remain solvent through a $27+ peak?