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Globalization, The Decade Ahead, And Asymmetric Returns
It is not unusual for us to note the Knightian uncertainty that lies ahead of us (the unknown unknowns) and question the nth-decimal-place accuracy of VaR-based risk budgeting when the next long-only strategist suggests 90% allocation to high-dividend-US-Equities. In a quick and thought-provoking Q&A from the Swiss Private Bank Pictet, they see the world in a similarly non-normal manner and focus in one case on the growing tension that globalization has created between winners and losers. As the crisis of confidence spreads from asset class to asset class and from sovereign to financial entity to macro-economy and back in its viciously circular manner, the realization that forecasts are useless when judged in the linear normal bias that investors have carried with them for decades, must bias current and future investment decisions to more asymmetric or 'hedged' perspectives. With the veil of financial complexity (and implicit opacity) being taken down brick-by-brick (by us as well as many others), we suspect the credit creation process and project-financing in general will shift from a game-theoretically optimal 'one-in-all-in', to a more nuanced 'if-you-don't-know-who-the-sucker-is-at-the-table-it's-you!' view of investing - especially given the balance between indefinitely long low real rates and the insatiable need for yield - leaving the cost of funding indefinitely floored at a much higher premium than in the past.
From Pictet Perspectives - Special Edition 2012.
Q: How do you see the next decade in global financial markets?
Globalisation has created a tension between winners and losers. When the winners are succeeding, there is fast growth; when the losers drag the global economy down, we have low growth or recession. It is worth remembering that in the last ten years we have had six years of the highest growth rate in human history, especially between 2003 and 2008.
When 2.5 billion people emerge from the deep ditch they dug for themselves 300 years ago, this has to be a positive process and there are ample opportunities.
But this is a Ricardian process where there are winners and losers: the winners are the ones located in the intersection of the Ricardian exchange where they enjoy the benefits of cheap labour, cheap capital, cheap commodities, technology and organisation. The losers are not confined to the developed world, but certainly include labour facing wage competition and long-term savers facing depressed interest rates and elevated liabilities in the developed world. This tension is creating an intensely binary outcome world with bimodal returns across risk assets.
However, by the end of the decade, we will be likely to be living in a very different world — one where engineering growth through low exchange rates and low interest rates in countries like China is no longer possible because they run into severe raw-material shortages; elementary things like water, food, energy. This would be a situation analogous to the one in the late 1960s when Europe and Japan ran out of surplus labour. We will then be heading into an era of lower real growth globally, in which emerging-market exchange rates are rapidly appreciating. And although my primary fear today is of the risk of deflation or at least disinflation, I fear that by 2020 the risk will be one of inflation in the developed markets as the appreciation of emerging-market currencies exports inflation to the West.
Q: How do you hedge your portfolios?
The world has become very unstable in GDP terms and much more unstable in earnings terms. Where there’s a good outcome, profits are extraordinary and so, therefore, are returns on equities and high yield debt. When the economy sinks, profits collapse, equities collapse, high-yield collapses — risk assets collapse. This produces bimodal distributions of return outcomes.
The most powerful defence against disaster in a portfolio is to invest in assets that because of the environment or a valuation that is depressed or elevated present asymmetric pay-offs. Interesting long positions lie in assets where if bad things happen, their valuation goes down only so much, but if good things happen, it goes up a lot. An asset that goes up very little if good things happen but collapses if bad things happen is an interesting short. I combine these to produce an efficient asymmetric-type portfolio with a smile. I layer onto this option strategies, often short-dated, that take advantage of opportunities where this asymmetry, or bimodality, is inappropriately priced in volatility markets.
While the suggestions may be broadly unsatisfying in their non-specificity (and obviousness), the perspective is absolutely correct and investment managers should spend their time in search of these asymmetric assets as opposed to riding the next 10-minute trend. While mandates may limit the ability to take advantage of the asymmetries for some, arrogantly sticking to decades-old investing approaches and crowding into and rushing out of the trade-du-jour seems short-sighted even when pitched as for-the-long-run. Our 'gift' yesterday suggests maybe the simplest asymmetric assets are staring investors in the face, no matter how much it hurts to admit it.
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'While mandates may limit the ability to take advantage of the asymmetries for some, arrogantly sticking to decades-old investing approaches an crowding into and rushing out of the trade-du-jour.'
Predicting a decade ahead of time is silly. Asymmetry is what everybody looks for, but few actually obtain because 'crowding' into and out of trades is a business of conventional wisdom.
Predicting a decade ahead of time on the eve of 2012 is really foolish.
I think the world can do without our time-lines being stretched so far ahead anyways. Very hard to stay in the now when all your focus is quarters ahead at the very least.
Plus, I think paradigm flipping is a little beyond asymmetric and it sure feels like it's around the corner (now more than EVER!).
Happy days out of time everyone. These 5 were added because the earth sped up it's rotation from a perfect 360 (the last great Cat a Clysm).
Atemporal days and illicit nights. A Fed up with you special! ;-)
ori
Here is something for the NOW, which you will notice is a smooth anagram of NWO.
/the-plan/
Let's go seven miles beyond the cliffs edge and see how thing are then....WTF...Did somone from CNBS steal a Tyler passord and post without permission?
What next decade? Do you take into account the proverbial Black Swan? Nope! Same old Same old predictions!
I predict a massive fucking fiat disaster, and then the greedy politicians will scramble all over the world drilling for energy to prop up their failed regimes.
The mother fuckers always resort to capitalism as the last resort to stay in power, or war, whichever is most convenient.
i agree with this. and since "the war machine" and "capitalism" are one that means only one thing: a resort to SLAVERY. We've come long way F. Scott Fitzgerald's "In America it's a sin to be poor." A long...WORSE way. Welcome to "the canon fodder class."
Astounding. Apparently there will be winners and losers over the next decade.
Even more astounding: I should buy things that will increase in value and avoid things that won't...unless I'm selling them short.
My path to riches is so easy! Why didn't I know all this long ago?
please explain how "riches" can be optained in a zero interest rate environment. if you answer "only in a very expensive way" then i think you are on the path to the right path Young Grasshopper.
VaR models are at risks, because they largely depended on historical data (30 yrs), which are biased because of the 30 year debt euper bubble in advance economies.
Predictive models were based on anormal economic conditions (Greenspan put--infiinite/exponential credit creation).
Deleveraging, and the endy of the debt supercyle, implies the old assumptions are no longer true, and the models have more implied risk, then analysis believe.
All yall probability density functions based on biased over the debt year are likely wrong. So you can't manage risk.
Only sure bet is to get in after a collapse.
The irony of laissez faire capitalism is its socialist tendency. Or that is to say we will all be united, and equal by a great deflation or hyperinflation, in which we are all poor, or are all billionaires (when fiat currency collapses)
Right on. I am going to award you with a link that speaks exactly of this:
http://www.nakedcapitalism.com/2011/12/satyajit-das-on-what-went-wrong-w...
Except your last paragraph... which is why you should be leaning toward stagflation at least for the short term... Hyperinflation is a political event not economic/monetary. You can bet your Congress will be well aware ahead of time should they engage in this chaotic decision. Doubt it, America still believes in its superiority and will likely take you to war.
The Das interview series is worth the time to watch, so are reading his books (he is not as tactful in the book as he is in the interviews).
You can't "hedge" against what is coming....
I call bullshit on the article.
'You can't "hedge" against what is coming....
I call bullshit on the article.'
Indeed. But you can't tell them that. Das is a loon, he thinks finance should match savers and borrowers, provide a safe payment system and risk management.
As if.
america's supremacy means nothing to the "BRIC's" regarding war?
controlling and managing "eugenics & euthenics", via "hydroelectric" is a two-fold dilemma, "in-your-face", known/unknown crisis in our post western civilization - where precious water has reached an equilibrium to that of fossil fuels
what does this have to do with hyper-inflation? exactly nothing,... for the "BRIC's are more concern about survival and the inevitable overpopulation - present and unknown catastrophic weather events of the past decades
sooner rather than later pakistan will take up arms against india in the very near future, and china will get dragged into the fray because of india's thirst for water/hydroelectric - the common theme being, "A Finite Sources of Water".
A severe drought will be the catalyst,... and past, and present/recent oil spills off brazils coast line now being felt inland --- exponentially greater than "BP's" negligence,... now setting off alarm bells! next, we have russia's, 'haste-to-make-waste' --- destroying the ecosystem from the 'caspian sea,black sea, and running the gamut of the entire 'trans siberian railway'!
without water,... hyperinflation takes a backseat to mankind's survival --- this will start the war that america will have no say in, nor any western democracies for that matter
jmo
sorry duplicate [2x] post
The world is in no immanent danger of a global water shortage. We aren't going to war over water now or later.
Actually, water is a potential source of conflict. The issue is not just any ol' water, it is clean water (or at least "fresh" water that can be easily made potable). Dams and pollution have made inland water a significant point in some international relations.
One reference-
http://www.amazon.com/Resource-Wars-Landscape-Conflict-Introduction/dp/0...
america's supremacy means nothing to the "BRIC's" regarding war?
controlling and managing "eugenics & euthenics", via "hydroelectric" is a two-fold dilemma, "in-your-face", known/unknown crisis in our post western civilization - where precious water has reached an equilibrium to that of fossil fuels
what does this have to do with hyper-inflation? exactly nothing,... for the "BRIC's are more concern about survival and the inevitable overpopulation - present and unknown catastrophic weather events of the past decades
sooner rather than later pakistan will take up arms against india in the very near future, and china will get dragged into the fray because of india's thirst for water/hydroelectric - the common theme being, "A Finite Sources of Water".
A severe drought will be the catalyst,... and past, and present/recent oil spills off brazils coast line now being felt inland --- exponentially greater than "BP's" negligence,... now setting off alarm bells! next, we have russia's, 'haste-to-make-waste' --- destroying the ecosystem from the 'caspian sea,black sea, and running the gamut of the entire 'trans siberian railway'!
without water,... hyperinflation takes a backseat to mankind's survival --- this will start the war that america will have no say in, nor any western democracies for that matter
jmo
"...America still believes in its superiority and will likely take you to war."
We don't do war these days. We do skirmishes and kinetic actions. If we did war, you'd notice. Assuming you lived past the first minute or so.
New writer for Zerohedge?
Not sure, but lots of new shill-ish comments.
All I have to say is that working oneself to the bone these days for the sake of earning funny-money fiat is the most difficult thing I've ever done mentally to convince myself it's worth it. There's this gnawing malaise that I'm being taken for a rube, a mark, a consumate jackass. I hate this. That this expenditure of effort in a short human-scale life is for playing ultimately in a losing game. Someone will pay. They always do.
It's a horrible feeling that this blood, sweat, and tears, is soon for naught.
This situation royally sucks.
The festivities that I attended dubbed the mood "Angry Christmas"
I am lucky I did not retire a decade ago. Keeping my biz going is like a security blanket. My daughter is specializing in environemntal sciences with a focus on water/hydrology - she wants to become an atty and will be a good one, but if not she can use her uni degree in a speciality arm of my biz. She did an internship in Ozland last summer and plans on doing her law studies in England - she is in the top U.S. uni program for her area of study. My son is in a graduate program in Europe and I suspect he may eventually take over my biz, so I keep it going although he swears he won't do it .He speaks 4 languages - three fluently.
Maybe I am wrong, but I see good returns from investing in my childrens' futures. I do not think education is overpriced. I have made a generational leap on behalf of my heirs and I credit that to a good education, frugality and strong work ethic. My daughter is most like me - my son, while being very well-liked and sociable and consistently hitting world class coochie, seems to be less frugal and sees work as a task rather than a stepping stone to better times.
Pretty much agree with everything you said, except for notion that education is not overpriced...
When the government provides easy money for any good or service, the price of that good or service will go up (until they don't).
So if chasing up funny-money-fiat is not really worth your while and you have to rape your mind for talking yourself
into doing so , why not change your perspective?
These days you get mostly credited in some monies but all your accompanying efforts should be for is acquiring power and respect for you and your tribe.
The latter being the only entity where you could possibly
store any "wealth" and "respect" and the privileges deriving
thereof.
If you are partaking on any larger promises, you are being taken for a ride.
Yes, I agree a change in perspective is a necessity to work through the mind rape. The conscious honest reality is though that when the value of one's labor is constantly debased in order to satiate the greed of the top Darwinists the effort is not overlooked or mis-weighted. It is as you imply a perspective mind game; that the means equating towards a better end, the goal.
These are things we all face and how we deal with them individually is what constitutes life as we know it.
The perspective mindset implied could be best described as follows: "for an aristocrat acquiring money is a means to an end, for a bourgheoise an end and meaning in and to himself."
And you got me wrong, don`t go through any mind rape, and
you don't have to go through anything individually, it`s back to the tribe.
I agree. That's why I went mostly Galt when Obama was elected. Now I look for situations to exploit that will produce money without labor other than writing checks or leasing assets. This requires the ability to write checks that will not bounce of course, so I have an advantage there.
It's a hell of a time to be young and trying to build wealth, that's for sure. It can be done, and I know a few who are doing it. But it is harder than ever, and that's not going to begin to change until the big govt types in their D.C offices are wiped out. I'm not just talking about the politicians but including the permanent bureaucratic class that watches politicians come and go, and then passes the fat jobs to their children. There is no indication that they will be wiped out anytime soon.
...growing tension that globalization has created between winners and losers...???
here @ zH, we focus on the growing tension between BiCheZ and banksterz!
they gotta be asymmetrically tense
the suckers!
people will scale down on consumption and will only buy basic necessities. Standards of living in western europe and US will fall at least by half (2x as little real income as before). Failed municipalities will start issuing their own IOUs and the lucky ones will be those who control natural resources
We will make a small fortune for you by the end of the decade. Just give us a large one now.
ok, it's a lot of debt but i read it twice and couldn't find just what percentage is rollover. they're rolling a lot of 1s, 2s, 5s, etc.
on gold, there is less than one ounce for every human in the world right now. silver? i'm not sure and have a hard time finding an inventory that includes all the above ground, jewelry etc. would love to get a source for that if somebody has one.
There's less than 1B ounces in "investable" silver. Finding the total amount of above ground silver which includes all of the jewelry / scrap/ tablewear is much more difficult. My best guess is that it's somewhere between 8B ounces and 20B ounces. Even 20B is an extremely small amount relative to the size of the fiat ponzi which is shown the bond market. Silver demand basically must rise with combination of the breakdown of currency and the growing industrial uses such as the growing role of electronics (in electronics, it's used in such small amounts that its price doesn't matter). Also, silver supply is difficult to increse quickly because most silver is produced as a byproduct of mining other metals. The incentive to invest ming in silver has been muted by central banks selling of silver since silver's demonitization in the 1960s and the proliferation of fiat currency fooling the world into trusting the worth of pieces of paper instead of real money.
TheSilverJournal.com
We all know for a fact humans will "go for the certainty" everytime. Look at what the internet does: "humans trying to figure things out" rather than get "dumbed down by TV." that's the pursuit of certainty....what we "think we know." Translate this simple "invisible" reality into actual reality and it leads to one thing: war. "War" is the ultimate in..."perceived certainty." Since we know the government is the internet and we live in the information age...the most effective way to create outcome based "certainty" is to start conflicts..thus "gathering information" and from which bascially..."seek and destroy" based upon said information. indeed..."the Americans use machines to do it." Forget about not being able to speak in such an environment...you can't even think in such a world. "The machine will be alerted to your presence"...i recommend taking acting lessons. IMMEDIATELY. Study the masters: Harrold Lloyd, Lloyd Blanfein, The Lloyd's of London, etc....
We all know for a fact humans will "go for the certainty" everytime.
///////////////////////////////////////////////
We, US citizens, all know for a fact humans will go for the certainty everytime (blavlavlavla)
If it happens one is not going for the certainty, (blavblabla), simple, this is one is not human (blablabla)
Typical US citizenism.
No, humans do not go for the certainty everytime.
US citizenism has imposed a system relying heavily on certainty.
Actually, the slightest uncertainty is so violently repelled in this US driven world.
As we are on a financial blog we get the analysis of events analysed here as viewed by the investors/traders lens and this leads us straight to the financial investor's paradox. This post is a good example. How to invest in a crazy, convoluted, manipulated hysterical minded, investment environment. Its like being in that movie "one flew over the cuckoo's nest".
I don't know if I want to be part of that mad house. But some are good at it as they know how to lobotomise others. Others have no choice. Predator or victim its not the same game. Our predicament is we like to see ourselves as "healthy" darwinian predators living off the prevalent inefficiency; eating the fat in the system. Until we realise we are the victims. COmes a time when there is no more fat to eat in the system, just off the bodies of those who have grown fat from it....If only the system could generate more fat for the predators...is what the lobotomist hopes. Hopium...you're next in line...
We badly need a new system and close down the cuckoo's nest. Pronto!
Were every era in history to bide for an award for the greatest elevation of frivolity, name one that could contend with today's tanning salons, dedicated-billboard trucks, lady-berry augmentation surgery and 29% interest rate credit cards emblazoned with a preferred pro sports team logo.
That is why we hunger for a identifiable soul much like today's Cultural Barometer/Magazine Proprietor Ms. Winfrey hungers for fried shrimp day at the Country Buffet. Since I've been posting these diatribes I've seen a response so overwhelming that I know with certainty we need a voice. We must all be that voice together. We will no longer allow Rupert to designate his goat-smelling network monkeys to be that voice. The market for ignorance is about to be shut down as a flood of individuals learn that this is all unsustainable.
A $70 Trillion global derivatives market is unsustainable.
Nationalized Indentured Servantry by compound interest is unsustainable.
More wars on behalf of Israel & The Security-Military-Industrial-Complex are unsustainable. (or Security Complex of Unindustrial Military?)
A Congress pressing for single-digit approval ratings because they bare their starfish for any special interest money that comes calling is unsustainable.
Brand Hopey McChange, who came out of nowhere (okay sorry, Kenya is not nowhere) to ride to the highest office on a sea of squid banker money and his ghetto-minded diva of a wife are unsustainable.
Selling the future of everything right and proper for pennies on the dollar to multinational CEOs is unsustainable.
I'm not doing this to make a shekel or FRN, you'll notice I always include a disclaimer to the effect of: "fuck copyrights, they were meant to be limited to the original artist/author, so why does Disney get a pass on that shit?" And I mean it, I hope you propagate this message all over the known world. And write you own. Shout it from the rooftops. Anything to let the assholes know their time is up. They have no recourse except for making indignant shadow puppets.
Whomever is calling the shots has no moral authority and must not be allowed to continue attempting their planetary killshots. The BP oil fiasco (the gulf of Mexico disaster I mean, not the negotiation of the Lockerbie bomber's release in exchange for Lybian oil rights), motherfukushima, which isn't getting much play these days in the news (perhaps hot particles are healthy after all?) and WWIII which the neocons mistakenly call WWV or something dumb like that but thankfully nobody listens to them anymore (on a related note, may Bill Kristol receive the nut-cancer). These are inexcusable. Even the most hallucinogenically inspired verse in the Book of Revelation couldn't have properly mapped out the evil that transpires now in open air.
So begin immediately to disbelieve in their vision of a NWO, a unified currency and their laughable propaganda. This isn't a left vs right, red vs blue, butter-side up vs butter-side down struggle, we are past designations to keep us falsely at odds. We will not allow our self-anointed enemy to define us, the terms of the game or the battlefield. They get to define nothing except the degree of their irrelevance once we stop gawking at their media programs, popping their opiates and paying their way. Truth and clarity is what we strive for and we will accept nothing less.
Rage, rage against the dying of your rights.
All Copyrights waived. And I do mean all.
Humans will never let reality interfere with their rationalizations. Yes, maybe some are just stupid, but we all understand that buying Chinese goods is slowly burying us. The same with foreign oil. Short term interests always seem to win over long term ones, especially when the future is highly in doubt. We have created miracles in technology which allows us to believe we are not at heart the same creature that not so long ago was bashing the head in of someone with a rock. And the sad part is that with all of our advancements in communication technology, we seem even less able to communicate with each other, without wanting to smash their head in with that rock. And it will probably be the one thats trying to tell us the truth that we just don't want to hear.
Another one who sees everything clearly and still understands nothing.
No need to introduce yourself here.
The ONLY thing everyone must understand: All things MUST pass!
So easy to recognize the Truth when you see it -- BRAVO!
Why is this guys "primary fear" the risk of deflation or disinflation? Prices fell in the last half of the 19th century right besides a booming economy. All printing money does is leave the newly printed money in the hands of the printers, in which resources will surely be doled out in an unproductive manner just to be wasted by central planners.
TheSilverJournal.com
Pictet; Living sociopathic dreams and begging for a reason to exist. Betting your money that billilons will die for your profit. Die Schweiz Faeces.
The eye-opener book for me was FABIAN FREEWAY by Rose Lee Martin >>> the spawning nest for J. M. Keynes
Do you remember OWS? Specifically Ketchup? MSM goes to great efforts in promoting?? \?n?-(h)?-?li-z?m, ?n?-\
Wiggly-Fingered Hand Gestures
What is Nihilism?
1. viewpoint that traditional values and beliefs are unfounded and that existence is senseless and useless.
2. a doctrine that denies any objective ground of truth and especially of moral truths.
3. doctrine or belief that conditions in the social organization are so bad as to make destruction desirable for its own sake independent of any constructive program or possibility.
4. the program of a 19th century Russian party advocating revolutionary reform and using terrorism and assassination.
http://www.merriam-webster.com/dictionary/nihilism
Watch!
Nihilism explained
Leo Strauss lectures on Plato's Meno 3 - [1966]
Ministry - Deity
The UN and One World Worship
http://www.americanthinker.com/2011/04/the_un_and_one_world_worship.html
After many decades, they think we should seek a higher GOD to look after us.
http://www.un.org/en/documents/udhr/
Thank GOD, the United Nations uses blue helmets to camouflage the Human Rights Charter. :P
Perhaps this is a lot of information to digest, you'll figure it out soon enough.
http://confoundedinterest.wordpress.com/2011/12/26/the-euro-crisis-and-t...
The one move that's ALWAYS available to any chess player: Tip the table over! These paper "games" will end, and soon.
While much of the west might be in an economic collapse, some of the BRICs might yet escape this meltdown.
global everything will fail but, not soon.
http://covert.mypressonline.com
http://www.marketskeptics.com/2011/06/the-esf-and-its-history.html
I'm hoping someone is kind enough to comment and explain.
This is a really silly article. First, the plot is clearly trimodal, not bimodal as claimed. Second, the plotted distribution could be easily modeled as a mixture of Gaussian distributions; the idiot who superimposes a Gaussian distribution over all the returns doesn't have an f'n clue what they are doing.
Absolutely correct. And if you read the original report at the Prictet web site it shows that they are just as clueless as everyone else. Like Nassim Talin says - better to ask your cab driver.
Still slogging through the Pictet doc, but an interesting read, especially when coupled with "the gift" of Matt King's report.
Whether Matt King's incisive look at the financial firm's funding issues (particularly Lehman) was the piece that proclaimed that the emperor had no clothes, or reflected the coalescing of that opinion among the financial community, it reflected a turning point in perception of the stability of financial firms by those controlling/responsible for investing vast amounts of money.
When I read the Pictet piece, despite some attempts at rose-colored glasses and postive shock predictions on the part of some of the contributors, they clearly see default coming in one form or another to many of the largest developed countries. I have to wonder if this reflects a similar perceptual turning point among the large institutional investors, and acceptance of the idea of sovereign default. Acceptance which will lead to action to mitigate impacts, which will considerably shorten the amount of time affected countries have to continue kicking the can.