IceCap Asset Management: "The Queen"

Tyler Durden's picture

From IceCap Asset Management, January 2013

The Queen

She adores hats. She is always very polite and respectful of others. She waves to everyone, and consistently avoids conflict. She is a lady; she is The Queen.

Without a doubt, Queen Elizabeth lives a life quite unlike everyone else in the World – after all, royalty does have its privileges. Yet, when it comes to investing, the Queen is swimming in the same pool of stock market sharks as us common people.

Like everyone else, she pours through her quarterly statements to see how she’s fared. And like everyone else, she loves to make money and simply deplores negative returns.

It was rumored that the 2008 crisis hit her particularly hard – over USD 40 million in stock market losses. This experience must have jilted something, as when The Queen was visiting the esteemed London School of Economics she asked the professor a rather “un-queen” like question – why did economists fail to predict the biggest global recession since the Great Depression?

Speaking on behalf of economists, investment managers and mutual fund sales people everywhere, the professor responded that “at every stage, someone was relying on somebody else and everyone thought they were doing the right thing.“ In short, no one could have predicted the 2008 crash.

Meanwhile, in the parallel universe called America, Ben Bernanke was selling everyone the exact same story.

February 15, 2006. “Our expectation is that the decline in activity or the slowing in activity will be moderate; that house prices will probably continue to rise but not at the same pace that they had been rising.”

– America housing prices would eventually decline by up to 50%.

March 28, 2007. “At this juncture, however,” he testified, “the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained.”

- The subprime housing market wasn’t contained, in fact it collapsed. January 10, 2008. “The Federal Reserve is not currently forecasting a recession,” - The 2008-09 recession was so severe, it was called the Great Recession.

If the famed London School of Economics and the Chairman and full committee of the US Federal Reserve were unable to predict the crisis, what hope does the World have with predicting future crisis's?

In actual truth, and despite claims by the US Federal Reserve and the London School of Economics, many people accurately predicted the collapse of the US housing market and the subsequent collapse of the stock market.

In fact, using the exact same data points as the US Federal Reserve, these brave people concluded that nothing good would come out of the misguided policies at the time and actually put their money where their mouth was.

One such famed investor was Michael Burry of Scion Capital. Featured by author Michael Lewis in his book “The Big Short,” Mr. Burry spoke how despite being 100% correct about the market crash and making millions in profits for his clients – they actually despised him.

Now, we’ve never met Mr. Burry, but he seems like a nice enough fella. His educational achievements are certainly top notch, and his penchant for removing subjectiveness from his analysis should be the goal for every investment manager. Yet, just as Shakespeare burdened his protagonists as tragic heroes, so too had Mr. Burry’s clients.

His crime: he wasn’t an optimist. This lack of bullish thinking certainly had no place in the investment World. After all, from 1982 to 1999 the stock market always increased by double-digits. Yes, stock markets did experience a mild case of an upset stomach from 2000 to 2002, but this was merely an exception.

Bullish thinking was so prevalent during that time that the once-mighty Merrill Lynch splashed the airwaves with their ever un-prescient “be bullish” mantra every chance they could.

Today of course, the mighty Merrill Lynch is no longer mighty – yet the inherent bullish bias still lives in the investment industry.

Big banks are once again hypnotizing their clients to buy the dip, while universities continue to shape their student’s heads to nicely fit the round holes offered by the industry at graduation time.

Fortunately, it doesn’t have to be that way. Accepting, understanding, and embracing the fact that today there are plenty of investment professionals who are willing to view the World objectively should be comforting.

At the same time, those dark days of 2008 seem like a lifetime ago. Perhaps it was a bad dream. Perhaps it never did happen. And perhaps the fuss about Europe’s debt, Britain’s triple dip recession, America’s debt ceiling and Japan’s 20 year recession is just that – a fuss.

Most investors today do not realize that many investment firms are simply not structured to:

a) anticipate a significant market decline, and

b) position client portfolios in anticipation of a significant stock market decline.

One would think that both options would be an integral component of any investment management process – yet it isn’t. Instead, most firms are built to do two entirely different things:

a) gather new assets ie. new clients

b) remain invested at all times ie. never anticipate anything

There are many things you are not told about the investment business. For starters, it is a billion dollar fee bonanza – it is well known that stock brokers and advisors routinely pay more attention to their compensation grid and trailer fees than client performance.

Next, there are many untruths bouncing around – all with the sole objective to sell you more investments. One such untruth, is that if you miss the 10 best days of the year, your return will be significantly less – therefore do not try to time the market and stay invested at all times.

Well, the corollary is also true – if you miss out on the worst 10 days of the year, you’ll be considerably better off as well. When was the last time your advisor mentioned this?

Our favourite axiom is that according to the nice fellas at Ibbotson Research, since 1926, the long-term stock market return is about 10%. Therefore stay invested long-term and the bounces will flatten out – enjoy the ride.

What the Ibbotson folks didn’t mention, was that if their little calculation started a few years earlier or later – the average return is reduced to about 7%.

At first glance, the relative difference between 7% and 10% may not appear to be that significant. However, to see the real difference, just ask your financial planner to show you the hypothetical growth of your investments with these two different returns. The difference is significant.

How can such a difference in long-term return expectations exist? We’re still viewing 80-100 years of stock market returns which is easily long enough to meet anyone’s definition of long-term. Yet the difference is startling and the difference likely hasn’t been explained in your quarterly mutual fund statement.

The answer? It just so happens that the key driver of stock market returns is the PE ratio. Yes, IceCap has droned on about stock market returns and PE ratios before. The reason we mention it again is due to the message falling on deaf ears. This is important stuff here. Investment professionals, media and the investing public all want to desperately believe that all you need for stocks to rise is earnings growth. We tell you that is simply not true.

Dividends, interest rates and inflation combined are way more important than precious earnings growth. In general, a rising stock market has declining dividend yields, declining interest rates, and a steady improvement in inflation.

Today, dividend yields can’t go much lower, interest rates can’t go any lower, and inflation is in a nirvana-like state. All of these factors directly influence the oft-misunderstood PE ratio. Ignoring the mathematical computations, all one needs to know is that when the PE ratio is increasing – stocks are sure to follow. And, as one would expect, the opposite is true as well.

* * *

More in the full report (pdf):

Ice Cap The Queen by zerohedge

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brockhardman's picture

"Why did economists fail to predict the biggest global recession since the Great Depression?" - they didn't.  You just chose not to listen to real economists retard.

Eireann go Brach's picture

Dear America,

How fucking stupid can you be? You leave the same guy in charge of the Fed who was also in charge when stock prices and real estate fell 50% just 4 years ago, and to boot you let him print to infinity this time around! You deserve exactly what is coming to you, as the same sheep are being led back into the slaughter house via the "great rotation" into stocks and real estate again!


Everyone at Davos

disabledvet's picture

Again "the title of the book is called The Big SHORT." Not everyone was surprised....nor incapable of doing something about the collapse that they saw coming. (For who are the Tylers Durden other than a bunch of folks who could see this thing coming a mile...the best i could do was making a convincing a case for selling Citigroup because i was decried as a lunatic for thinking this was going to be a market event) The question therefore is not how come so many people were so dumb but HOW DID THE MEDIA PRESENT THE CASE THAT THIS WAS NOT AN EVENT TO BE WORRIED ABOUT...FOR YOU AND ME. And indeed did they ever present the case "that all is well." Remember...JOHN Paulson who CLEARED 5 BILLION DOLLARS during the crisis made even MORE money betting on recovery. And as Jim Cramer said "he's really just a nobody." REALLY? CARE TO REVISE AND EXTEND YOUR REMARKS ON THAT ONE? Cuz i'd really like to know WHO THE SOMEBODY'S ARE. Remember on inside information is illegal...which is Wall Street code for IF YOU'RE NOT DOING IT YOU'RE OUT OF A JOB. This was the most TELEGRAPHED collapse in history...not even THE ARCHITECT (Alan Greenspan) STILL thinks he did anything wrong. yet here's a guy who's married to an NBC journalist (Ms. Mitchel) and he STILL can't come on the television or have here issued a prepared statement saying "exactly why he knew he'd get away with this scot free." And believe...that part has NOTHING to do with the economics profession."

ihedgemyhedges's picture

WE did not leave Bernanke in charge.  THEY did.

Sincerely, one of the bottom 99.99%ers.

Ricky Bobby's picture

ihedge Totally agree. The Potemkin election was held on November 6th while the real voting has been taking place at the local gun store.

DoChenRollingBearing's picture

And the real voting is still going on.  Vote early, vote often!

Voting is also going on at the shops where you can buy gold.

Pure Evil's picture

I don't get it, the Queen asks the top idiots at the London School of Economics why they couldn't forsee the collapse?

She should have been asking her portfolio managers where her 40 million went right before they squeezed their heads in a vice.

old naughty's picture

And then they hired a Canadian to run the BoE.

espirit's picture

But it's still the same old Thatcherite School of Economic Decline they subscribe to.  Pre-dictable-Crime.

Anusocracy's picture

Wrong type of brain. Some are objective, some rely on confirmation bias.


Brain imaging reveals why we remain optimistic in the face of reality


For some people, the glass is always half full. Even when a football fan's team has lost ten matches in a row, he might still be convinced his team can reverse its run of bad luck. So why, in the face of clear evidence to suggest to the contrary, do some people remain so optimistic about the future?

In a study published today in Nature Neuroscience, researchers at the Wellcome Trust Centre for Neuroimaging at UCL (University College London) show that people who are very optimistic about the outcome of events tend to learn only from information that reinforces their rose-tinted view of the world. This is related to 'faulty' function of their frontal lobes.

People's predictions of the future are often unrealistically optimistic. A problem that has puzzled scientists for decades is why human optimism is so pervasive, when reality continuously confronts us with information that challenges these biased beliefs.

"Seeing the glass as half full rather than half empty can be a positive thing – it can lower stress and anxiety and be good for our health and well-being," explains Dr Tali Sharot. "But it can also mean that we are less likely to take precautionary action, such as practising safe sex or saving for retirement. So why don't we learn from cautionary information?"

In this new study, Dr Sharot and Professor Ray Dolan from the Wellcome Trust Centre for Neuroimaging, together with Christoph Korn from the Berlin School of Mind and Brain have shown that our failure to alter optimistic predictions when presented with conflicting information is due to errors in how we process the information in our brains.

Nineteen volunteers were presented with a series of negative life events, such as car theft or Parkinson's disease, whilst lying in a functional magnetic resonance imaging (fMRI) scanner, which measures activity in the brain. They were asked to estimate the probability that this event would happen to them in the future. After a short pause, the volunteers were told the average probability of this event to occur. In total, the participants saw eighty such events.

After the scanning sessions, the participants were asked once again to estimate the probability of each event occurring to them. They were also asked to fill in a questionnaire measuring their level of optimism.

The researchers found that people did, in fact, update their estimates based on the information given, but only if the information was better than expected. For example if they had predicted that their likelihood of suffering from cancer was 40%, but the average likelihood was 30%, they might adjust their estimate to 32%. If the information was worse than expected – for example, if they had estimated 10% – then they tended to adjust their estimate much less, as if ignoring the data.

The results of the brain scans suggested why this might be the case. All participants showed increased activity in the frontal lobes of the brain when the information given was better than expected, this activity actively processed the information to recalculate an estimate. However, when the information was worse than estimated, the more optimistic a participant was (according to the personality questionnaire), the less efficiently activity in these frontal regions coded for it, suggesting they were disregarding the evidence presented to them.

Dr Sharot adds: "Our study suggests that we pick and choose the information that we listen to. The more optimistic we are, the less likely we are to be influenced by negative information about the future. This can have benefits for our mental health, but there are obvious downsides. Many experts believe the financial crisis in 2008 was precipitated by analysts overestimating the performance of their assets even in the face of clear evidence to the contrary."

'Understanding the brain' is one of the Wellcome Trust's key strategic challenges. At the Wellcome Trust Centre for Neuroimaging, clinicians and scientists study higher cognitive function to understand how thought and perception arise from brain activity, and how such processes break down in neurological and psychiatric disease.

Commenting on the study, Dr John Williams, Head of Neuroscience and Mental Health at the Wellcome Trust, said: "Being optimistic must clearly have some benefits, but is it always helpful and why do some people have a less rosy outlook on life? Understanding how some people always manage to remain optimistic could provide useful insights into (what) happens when our brains do not function properly."

Optimusprime's picture

"Safe sex".  The ass's ears of the postmodern "scientific" outlook.  There is no such thing as "safe sex".  Sex isn't "safe".  It is many things, but only a monster or a moron would see it as EVER "safe".

All Risk No Reward's picture

Your worldly paradigm is false.

America has been hijacked by Big Finance Capital interests.

Europe has been hijacked by Big Finance Capital interests

Newsflash - Bernanke is a chump.  Do you really think a guy making a few hundred thousand a year is independently controlling the world's reserve currency?

"How stupid can we be" is exactly right. 

Big Finance Capital is running the show.  They are smarter than you.  They've done more Machiavellian research into how to manipulate you in a day than you and everyone you know will do in a life time.

The only two categories that matter are the "money definer and creator" class and "everyone else" class.

Oh, the bankster Vichy Media didn't spoon feed that Veritas to you?

Why would they, it is counter to their self interest to finance someone to expose their Art of War methodologies.

People just don't understand systems.  They hyperfocus on meaningless personalities and that is a key strategy of the "New World Order" - which ain't new, people.

It is the same old oligarchical dictatorship of the masses they had in place before the barons of Runnymede got all uppity.

Turn down the tyranny, repackage it, drug everyone up, get people to love the destruction of their liberties, get people to oggle their masters in an orgy of Stockholm Syndrome...  well soften them up and then take them out.

They won't see it coming, they will be too busy infighting amongst themselves.

Wait until they drop the modern version of the "small pox blanket" on the modern day "injuns" (that's you and I, BTW).

Again, Debt Money Tyranny is run by Debt Money Tyrants...  it is all a fraud, all a con.

PS - The Davos crowd are Big Finance Capital minions.  They ultimately report to Bernanke's bosses as well.

"It's a big club and you ain't in it." George Carlin

"The Debt Star will be completed on schedule."

The irony is that the victims of the Debt Star that will destory them...  ARE PAYING TO BUILD IT!

And the sheeple think these people who own them lock, stock and barrel are stupid.

Wow.  Just wow.

Unless people shed their coat of galactic gullibility and soon, we are doomed.

And when most are in the street starving, they will probably still have no idea what hit them.

Death and Gravity's picture

The Miseans warned against the easy money policies for a decade. The Georgists warned against the land-bubble-investment-cum MBS's for ... more or less for a century. We've had Taleb, Roubini, marc Faber, Fred Harrison, Fred Foldvary warn for years. Yet, they're only listened to by the few.


Guess what? Cease listening to the sweet-talkers if you want to be warned about unsustainable progressions.

Acet's picture

Because it's all about appearence, connections and salesmanship.

Everybody was paying attention to the guys with the sharpest suits and/or fancier talk and/or the right friends. You know the type: fake Nobel prize winner (there is no such thing as a Prize set by Alfred Nobel for Economics, there is only a "Prize for Economics in Honor of Alfred Nobel" set by the Swedish Central Bank), big friends with the parasitical wealthy and with politicians (always defends what's best for his friends), always suited.

Meanwhile, some less flashy, less ethically-challenged, less media-savy,less of a salesman and yet far brigher financeer or economist was making study after study showing how the make-believe economy we had was going to colapse sooner or later.

I blame it on the values of our society: consider how nowadays wealth by itself and on its own is a coveted and respected mark of success while nobody actually asks how that wealth was gotten. There used to be a time when the character of a man was as much or more important that the possessions he had. Not anymore: nowadays, our "heroes" are the sociopaths.


Acet's picture

<--- Top Picure of the Year (so far)

<--- I've seen better


Pure Evil's picture

<-- I've seen worse

<-- I gnawed my arm off to get away from that fat uggo

Silver Bug's picture

Correct, if you listened to people like Peter Schiff and Marc Faber. Then you knew it was coming. The Queen is part of the power elite. I would say she knows that true money is in gold and silver, she is safely positioned I would say.


Keep Calm and Slave On, must see Queen coin.

TBT or not TBT's picture

Easy, economists are people with Masters and PhD, and therefore are beholden to university culture, which is besotted with statism and central planning.  

Statism and central planning generally speaking brought about the Wylie Coyote moment of 2008, but those intimately involved in creating these conditions were beholden to statism and central planning, with a near religious level of faith.  

There was obviously no need to look down a la Wylie Coyote, because there could be no chasm.



reader2010's picture

The Queen: Where are my gold bricks?

Atomizer's picture

Just ask Gordon Brown on the whereabouts.

GetZeeGold's picture



Don't bother asking Germany....they're not going to have any for a while.

bigbwana's picture

Google Chrisspivey and be prepared to be shocked, and disgusted, about the 'royal' family!

Oldwood's picture

Yes, by all means never speak negatively about the markets because the only thing that keeps a ponzi alive is fresh money. And as long as everyone acts as if losses are unpredictable, then they maintain a plausible deniability. Who could a known?

vote_libertarian_party's picture

Some people DID see the train wreck coming.  I made a nice profit.  I'm seeing it again...only bigger.  I got my positions and I'm waiting.


My leading hunch of what causes the next crash is all those people that bought into bond funds will start cutting off their losses when rates start creeping up soon.  3 months...6 months???  It'll be soon.

css1971's picture

Bonds are supported by invincible pillars, with central bank buying there's no reason for them ever to come down again. The currencies will suffer first, so it won't be till import prices push up inflation rates that bondholders start taking real losses.

Watch the currencies for that.

Martin Silenus's picture

We are not a-fucking-mused!

knukles's picture

Fantastic mental image of the Queeniebeanie in the BoE gold vault, picking up a 440 one handed, smashing it down as hard as Jack La Lane in his prime and screaming that at the top of her lungs, storming about demanding the bar list, bellowing at Sir Mervin the Twit that "My shit best be bloody well segregated separately or off with you nuts!" with a whole buncha a scary Beefeaters scurrying, their pikes with freshly separated human heads appended, pitch torches alight and an executioner, black hooded and all with a bunch of midgets in gimp suits dragging the chopping block behind...

Nothing like the fucking good olde days.

Inthemix96's picture

It would be an awfull shame if some of the Queens new British residents imported by the war criminal tony B.Liar found it upon themselves after being allowed here with their unusual customs and practices which normal Brits dont persue, that they got in a bit of a paddy and hung the lot of them, from lamposts, on live TV.

And of course, the famous BBC wouldnt even call it a crime as over here as demonstrated yesterday that ethnic minoritys dont commit crime when their faith is the reason they commit crime.  (A man was found not guilty of raping a 13 year old girl because his "Elders" had made it clear that in the good book, women were less than a used lollypop discarded on the ground)

So when the new "Interlopers", take over fully here which wont be fucking long the Queen can be over the fucking moon that her new "Subjects" can leave her swinging in diversity.

The fucking cunts.

shovelhead's picture

You guys really need to get a handle on all those crazy Buddhists running around the Ould Sod.

The news always describe the crimes as committed by 'Asians'.

You should stick them in universities like we do in the USA.

They do very well in that environment. Much less crime.

Whiner's picture

You have no guns, Serf, so shut up and eat your peas.

gould&#039;s fisker's picture

It must remain a mystery how these bad things happen and beyond human comprehension. 

On a happier note, Monte Paschi is looking for new investors:  "I would like to have a long-term financial investor," Alessandro Profumo told Italian business daily Il Sole 24 Ore in an interview published on Sunday. "Nationality is not a problem. The important thing is that it believes in our project".

So, joy, everybody is welcome, any takers?--the Italian gov has chipped in nearly 4 billion euros already, it's not like they had to.


tradewithdave's picture

The new Huffington Post Goldman Sachs global hunger solution for entrepreneurs. It's not Swiss Chocolate, but just keep telling yourself "Snickers Satisfies."

kato's picture

To 'Writer': It is rather horrible writing style to use single sentences as paragraphs, especially repeatedly. Get your thoughts together and write a draft prior to putting out a fianl draft. And cut, cut, cut, cut. What is your real point? - Anyone can say 'what goes up must come down.' A drivel piece. D-

Atomizer's picture

Sounds like you work for the New York Times. What’s the matter? The unemployment prospect has got you down?

'New York Times' 2013 buyouts and layoffs watch


Let’s see if you can grammatically dodge the pink slip bullet.

awakening's picture



Clock off from the editing job, read the content on this website and maybe you'll learn something.

Svendblaaskaeg's picture

"..  She waves to everyone.."

waves with how many fingers? - as a Dane I find this very strange, yes Denmark is a kingdom and we have our own Queen and pay her expences, but this???

Queen's £38m a year offshore windfarm windfall - because she owns the seabed 

Prince to profit from his support for green energy
Lucrative deal is a 'masterstroke' for Palace aide
Revenue already soaring by 44 per cent a year

toady's picture

I love the whole 'nobody could have seen it coming' fairy tale. I saw it coming and so did my friends and family.

It must be a blind spot that only the 'MASTERS OF THE UNIVERSE' catch in law school.

When home prices double in only a few years SOMETHING IS WRONG. If you have houses, sell the questionable ones and keep the best one to live in. I kept a couple of nice ones and sold all the shithole rentals.

Home equity loans! HA! No such thing. The only way to get home equity is to cash out.

All my friends and family that were in position did the same. Nobody could have seen it coming ... right ...

Popo's picture

Exactly.  Not only did I see it coming, I rode out the nail-biter of a ride in SKF for months before it paid off.   The entire friggin' blogosphere saw it coming.   

Back then I was a regular reader of The Housing Bubble Blog and  There were thousands of readers there who also saw it coming.


Seasmoke's picture

i take it you did not do any REVERSE mortgages......



toady's picture

Those things are crazy, right? Paying interest to a bank on an asset you own? Some of my older relatives were thinking about it and asked me to check them out.

Fortunately, the houses they had were not their primary residences, so I was able to explain how an out-right sale was a better idea.

e_goldstein's picture

Nobody saw it coming (except Ron Paul).

Michelle's picture

Plenty of people, economists included, predicted financial collapse. Just goes to show who one needs to listen to and trust.

Makes one wonder about Soros' involvement by recalling his statement after the crisis he remarked "culmination of my life's work." Makes one go hmmm.

Monedas's picture

Socialists are so predictable .... they will always protect government intervention .... which is central to their world view ! The focus of evil is organized government theft .... that is sacred territory .... the sine qua non of the government hole lickers .... theft and force .... force and theft .... everything else is inmaterial !  

Chris88's picture

Thank God somebody can identify the real problem.