Investment Approach

Absolute return, Macro and Global Investing are about managing the never ending changes of the world economy. Prices tend to translate pretty well the perception, expectations and emotions of the market participants from their perspectives at a given time. Prices changes tell you the story of what I call the reality gap which sometimes create excess optimism  or pessimism.  I was lucky, during my childhood (70’s),  to own a great Encyclopedia called “L’Ère Atomique” (The Atomic Era published in 1958). The end of Oil Energy by 2000 was  a given reality. It was partially right since they should have forecasted!  “The end of cheap oil”. At  the time,  I remember the talk of a friend’s father  who was manufacturing drilling heads with artificial Rubis; with those heads we gonna get the oil we need!   Over the last 100 years, human life expectancy has risen substantially. The average lifespan of  a company listed  in the S&P 500 Index has decreased  from 67  in 1920 to around 15-18 years in 2017.  Should average market PE ratio have something to do with average company lifespan? If yes, do we have a reality gap?   Understanding how financial markets and the economy works is fundamental to get a better grasp  of reality but  always question it. A good example comes from Her  Majesty the Queen of England when in late 2008 she asked a crowd of economist  about the crisis  “Why did nobody notice it?”

My career initiated in the early stage of one of the biggest bull markets in history. I have to say, it really was an exciting time. On the FX side the USD was on a roller coaster ride which witn.essed the first massive FX intervention with the Plaza Accord in 1985.  At the time, charts were drawn by hand on millimetric paper and restaurants were using faxes to spam their menu before lunch time.

The financial world was also embarking on a revolution on many fronts. Accounting practices changed substantially and corporations were awakening to a new reality! They could be taken over, torn apart and sold piece by piece. The 1987 Crash and the personage Gordon Gekko  from the  movie “Wall Street” were the much-spoken villains of the time but the trend towards Financialization was still in its infancy.  The Japanese economic miracle represented the new paradigm of productivity, quality and economic model to be inspired by. Also, the Japanese bull market was my first experience in “Bubble riding”.  At the time, the Japanese Company Handbook was the “Bible” to riches since stock trading had become more like a betting contest.

I got my first PC in 1989. Soon after, CC-mail and Excel became my favorites tools. The internet was starting to reveal a new world of wonders, mobile phones were, at the time, a luxury and the Hedge Fund community suddenly revealed itself to the world as an asset class to the masses when Georges Soros broke the Bank of England in sept 1992. I am not going here to keep resuming the financial history of the world but the main lesson I had learned from this initial period in my career was that I had mostly been a “lucky” investor.

Luck could not keep being the modus operandi so I put myself on a path to really question what I had learned and had been taught during all those years.  I have always liked the most famous equation of the world “E=MC²” since it resumes a huge amount of work and knowledge in just a “simple” manner and I felt that somehow something “simple” was also at the heart of financial markets. To make it short, yes, is the answer!

The money creation process (called also Fractional Reserve Banking FRB) is the driving force behind the development of financial markets but it is an imperfect regime which intrinsically holds the seeds of its own doom. FRB is the privatization of money through the banking system, is debt serfdom, is a wealth concentrator with “unexpected” ripples for democracy, is what I call “taxflation” and big government too as consequences. I believe that FRB is also the fruit of an evolution of money which has brought many good things to us but the idea that money will need to evolve once again will probably spread and gain traction in the years to come. Why? The answer lies in the famous 2002  speech of Ben Bernanke Deflation: Making Sure “It” Doesn’t Happen Here.  Financialization and asset price inflation have become the biggest drivers behind credit creation (greatly of unproductive assets!).

We ought to ask ourselves a few questions, one of them being:  In a world awash in money where for each USD 1.00 of GDP we have about USD 10.00 of financial assets (All financial assets of all sectors Includes financial holdings of direct owners, as well as financial assets controlled by and held on the balance sheet of banks and other financial intermediaries) what is the rate of return that financial asset will judge acceptable and for how long?  The second one would be:  Do Central Banks have such unlimited power without unintended consequences?

What is Opportunist Macro Investing?  It is an investment approach which can invest globally.  It is intended to preserve wealth and seek yearly absolute return. Regardless of where you are based, you should look at the world as one big market place with many opportunities. Not allowing yourself to invest globally is a risk. Successful investing does not depend on a magic formula and there are a few things which you can do on your own.

One of them, which might sound totally contrary to Macro Investing, is: Look and observe around you. Maybe the best opportunity lies just around the corner of your house since the owner of the bakery has no heirs and is getting old! You will need to weigh out the risks of owning and running a business but having control over it might be what you feel the most comfortable with.

Do not believe that stocks and bonds are always the best investment options!  (maybe on a 100 years lifespan yes!).  They are just asset classes which are part of the absolute return goal seeker. The 1966-1984 period was very painful for such assets and those holding gold, silver, DEM and CHF did much better at the time.

Do not accept to be “boxed” in by an investor profile template and investing formulas.   These were mostly designed by the financial industry as disclaimers for bad returns since you accept some pre-defined asset class risk allocation (ex: 10% MMF, 50% Bonds, 40% Stocks etc.…).

Anytime you intend to take an investment decision you need to ask yourself the following: What could change/impact my desired outcome?

Do your homework, read and get interested. Learning about finance and investing is not boring. There are some very interesting books written by very smart people who will bring you sums of knowledge in a pleasant manner.  Take note of thoughts, things and questions you have. Revisiting them sometime in the future might bring you surprising answers to your mind.

Do not succumb to greed and fear: Both tend to blind your senses instead of making sense of the situation.