The Real Macro Picture, The Ruan, Private Equity and The Hedge Fund Disaster
Let me give you a really big macro picture, following up on my previous post of why you must invest only in China and India, and throw out all other stocks you have in your portfolio, unless you have a very very good reason to hold them. See that post here
China and India are going to be the two biggest economies of the world within the next 50 years. The money flow of the world is very clear-capital is being sucked out of the developed world and going into the developing world-and the two top countries of the developing world are China and India, because of their size.
The Chinese and Indian party has just started. This party has a lot many years to go-and you want to get on the trend now. In a couple of decades the Chinese Yuan and the Indian Rupee will be the "index" currencies, like the Dollar now. I am proposing a new currency-the Ruan, combining the Rupee and Yuan, which will make life easier for all of humanity. The top two economies of the world of the future will eventually unite to create the Ruan.
It is nice to see hedge funds and private equity losing money, finally. Lots of studies have been published on what these guys do, just do a google search-and from what I understand, all they were doing is playing the leverage game. You see, the SPY returning 10% a year can be the index return, but if you leverage your portfolio 3x, your returns are 30% a year. Your drawdowns are higher, but overall, if you can stay solvent, and always find money for less than 10% a year for leverage in some corner of the world, and invest it in the SPY, whether it is US bonds or the Japanese Yen, you will come out ahead of the SPY. Studies show that all the hedge funds and private equity people are doing is getting cheap access to capital and leveraging it to create this illusion of higher return. Pension Funds and Institutional investors will be killed if they go on margin to buy stocks they like or use options and futures-so they also joined the hedge fund/PE party by putting an "allocation" to them in their portfolios. All in the name of the big D, Diversification.
No more of this, please. Stocks like BX, FIG and MF, are doomed for a while-whether they take down the whole financial world with it remains to be seen. Agreed that some people working in these companies do make the acquired companies better, by running them more efficiently, cutting costs, reducing overheads of a public company, etc. but most of the time they are playing the leverage game. And nice to see that the investors of the world have woken up to this.
The take home message here is:
1. Invest in Emerging Markets, or India and China. Capital flows where the returns are, and returns are made by human beings eventually, and these countries are where you want to put your capital to work.
2. Stay away from Hedge Funds, Private Equity, etc. Unless they can really add value to a business, they are a dying breed-like the LBO firms a couple of decades ago. No more of this crap called "Financial Engineering". I am an Engineer myself and I don't know of any University which offers a Degree in Financial Engineering. Just wearing a suit and renting a fancy Manhattan or London Office doesn't make you smarter-even though you do impress everybody. Can't believe that even the humble Chinese fell for the Blackstone IPO-they invested $3B in the company! But I guess they can learn some cool stuff about buyouts, and the knowledge will be used effectively in buyouts and mergers in China, even if BX collapses completely.
3. Welcome the Ruan-the unified Indian Rupee and Chinese Yuan currency, which will be the currency of the future.
Sanjay
China and India are going to be the two biggest economies of the world within the next 50 years. The money flow of the world is very clear-capital is being sucked out of the developed world and going into the developing world-and the two top countries of the developing world are China and India, because of their size.
The Chinese and Indian party has just started. This party has a lot many years to go-and you want to get on the trend now. In a couple of decades the Chinese Yuan and the Indian Rupee will be the "index" currencies, like the Dollar now. I am proposing a new currency-the Ruan, combining the Rupee and Yuan, which will make life easier for all of humanity. The top two economies of the world of the future will eventually unite to create the Ruan.
It is nice to see hedge funds and private equity losing money, finally. Lots of studies have been published on what these guys do, just do a google search-and from what I understand, all they were doing is playing the leverage game. You see, the SPY returning 10% a year can be the index return, but if you leverage your portfolio 3x, your returns are 30% a year. Your drawdowns are higher, but overall, if you can stay solvent, and always find money for less than 10% a year for leverage in some corner of the world, and invest it in the SPY, whether it is US bonds or the Japanese Yen, you will come out ahead of the SPY. Studies show that all the hedge funds and private equity people are doing is getting cheap access to capital and leveraging it to create this illusion of higher return. Pension Funds and Institutional investors will be killed if they go on margin to buy stocks they like or use options and futures-so they also joined the hedge fund/PE party by putting an "allocation" to them in their portfolios. All in the name of the big D, Diversification.
No more of this, please. Stocks like BX, FIG and MF, are doomed for a while-whether they take down the whole financial world with it remains to be seen. Agreed that some people working in these companies do make the acquired companies better, by running them more efficiently, cutting costs, reducing overheads of a public company, etc. but most of the time they are playing the leverage game. And nice to see that the investors of the world have woken up to this.
The take home message here is:
1. Invest in Emerging Markets, or India and China. Capital flows where the returns are, and returns are made by human beings eventually, and these countries are where you want to put your capital to work.
2. Stay away from Hedge Funds, Private Equity, etc. Unless they can really add value to a business, they are a dying breed-like the LBO firms a couple of decades ago. No more of this crap called "Financial Engineering". I am an Engineer myself and I don't know of any University which offers a Degree in Financial Engineering. Just wearing a suit and renting a fancy Manhattan or London Office doesn't make you smarter-even though you do impress everybody. Can't believe that even the humble Chinese fell for the Blackstone IPO-they invested $3B in the company! But I guess they can learn some cool stuff about buyouts, and the knowledge will be used effectively in buyouts and mergers in China, even if BX collapses completely.
3. Welcome the Ruan-the unified Indian Rupee and Chinese Yuan currency, which will be the currency of the future.
Sanjay
Labels: china, human capital theory, india, private equity, the big picture
posted by Sanjay "John" Gandhi at 6:58 PM
1 comments
