Sunday, March 10, 2013

Random Muses

Have been rather busy at work. I have with me a couple of random writing. Will follow up with updates for 1Q 2013.

I wrote sometime back on why I disagree on Gold being a good investment or so called inflation hedge. Had a lot (and I mean "A Lot!") of discussions or you may call it arguments on this topic and many have slammed me and said I will be the biggest fool in the market for not buying Gold. Reasons given ranged from solid inflation adjusted price appreciation, tight supply (cant be mined specifically on its own, its more of a by product) to it was the value anchor for currency during "Bretton Woods" time etc. To me, it is clear why Gold may not necessarily be a good investment. A overemphasis on inflation adjusted data may be misleading given the lack of understanding on data integrity going back to 1800s and blind faith on charts. Besides Indians who use it massively for their dowry, I cant really fathom what other uses there can be apart from being highly expensive catalysts or electrical conductors. With a limited demand, a tight supply doesnt stand strong as an argument. Last but not least, the value of a currency depends on various factors, including economic strength, investments, currency supply/ demand which are interrelated. However Gold is merely a hot potato which passes around, with each guessing the price of it based on what others guessed.

Given the recent hammering on Gold (no Im tempted to pick up any), I found it rather funny as I read back the comments of one of the global investors whom investment letters I read regularly. Hes Howard Marks of Oaktree Capital, please dont mind me using your quote.

“There is nothing intelligent to be said about gold. Nobody can tell you the right price for an ounce of gold. People will tell you it should go up or go down. To make any intelligent statements about investments you have to know what the right price is. You can’t do that with an asset like gold, which doesn’t produce any cash flow. So you can buy it out of superstition or ignore it because you are an atheist but you cannot buy it with an analytical foundation.”


Secondly, theres also the focus on equities this year to date which I have mentioned in a 2012 post. As mentioned, the larger money supply will continue to hit the markets and the end result will be across the board inflation, not only in the fish and apples we buy but also the stocks and company values. Those who claim stocks will crash might be a little early to be honest. I don't deny valuations are not getting cheap but it does not warrant a doomsday expectation, especially on the back of economic recovery (though it is not clear if its sustainable in the long run). With such rising levels, the likelihood of rates or in some countries implied rates will creep up. What this means is whatever loans you have that is floating rate will likely rise. From an investor's perspective, it means bonds with low yields will get steamrolled so beware of picking up 1) quality fixed income with low yields or 2) crappy fixed income with high yields that is effectively no yield coupled with a sub par principal at the end of maturity. If you bought a perpetual, well hope that the company is of quality name then.


Last but not least, if there's any reader/s out there who can help with the following, drop me a note. 

1) Capital seeders/ investors/ multi manager office for an investment partnership (ideally someone/team that supports fundamental investing across the capital structure on a global basis), and

2) High net worth or institutional investors for 2 coal mezzanine deals in Asia Pacific, one of which is a listed company. The advisory team supporting it is trustworthy and audited results/ JORC reports are available on demand. 

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