"The gods cannot help those who don't seize opportunities" - Confucius 500BC
2010 - The decade of the rise of the BAP economic sphere.
The new decade will see the rise of a new economic sphere of influence - The BAP Block : Brazil, Africa, Portugal or Brazil, Angola and Portugal. With Portugal's strong African links with Angola, Mozambique, Guinea Bissau and South Africa (large resident community of Portuguese nationals) and cultural links to Brazil makes for interesting economic relationships. China has taken this block seriously and has put measures in place through its former Portuguese territority Macau to winning it over. Portugal has been made one of five Strategic Chinese partners in Europe This is a welcome contrast to the often non interested relationship conducted by the Anglo- American axis. In recent press western economic press Portugal has even been named a PIG country. This despite favorable comparisons of external debt when compared to the US (Total external debt - State and Federal) and UK. This can be reflected in the Political Economic apparatus such as Moodys and S&P downgrading Portuguese debt while maintaining a AAA rating on US and UK public debt.
The most striking feature of the BAP block is its strength in energy resources and production. With Brazil, Angola, Sao Tome and East Timor have huge natural resources (oil, gas and uranium). Portugal on the other hand is leading innovator in renewable energy - Wind & Solar (It is also one of the largest investors in wind farms in the US). It is a country on track to be produce almost 50% of its energy needs from renewable sources in the next couple of years.
Mar 2009. It has been a slow start to the year at OMS. We have not really been acquiring any new positions and have really just been sitting on the sidelines watching. It has been a long cold winter, but the sun is now coming out and we are starting to see clearly now. We have started a new portfolio balancing process to better cope with the new environment we find ourselves in. Our equity portfolio is performing better than expected - mainly driven by our key holdings. To no ones suprise the US dollar is showing weakness. I think will be the biggest challenge for the forth coming years. The huge amount of US debt, (consumer, Federal and State debt) will definitely weight on the US economy and on the dollar. We believe the US will emerge from this crises...but just weaker and smaller. It will be interesting to see whether the US can maintain a sphere of influence in Asia. We expect in the following years for China to gradually push US influence out of the region.
With all the stimulus and bailouts - we believe inflation will be a new theme for some years to come. I believe many are underestimating the impact of inflation on the economy - it substationally more difficult to run a business in a high inflation environment. We believe the UK and US are definitely walking on dangerous ground at the moment.
We hope that many use this as a time of reflection. A hedonistic and consumerist society is what drove the financial crises. I little more restraint and back to some good old fashioned values will do the world of good.
Jan 2009. New Year - New Beginning. But before we move on to 2009 lets reflect upon 2008 - a truly interesting year by all accounts. Lehman, Bear Sterns, AIG, Merrills, Bailouts Madoff - definitely not a dull year by any means. For us - it was a good year - our portfolio withstood the shock of the economic crises and we even made a very decent return. We would like to take this opportunity to advice our readers to be generous to those who suffered due to this economic upheaval. We strongly believe at One Man Standing that now is a good time to share with those in most need of it especially considering the difficult times we now face. Many people have lost their jobs and face an uncertain future. Places with less development and resources will need our help in these difficult times.
Based on our investment strategy - we were light stocks and mainly played the currency markets. We still saw our equity portfolio takes some big hits - but we see this as a time of investment - one should not be afraid to enter the market if one sees real value - even though in the short term you may see some losses. We have not been aggressive in our acquisition of new positions and are holding back until we have a clearer picture of what the future could hold for us. We do believe that direct private investment may hold significant value in comparison to the stock exchange. We are watching developments and opportunities closely. We still like Portugal despite the dismal stock market return. (But as previously stated - Portugal is a small market and should be kept in mind in portfolio allocation strategies - we prefer the private equity space). The one major positive aspect of 2008 is that we have seen the market get cleaned out of a lot crap and cowboy investors / market players. Lets hope that this purge of the system continues and a more ethical / sane market returns (but got to admit - not really getting my hopes up on this one).
We believe that 2009 will be a very difficult year - but one where we see real opportunity presenting itself as opposed to 2008. We wish all our readers all the best for the New Year.
Oct 2008. The Markets have had one of the worst weeks in living history. Although it has been extremely difficult to avoid some negative exposure to the collapsing equity market we have been conservatively invested preferring to be cash and gold heavy and play the occasional FX strategy and holding smaller key equity positions. As the crises bites this has stood us well. With regards to markets we are still cautious - after all in the Great Depression the DJIA was down around 90% from its highs. Do we think that the same fate awaits us this time? Well at the moment I still believe that there are still enough investors with cash on the sidelines that might see the recent crash as an opportunity to enter the market. We would therefore not be at all surprised if over the next few weeks and months we see a rally in the global markets.
We would advise you to view this rally with caution and take this opportunity to get rid of any non key equity positions that you may have. Although we believe Friday would have been a key date for acquiring key equity positions we believe Monday may still wield interesting opportunities. I would only invest capital that you are willing to lose. Therefore you will not be irrational and feel obliged to sell if the market crashes again. Think long term - your key equity positions should be able to ride out the recession and benefit from the post recession environment.
Sep 2008. The US dollar rallies while the British pound collapses. Although both corrections have been anticipated for a while - they have interesting implications.
With regards to the US and the recent rally - we are still very cautious on the US economy - the fall out from the Credit Crises is far from over and we expect to see increasing evidence in the real economy. This may be the real beginning of an interesting time to pick out new investments. Unfortunately the strong dollar has made us cautious - this will have a negative impact on the US exports (and exporters) and will do no favours with regards to the US trade deficit. We believe it will be a slow process in which the US recovers from the job losses in the real estate, construction, finance and manufacturing sectors.
With regards to Europe -we are a little more optimistic. Although Spain and Ireland may have severe economic problems due to the housing crises they play a smaller role in the EU economy that suggested by recent press. Germany - the largest EU economy does not suffer from any housing crises and still has a positive trade surplus - therefore it is in a strong position to ride out the credit crises storm. The recent euro weakness should also remove some pressure from EU exporters who have been feeling the pain from the strong Euro.
With regards to the UK, we see difficult times ahead. Unfortunately we see little positives signs for the British economy and advise our readers to maintain their low exposure to the UK pound, property, retail and finance sectors. Altough the recent pound weakness should help with exports, we believe this will be done at the cost of inflation. We are also sceptical on the long run benefits of a weak currency - a weaker currency will only make exports more competitive if wages are not pushed up - inflation.
Aug 2008. Some interesting facts with regards to some major European economies when compared to Portugal:
UK external debt position: Total external debt as per The World Bank: $12,298,598 million (08Q1) Total UK population: 60.5m (as per 2006) Total external debt per capita: $203,282
France external debt position: Total external debt as per The World Bank: $5,396,005 million (08Q1) Total French population: 64.1m (as per 2008) Total external debt per capita: $84,181
Portugal external debt position: Total external debt as per The World Bank: $529,696 million (08Q1) Total Portuguese population: 10.6m (as per 2008) Total external debt per capita: $49,971
Having a closer look at the UK, the financial sector plays a big role in the UK economy as does consumption - both are in big trouble. Also the property market looks wobbly - I think there are very dark clouds gathering over the UK's economic prospects and severe rebalancing of the economy is about to take place. We also believe the UK public deficit will increase. I have to wonder who actually buys pounds or lends at the current market rates to the UK??
July 2008. Looking back at some of our previous articles we would like to analyse our results. In mid October 2007 we published (republished Nov 2007) our article China - overvalued. Looking back our timing had been spot on - the Chinese stock market has subsequently dropped off a cliff.
Our Nov 2007 article Recession predicted a recession and it is now widely recognised that the US has slipped into a recession, with the UK rapidly moving rapidly in that direction.
As per our update below (May 2008) we suggested reducing exposure to Brazil. Not a moment to soon as the Brazil market has stopped dead in its tracks and started to head down a few days later.
Portugal in still stuck in a period of transition - but to which we believe it is far further ahead in restructuring its economy than its recent stock market results reflect. We also believe this is an economy to watch due to a couple of reasons: recent restructuring has made the economy more competitive, labour reforms, focus on innovation and changing to a knowledge economy. Also importantly due to the rise of Brazil and to a lessor degree: China though its links with Macau and India (Goa), the emergence of its former colonies out of destructive wars are all important macro shifts with positive benefits. We also see that due to the large amount of emigration in the 60s and 70s most Luso descendents are now in productive and more senior positions in host countries. We believe if Portugal can tap into these communities that Portugal will transform itself quicker than suggested by its current resources of human capital. Things to watch out for - the impact of the Spanish slowdown and a political shift to the left in Portugal. (Please bear in mind that Portugal is a relatively small economy and that should be reflected in your portfolio - we currently prefer the private equity space in Portugal).
Although our track record is relatively unmatched when compared to most financial publications - we would like to remind our readers that it is more important to have a strategic portfolio than trying to predict the market. Things to bear in mind - transaction costs, management fees, performance fees and risky exposures.
Although we invest on a macro level with a strategic point of view - we do have a few hot stocks we select. Of these Ericsson has definitely underperformed. We continue to hold this stock due to the trend that we believe is taking shape. Mobile internet and data services are a growth industry. We believe that the current set up with Mobile telecommunications where you buy voice service and perhaps some data services is about to be eclipsed by data. As mobiles / cell phones become internet tablets we see applications like Skype (Fring, iskoot) eroding voice services. We think that the trend will be to buy data services from your network and then use services like Skype for calls. This trend will only quicken as cell phones are equipped with wireless (wifi/wlan). Ultimately we see Ericsson has a lot to gain from this trend as Telecoms will have to upgrade their networks to remain in business. Nokia has already started developing this technology in their handset range with their tablet range (N810 wimax - we expect them to release a version with a mobile phone capability in the future - as soon as the Telecoms let them).
We still challenges and strong head winds in the global economy but we believe now is also the time to look for good deals. We are not in any particular hurry - we recommend taking your time and only buy when the price is right. We are not overly concerned with the stock dropping in the near term - one has to think long term.
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May 2008. After seeing a small rally in global stock markets we would like to caution our readers not to get too excited. We are expecting the next few quarters to be interesting as we start to see the effects on the real economy from the fall out of the credit crises.
At this point in time we also believe it is a good time to start reducing our exposure to Brazil. This has had a good run over the past three / four years for us - but at current levels we believe we should lock in some of our profits and reduce our exposure although not exit the market completely.
We continue to expand our exposure in Portugal - we acknowledge that the Portuguese consumer is under strain and the Portuguese government still has a lot to do to resolve structural debt and problems in the economy especially in employment flexibility. But due to gains in education levels, some structural reforms (ease of opening a business), pension reforms in the public sector and opportunities in the Luso world - Angola, Mozambique, Brazil and others - we believe now is a good time to increase our exposure.
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March 2008. The past few months have been difficult for most investors, especially for property and equity investors. But there have been some bright spots - Commodities and FX.
Our strategy over the past 2 years has been to be cash heavy, gold heavy and taking positions in FX as the markets correct large imbalances in the global economy.
One of our top strategies was to enter into gold in early 2007 - this has had a phenomenal bull run not only due to the inflation risks faced in the global economy but due to its status as a safe haven asset. We do see gold as expensive at the moment but its still worth holding until the US foreign exchange policy becomes a bit more certain. What we are looking for is moves to fight inflation and dollar depreciation.
Our most successful strategy was to buy a put on GBP and a call on CHF in early November 07. Another successful theme was our carry trade from early February 08 where we went long EUR and short GBP and USD. The other carry trade from February 08 where went long EUR and short GBP and ZAR was also successful.
As per our recession research we expect 2008 and possibly 2009 to be difficult years. As per recession article we recommend acquiring shares in this down trending market - buy on the dips and in smaller lots until we are confident we have hit the bottom. As stated in our research we do not expect any rebound until a year or two from now. Our advice is to buy into stocks that will survive the current crises and have to most to gain from a rebound in 2009. I do not expect the US or Britian to post significant rebounds due to the long lasting impact of house deflation and huge levels of household debt. Although we do expect to see some value in the US markets - we are approaching levels where we might start seeing real value in some sectors.
