Save The World?

Leo Kolivakis's picture

Via Pension Pulse.

It was a gorgeous day in Montreal so I spent the afternoon swimming and
tanning while listening to my tunes. But I did manage to hook up with a
buddy of mine who flew in to close the sale of his house and visit
friends.

My buddy is smart and has extensive operational experience
across manufacturing and the financial industry, most recently managing a
major infrastructure project in Greece which went sour following the
crisis. He has been extremely negative on Greece over the last three
years to the point where he got on my nerves several times. But in the
end he was right, Greece is a basket case and the bailout won't work.

Below,
I'll share with you topics from our interesting conversation on
blogging, bankers and regulation, BRICs, deflation, oil, Greece, the
Greek bailout, ratings agencies, Canada, and lots more:

  • On blogging:
    We began by discussing some of my recent posts. My buddy detected "lots
    of anger" in them and told me that I can be more effective by making my
    points "more subtly." He added: "I don't care about the Caisse or PSP,
    but you don't need to be venomous and you won't change the way they
    conduct business. What are you trying to get out of this?" Told him that
    I've said everything I've had to say about the Caisse and SARA Fund,
    will try to be more constructive, giving these pension funds the
    "benefit of the doubt," but I'm flabbergasted when senior public pension
    fund managers tell me "they're only accountable to their depositors and
    not the public." That just doesn't sit well with me and one of the
    reasons I started this blog was because I got fired October 2006 after predicting the
    2008 credit crisis for being "too negative" and wanted to sound the
    alarm on the pension crisis. So, to all pension funds, I'm going to
    remain fair and professional, but don't expect me to only send flowers
    your way.
  • On bankers and the need for regulation: My
    buddy is a lot more hopeful than I am that regulation will finally hit
    Wall street hard. He said that senior management at BNP Paribas and
    SocGen was quietly changed following the 2008 crisis and "it's only a
    matter of time before the guys in Wall Street get their due. They gotten
    away with shenanigans long enough." His former boss once told him the
    story about bankers who went to see Louis the XIV to tell him France was
    bankrupt and he couldn't save it. "The bankers all got the guillotine." I
    remain skeptical that better financial regulation is on its way and
    told my buddy: "they had the perfect opportunity to introduce meaningful
    reforms following the crisis and as usual, they pandered to the bankers
    and bungled it up."
  • On BRICs:
    We didn't go over all the BRICs (Brazil, Russia, China, India, and
    China) but we spoke at length about China. Just like Paul Beattie, who
    thinks phosphate will be Canada's next Potash,
    my buddy agrees China will continue to grow exponentially in the coming
    decades. "Unlike Russia which got its freedom and is now effectively a
    lawless country run by mafiosos and oligarchs, or India where class
    warfare is getting worse, the Chinese model is focusing on developing
    the middle class and slowly nurturing in democracy. China is still a
    communist country with a huge military, but their leaders know what
    they're doing and won't repeat the mistakes of Russia or India."
  • On oil, interest rates, and the risk of deflation: While
    my buddy agrees with Paul Beattie that China will continue to grow
    strongly over the next decades, he isn't sold on higher oil prices or
    higher interest rates: "It's not about supply and demand. The Saudis
    created the 82 recession, they're not going to repeat the same mistake.
    In Greece, right after the government foolishly introduced the petrol
    tax, our revenues on the highway project plummeted because people
    stopped driving. People will adapt to higher oil prices and that's why I
    don't buy that oil will skyrocket or that interest rates are heading
    higher. The real danger remains deflation."
  • On the next financial crisis:
    While my buddy is bullish on China and relatively bullish on Canada
    (see below), he sees the next crisis and thinks "it will be much worse
    than 2008." he added: "In the past, we had a hit to incomes, in the last
    crisis, a hit to balance sheets, the next one will be a hit to both
    incomes and balance sheets. It won't be a Depression but it's going to
    be ugly, especially in Greece."
  • On the Greek tragedy: My buddy wasn't surprised that the Greek government passed the austerity bill following the showdown at Syntagma.
    He said things will calm down over the summer but get much worse next
    winter: "Unemployed Athenians will flock to the islands desperately
    seeking any job related to tourism, they'll party, drink up, get laid,
    but once the summer is over, they'll return to Athens and realize that
    reality bites. Once winter sets in and the weather gets worse, emotions
    will boil over again in March." I asked him what was the government
    suppose to do, not pass the bill and set Greece back 100 years? His
    response: "Well now they set Greece back 5,000 years and only prolonging
    the agony. If Papandreou had any sense, and did the right thing for the
    country and the people, he would have just defaulted, gone
    back to the drachma and let the German and French banks take a
    substantial haircut (others agree, Greece should default). Instead, he signed a deal with the French, the
    Germans followed, but Greece is worse off and they will realize that
    they will never balance the budget with severe austerity measures. It's a
    fucking disaster and it will only get worse. Partisan politics
    destroyed Greece. I think Greeks will castrate all the Greek politicians
    who raped and pillaged the country over the last decades. They came
    close to it last week and next time they'll succeed."
  • On the real reason behind the Greek bailout:
    My buddy thinks the real reason behind the Greek bailout was to buy
    time for French and German banks to clean up their balance sheets.
    "They're worried about what comes after Greece, Portugal or Spain? This
    thing can easily spiral out of control." Moreover, he added: "I suspect
    that French and German pension funds are loaded up with Greek CDS, and
    this is the real reason behind the bailout."
  • On the incompetence and fraudulent activities of ratings agencies:
    My buddy and I agree on this point, ratings agencies are a joke. He
    didn't mince his words: "They should be shut down. Period. They're
    grossly incompetent and the timing of their announcements tells me
    they're in cahoots with Wall Street and hedge funds. In your last post
    you said Ed Clark, President and CEO of TD Bank is one of the smartest
    people in the Canadian financial industry. Want to know why? He doesn't
    trust ratings agencies and has his bankers do their own due diligence
    rating paper, which is why TD didn't touch ABCP." It looks like the
    ratings agencies are up to no good again, trying to wreck the Greek rescue.
  • On Canada and Canadian politics: My
    buddy thinks Canada is "selling its resources cheap" and that the
    current taxes benefit Alberta but not the rest of Canada. "Alberta
    should understand more than anyone about interprovincial transfers." As
    far as Prime Minister Harper is concerned, my buddy thinks "he's
    basically a dictator and the country is split under his leadership
    because of the effects of partisan politics." I wrote an open letter to our PM
    criticizing central control, but also praising him on some initiatives.
    As far as Vancouver real estate, my buddy thinks it will continue going
    higher but sections are becoming "ghettos of Chinese." I asked him if
    he'd like to come back to Quebec, and he said "yes but there are too
    many vowels in my name." I shared with him the time I went to interview
    for a job at Hydro Quebec and the manager showed me an org chart of his
    team and told me: "you see, I got no ethnics working for me." I told
    him: "thanks for wasting my time, this interview is over." (Quebec's
    institutions have done the bare minimum at integrating minorities at all
    levels, it's truly scandalous!)
  • On asset gatherers vs money managers:
    I told my buddy that I couldn't believe Eric Sprott's fund is now at
    $10 billion. He told me he's not surprised: "These big funds have an
    army of salespeople, they're basically marketing machines. Same thing
    happened to Altamira and Frank Mersh. That's why I don't believe in
    alpha in money management and think most hedge funds are poor
    performers. I have a lot more respect for a guy like Tim Barakett of
    Atticus who shut his fund down
    once his model didn't work anymore and realized he wasn't going to
    deliver alpha than large asset gatherers who focus on collecting management
    fees, so he returned the money to investors." Can't argue with him there but mutual funds are even worse.
  • On my horoscope: I
    downloaded this horoscope app on my BlackBerry a while back (don't ask!)
    and been sort of hooked on it, mostly to entertain myself. Today's horo
    reads: "You have proven someone wrong, Taurus. Someone in your life has
    repeatedly claimed that some interest of yours - a goal, a love
    relationship, or some important personal pursuit - would not last. And
    yet it has. But whatever it is, you
    need to examine whether it has lasted because it is truly close to your
    heart and a source of passion for you - or you have maintained it
    simply to prove someone else wrong.
    You don't like it when
    others claim to know more about you than you know about yourself - most
    people don't of course. But you take it more personally. Assess what
    has lasted, and decide if it should continue or not - but for the right
    reasons."

What does my horoscope have to do with saving the
world? What does any of this have to do with saving the world? Beats me,
but I'm hooked on this song from Swedish House Mafia, Save the World
(see video below), and maybe it will come to me tonight as I drink it up
with my buddies and enjoy the rest of this beautiful day. In the
meantime, enjoy the rest of your weekend, and let's all do our part,
however small, to save this world. It's the only one we got and the only one we'll leave to future generations (after watching 60 Minutes, I recommend you donate to The Global Medical Relief Fund).