Thursday, May 31, 2012

The Walrus HOOPP Debate on Pensions

Just got back from Toronto where I attended the Walrus HOOPP luncheon debate on pensions on Wednesday, an event sponsored by the Walrus Foundation. The Alliance for Retirement Income Security (ARIA) put out this press release, Be it resolved that Canadians are Incapable of Preparing for their Retirement Needs Alone: the great pension debate:
The great debate on retirement – can Canadians save enough on their own – came to the University of Toronto’s Hart House May 30.

Before a packed crowd of experts featuring executives from financial institutions, pension plans, the provincial government, and noted pension bloggers Bill Tufts and Leo Kolivakis, HOOPP President & CEO Jim Keohane and David Herle of the Gandalf Group argued for the affirmative, while MoneySense editor Jon Chevreau and noted actuary Malcolm Hamilton argued for the negative.

The purpose of debate was to get both sides of the issue of retirement savings out to the public. Those who think Canadians save enough now for retirement feel pension plans are costly and not needed; those who think Canadians can’t save enough for retirement see pension plans as a necessity, and feel they should be expanded to cover more workers.

Keohane said moving away from defined benefit pension plans in the workplace over the past 30 years is a “a very troubling trend.” He said switching workers to defined contribution plans is “not about cost savings, it is about the transfer of risk.”

Leaving it up to individual Canadians to do the savings is a dangerous idea, as most have been “unable or unwilling to save for their retirement.” He noted that there is more than $600 billion in unused RRSP room in Canada, and the average Canadian’s RRSP totals just $60,000 at retirement – only enough to provide income for a few years.

When those with inadequate pensions and savings start hitting retirement age, Keohane said, “it is likely to create a crisis in the social welfare system.” Defined benefit plans should be expanded, not eliminated, he said. “We don’t need to fix something that’s not broken.”

Jon Chevreau, editor of MoneySense, took the opposite point of view in the debate. 
“If it’s true working Canadians are incapable of providing for their own retirements, how do we explain the fact those already retired are for the most part doing fine,” he asked, adding that the OECD described Canada’s retirement system as “high performing,” and old-age poverty is comparatively low.

“Canadians may not know what they are doing … but they seem to be doing it remarkably well.”

He said low-income earners don’t need to save at all for retirement, and those making $20-$50,000 a year only need to save about $2,000 per year in Tax Free Savings Accounts to have adequate retirement income.

Chevreau concluded that most Canadians are “up to the challenge” of looking after their own retirements.

David Herle, Principal of the Gandalf Group, argued for the affirmative, noting that recent polling by Gandalf shows that having enough to retire is the top concern of more than 35 per cent of Ontarians.

He said 86 per cent of Ontarians believe there is an emerging retirement income crisis in Canada – and that only 29 per cent feel they have an good workplace program.

Eighty-five per cent of those surveyed feel employers have a responsibility to offer a good workplace pension plan, and 80 per cent were interested in being part of a defined benefit pension program.

The survey was conducted by the Gandalf Group between May 3 and May 16, 2012. For more information about the results of the survey, click here. 
The polling shows that Canadians are unprepared for retirement, he said. “We are careening towards a cliff.”

He said that while today’s retirees may be doing fine, those about to retire have substantially more debt than savings.

“The retirement dream is disappearing,” he warned, since for most people, the only savings they have is the equity in their home.

Actuary Malcolm Hamilton agreed that while Canadians may be financially illiterate, today’s retirees are living on retirement income equal to about 91 per cent of what they made at work. 
Both the Canada Pension Plan and the Old Age Security systems are well funded and sustainable.

And while other countries have debt to gross domestic product ratios of 85 per cent, Canada’s is only 40 per cent, meaning that if there was to be a future burden on social programs, Canada will be able to respond.

He said the cost of providing medicare is a bigger problem than retirement income.
John Tory of NewsTalk Radio 1010 in Toronto served as moderator, adding that it is important to have “a proper discourse in this country” about the need for retirement income adequacy.
Most of you know where I stand on the great pension debate. I side with pension experts like HOOPP's President & CEO Jim Keohane and his predecessor, John Crocker, both of which have made the case for boosting defined-benefit plans.

There are others. In his response to Bill Tufts, Jim Leech, President & CEO at Ontario Teachers' Pension Plan, took on dangerous pension myths head on and raised several excellent arguments as to why we need to expand coverage of defined-benefit plans. There are many more presidents of large Canadian DB plans who have privately raised their concerns over the shift toward defined-contribution plans.

When it comes to pensions, there is no debate. Defined-benefit plans are vastly superior to defined-contribution plans and all those using 'debt' scare mongering tactics are presenting dangerous pension myths to promote private sector interests of banks, mutual funds and insurance companies.

There are hundred of billions of RRSPs being managed at Canadian banks, mutual funds and insurance companies. This represents an important source of profits as Canadians are literally getting raped on fees (we have some of the highest management expense ratios - MERs - in the world).

As you can read, I'm not one to mince my words. When I see nonsense, I viciously attack it. Doesn't matter whether it comes from unions, banks, insurance companies, hedge funds, private equity, pension funds or other bloggers. I'm fiercely independent and have little tolerance for half-baked measures to address our looming retirement crisis.

And make no mistake, Canada and the rest of the developed world are facing a whopper of a looming retirement crisis. With yield on the key 10-year Treasury note dropping to 1.54 percent Thursday morning, a record low, we simply can't expect individuals to manage their own money in these schizoid markets and save enough to retire in dignity and security.

That, by the way, was the opener to my question to the panelists. I fundamentally believe that the structural volatility in these markets is here to stay and that individuals are better off pooling their resources and having their money managed by professional pension fund managers who can allocate across public and private markets. I asked whether or not it's time to treat pensions the same way we treat education and healthcare in this country, ie. as a public good.

Malcolm Hamilton criticized my proposal saying this will "socialize losses" and "lead us down the path of Europe." He added that the average long-term performance of DB plans before expenses in Canada was 8.25%, not much better than the average performance of a balanced fund which stood at 8%.

Jim Keohane was quick to point out that there is a lot of dispersion around that average performance in Canadian DB plans and that 25 basis points compounded over many years is a significant difference. I also do not think it's useful to say we are going to suffer a debt crisis like Europe if we adopt expanded coverage of DB plans. This is pure nonsense.

It's time we get our act together on pensions. The more we wait, the worse it will get. I accept Malcolm Hamilton's argument that in the future, both employers and employees will need to share the risk of a pension plan, but let's make sure they all have a decent one.

Some of the best chats came after the debate was over. I met David Hart of Hart Actuarial Consulting and he shared many interesting insights. He explained in detail who the winners and losers are in Canada (the losers are those making between $40,000 and $100,000 without access to a well managed DB plan).

Then Jim Keohane and I discussed asset-liability management in a environment of record low interest rates. Jim was actually surprised that rates fell this low, but since HOOPP manages its assets and liabilities very tightly, they will benefit from this drop in yields. And if rates rise, they will underperform their peers but the present value of liabilities drops, so they will remain fully funded, which is how they measure success of any pension plan.

Jim also noted the following: "The move from 1.6% to 1% is much more detrimental to plans' liabilities because of convexity." Indeed, in an ultra-low rate environment, a small move in yields can spell disaster for the present value of liabilities. "This is why ALM still makes sense, even in a low rate environment."

Jim mentioned that HOOPP uses derivatives (swaps) to match assets and liabilities. He discussed this at length when I commented on HOOPP's 2011 results. I told him a few U.S. pensions aren't allowed to use swaps because it is prohibited in their investment policies and that the JP Morgan debacle has renewed concerns of counterparty risk. He thought that was crazy as "derivatives add value when used intelligently" and added "JP Morgan isn't going under." I agree.

Below, watch the entire debate and question period (also available on HOOPP's website here). I thank Anita Stanusic of the Walrus Foundation and HOOPP for inviting me to this luncheon debate. I hope there will be many more but what I really hope is that we stop talking about what's wrong with our retirement system and start fixing it by adopting radical new thinking on pensions.

Tuesday, May 29, 2012

Tracking Top Funds Activity: Q1 2012

In my last comment on hedge funds trading euro misery, promised to go over the trading activity of top funds during Q1 2012. U.S. markets were closed on Monday for Memorial Day, giving me some time to put this comment together.

Before I go over some findings with you, a small preamble to get you familiarized with 13F filings and how they are used and misused by investors and the media. From the SEC website:

An institutional investment manager that uses the U.S. mail (or other means or instrumentality of interstate commerce) in the course of its business, and exercises investment discretion over $100 million or more in Section 13(f) securities (explained below) must report its holdings on Form 13F with the Securities and Exchange Commission (SEC).

In general, an institutional investment manager is: (1) an entity that invests in, or buys and sells, securities for its own account; or (2) a natural person or an entity that exercises investment discretion over the account of any other natural person or entity. Institutional investment managers can include investment advisers, banks, insurance companies, broker-dealers, pension funds, and corporations.

Form 13F is required to be filed within 45 days of the end of a calendar quarter. The Form 13F report requires disclosure of the name of the institutional investment manager that files the report, and, with respect to each section 13(f) security over which it exercises investment discretion, the name and class, the CUSIP number, the number of shares as of the end of the calendar quarter for which the report is filed, and the total market value.

The securities that institutional investment managers must report on Form 13F are “section 13(f) securities.” Section 13(f) securities generally include equity securities that trade on an exchange (including the Nasdaq National Market System), certain equity options and warrants, shares of closed-end investment companies, and certain convertible debt securities. The shares of open-end investment companies (i.e., mutual funds) are not Section 13(f) securities. Section 13(f) securities can be found on the Official List of Section 13(f) Securities. The Official List is published quarterly and is available for free on the SEC's website. It is not available in paper copy format or on computer disk.

You can search for and retrieve Form 13F filings using the SEC's EDGAR database. To find the filings of a particular money manager, use the "Companies & Other Filers" search under "General Purpose Searches" and enter the money manager's name. To see all recently filed 13Fs, use the "Latest Filings" search function and enter "13F" in the "Form Type" box.

You can learn more about Form 13F filings and the applicable statutory and regulatory provisions, as well as obtain a copy of the Form and instructions and the Official List of Section 13(f) Securities, by accessing Frequently Asked Questions About Form 13F prepared by the SEC’s Division of Investment Management.

Luckily for us, a lot of the information we require is already available in a timely fashion on the NASDAQ site (ie. 45 days of the end of a calendar quarter). You can even slice and dice the data to drill down into the holdings of various funds.

For example, in the search box at the top right hand corner of the NASDAQ site, type in "Citadel" to get the institutional portfolio of Citadel Advisors, one of the best multi-strategy hedge funds in the world. Once there, you will see the following on your screen (click on image to enlarge):

You will see the report date, position statistics, sector weightings, etc. From here you can do many things to slice the data of their holdings for Q1 2012. For example, you can click on the green tablets to get new, increased, decreased, activity or sold out positions.

If you want to see where Citadel put the most dollars at work, you can click below that on the hyperlink "value of shares ($1,000s)". Click twice on each of these links to get positions in descending order. Once done, you should see this (click on image to enlarge):

Here, you will a ranking of the dollar-weighted positions of Citadel Advisors' total portfolio as of March 31st, 2012. (Note: you can do the same thing with new holdings and increased activity by clicking there first on the green "new" tag and then twice on "value of shares ($1,000s)" column).

We can immediately notice that even though they cut their holdings of Apple Inc (AAPL) by 19%, it was still their largest holding at end of Q1. They also increased their holdings of Oracle (ORCL) by 927%. According to this, the biggest increase in shares in their dollars at work was in Colgate-Palmolive (CL), an increase of 9,604%, however, this isn't their biggest position.

When reading these 13F reports, you have to be extremely careful not to interpret too much into what you see. Always keep the following in mind:
  1. Elite hedge funds are not gods. Even the best make mistakes and are hardly stellar market timers. Reuters reports some hedge funds are taking bets against core eurozone bonds, but I think it's a foolish gamble that will end up backfiring on them.
  2. Macro dominates markets. The news typically driving individual shares isn't company specific. These schizoid markets are driven primarily by macro news coming out of Europe and that is how the best hedge funds are trading euro misery.
  3. Data is lagged. By the time the data on 13F is public, most hedge funds and mutual funds can easily churn their portfolio over several times. I'm exaggerating as the truth is it's much harder to do this the bigger you get, but the point is that markets are dynamic, not static.
  4. Top funds know they are being spied on. They use this to their advantage to throw many other fund managers and retail investors off. For example, if you bought Apple when Q4 2011 data came out, thinking all the best hedge funds were switching gears, piling into Apple, you would have made a wrong presumption at the wrong time. Also, many times, funds short or dump stocks they are seemingly buying. Be careful.
  5. Misusing this information is poison for your financial health. Never, ever pile into any stock based on what some hedge fund or top asset manager is doing in their portfolio. You will get killed, plain and simple.

Now that I got that out of the way, time to get to work and present some findings. Will go over top hedge funds, mutual funds/ asset managers, endowment funds, pension funds and sovereign wealth funds. I will even go over some family offices.

It's impossible to go over everything here, but I will give you the tools to examine the holdings of top funds and leave it up to you to decide how to use this information or whether or not you want to use it.

My advice, unless you're an expert, discard this information. In the hands of an amateur, it's like giving a loaded to gun to a child to practice shooting moving targets. Someone is going to get seriously hurt.

So why do I track activity from top funds? Because I want to gauge their risk appetite retrospectively and see where they were putting their actual money at work. Any hedge fund manager can say what they want on television, but when you peak inside their actual book, you get to see if what they're saying is how they're actually investing.

I like seeing funds initiate or add sizable positions to stocks and sectors that have experienced significant pullbacks. Importantly, when several top funds are adding significantly to their portfolio as shares of a company decline, I start paying attention for a possible turnaround.

Below, I will break up top funds by style, provide a link to their holdings and write a brief comment about where they're investing. Remember, you don't have actual position level data on a daily basis, and things can change drastically, but this information gives you some insight into their portfolios.

Top multi-strategy hedge funds

As the name implies, these hedge funds invest across a wide variety of hedge fund strategies like L/S Equity, L/S credit, global macro, convertible arbitrage, risk arbitrage, volatility arbitrage and statistical pair trading. Unlike fund of hedge funds, the fees are lower because there is a single manager managing the portfolio, allocating across various alpha strategies as opportunities arise.

Here are links to the holdings of some top multi-strategy hedge funds I track closely:

1) Citadel Advisors

2) SAC Capital Management

3) Farallon Capital Management

4) Peak6 Investments

5) Kingdon Capital Management

6) Millennium Management

7) Eton Park Capital Management

8) Highbridge Capital Management

9) Pentwater Capital Management

10) HBK Investments

Comment: Already went over Citadel above. SAC Capital added significantly to Murphy Oil (MUR), Schlumberger (SLB), Sirius XM (SIRI), Walter Energy (WLT) and Transocean (RIG) . Just like Citadel, they also added significantly to Oracle (ORCL). A lot of these stocks have pulled back nicely since the end of Q1, representing a good entry level.

Farallon added to Kinder Morgan (KMI), Express Script (ESRX) and initiated new positions in Hudson pacific Properties (HPP), Apple (AAPL) and Priceline (PCLN).

Peak6 initiated sizable new positions in Hartford Financial (HIG), McDonald's (MCD), Starbucks (SBUX), Google (GOOG), Microsoft (MSFT) and Yahoo (YHOO).

Kingdon Capital Management increased its holdings of Apple but also added a new sizable positions in Valero Energy (VLO), Wal Mart (WMT) and Tyco international (TYC).

Millennium Management added to Kinder Morgan (KMI), Williams Companies (WMB), AON Corporation (AON), and Sempra Energy (SRE).

Top Global Macro Hedge Funds

These hedge funds gained notoriety because of George Soros, arguably the best and most famous hedge fund manager. Global macros typically invest in bond and currency markets but the top macro funds are able to invest across all asset classes, including equities.

Soros and Stanley Druckenmiller, another famous global macro fund manager with a long stellar track record, have converted their funds into family offices to manage their own money and basically only answer to themselves (that is the sign of true success!).

1) Soros Fund Management

2) Duquesne Family Office

3) Bridgewater Associates

4) Caxton Associates

5) Tudor Investment Corporation

6) Moore Capital Management

7) Balyasny Asset Management

Soros Fund Management added significant positions to Sara Lee Corporation (SLE) and Elan Corporation (ELN) and initiated significant new positions in CVR Energy (CVI), Chevron Energy (CVX), and Macy's (M). The fund also increased its holdings of SPDR Gold shares (GLD).

Stanley Druckenmiller's Duquesne family office sold out of Apple and increased its holdings of Yum Brands (YUM), its top position, and McDonald's (MCD). The family office also initiated many new positions in Altria Group (MO), Elan (ELN), Starbucks (SBUX), Nike (NKE), Kraft (KFT), Merck (MRK), Wells Fargo (WFC), Home Depot (HD) and Broadcom (BRCM).

I will leave it up to you to explore the top dollar-weighted holdings of the rest of the funds in this group and the rest of the funds below. It's time consuming but well worth tracking. I like putting some of their top holdings on my radar, especially when they get hit hard, and use technical analysis and my macro reading of markets to see where opportunities lie and where to take opportunistic risk.

Top Quant Hedge Funds

These funds use sophisticated mathematical algorithms to initiate their positions. They typically only hire PhDs in mathematics, physics and computer science to develop their algorithms.

1) Renaissance Technologies

2) DE Shaw & Co.

3) Two Sigma Investments

4) Numeric Investors

5) Analytic Investors

Top Long-Only Funds

These are among the top long-only funds that everyone tracks. They include funds run by billionaires Warren Buffet, Seth Klarman, and Ken Fisher.

1) Bershire Hathaway

2) Fisher Asset Management

3) Baupost Group

4) Fairfax Financial Holdings

Top Long/Short Hedge Funds

These hedge funds go long shares they think will rise in value and short those they think will fall. Along with global macro funds, they command the bulk of hedge fund assets. There are many L/S funds but here is a small sample of some well known funds.

1) Tiger Global Management

2) Third Point

3) Greenlight Capital

4) Maverick Capital

5) Fairholme Capital

6) Adage Capital

7) Marathon Asset Management

8) JAT Capital Management

9) Coatue Management

10) Jana Partners

11) Leon Cooperman

12) Artis Capital Management

13) Fox Point Capital Management

14) Jabre Capital Partners

15) Lone Pine Capital

16) Paulson & Co.

17) Pershing Square Capital Management

18) Brigade Capital Management

19) Saba Capital Management

20) Appaloosa Capital Management

21) LSV Asset Management

22) Hussman Strategic Advisors

23) TPG-Axon Management

24) Tocqueville Asset Management

25) Brookside Capital Management

26) Blue Ridge Capital

27) Iridian Asset Management

28) Tremblant Capital Group

29) Vinik Asset Management

30) Visium Asset Management

31) Cadence Capital Management

32) Scout Capital Management

33) Karsh Capital Management

34) Brahman Capital

35) Diamondback Capital Management

36) Glenview Capital Management

37) Perry Corp

38) Silver Point Capital

39) Steadfast Capital Management

40) Brahman Capital

41) T2 Partners Management

42) Pine River Capital Capital Management

43) Gilder, Gagnon, Howe & Co

44) Viking Global Investors

Top Sector Specialized Funds

I like tracking activity funds that specialize in real estate, healthcare/biotech, retail and other sectors like small caps and micro caps. Here are some funds worth tracking closely.

1) Cohen & Steers

2) Tiger Consumer Management

3) Orbimed Advisors

4) Sectoral Asset Management

5)
Southeastern Asset Management

6) Bridgeway Capital Management

Top Mutual Funds and Asset Managers


Mutual funds and large asset managers are not hedge funds but their sheer size makes them important players. Some asset managers have excellent track records. Below, some funds that I track closely.

1) Fidelity

2) Blackrock Fund Advisors

3) Wellington Management

4) AQR Capital Management

5) Sands Capital Management

6) Dodge & Cox

7) Eaton Vance Management

8) Grantham, Mayo, Van Otterloo & Co.

9) Geode Capital Management

10) Goldman Sachs Group

11) JP Morgan Chase & Co.

12) Morgan Stanley

13) Manulife Asset Management

14) RCM Capital Management

15) UBS Asset Management

15) Barclays Global Investor

16) Tocqueville Asset Management

Pension Funds, Endowment Funds, and Sovereign Wealth Funds

Last but not least, I track activity of some pension funds, endowment funds and sovereign wealth funds. I like to focus on funds that invest in top hedge funds and have internal alpha managers. Below, a sample of funds I track closely:

1) Ontario Teachers' Pension Plan

2) Canada Pension Plan Investment Board

3) Caisse de dépôt et placement du Québec

4) APG All Pensions Group

5) Harvard Management Co.

6) Norges Bank

I have given you an excellent list of top funds I track closely. There are many more. On NASDAQ's site, you can also enter symbols of U.S. stocks in your portfolio to see who the top holders are and whether they have been adding to their holdings.

For example, if you check out RIMM's institutional ownership, you'll see Fairfax Financial is still betting on the BlackBerry's revival, doubling its stake in Q1. Also, Renaissance Technologies, the best quant hedge fund, initiated a sizable position in RIMM in Q1.

There is a lot of information to assimilate. Again, if you are not a professional trader or fund manager, be careful and never follow any fund blindly. If you do, you will get burned.

Finally, despite renewed concerns in Europe, I remain bullish and think smart money used the latest pullback to load up on risk assets. I like financials (AIG, BAC, JPM), coal stocks (ANR, CLF, WLT), nat gas shares (ECA), copper (FCX), oil shares (CVX, COP, XOM, RIG, etc.), tech shares (GOOG, CSCO, JDSU, CIEN, RIMM, etc.) and think investors need to move well beyond Grexit and other doomsday scenarios (like a hard landing in China). I'm even selectively bullish on some gold shares here!

Hope you enjoyed this comment and before I forget, let me kindly remind you to subscribe and/or donate to this blog by going to the top of the page and clicking on the PayPal links to subscribe or donate.

Thank you and have a great day. Off to Toronto for a couple of days and will see if I post anything while there. Will gladly add funds to the list above but they have to have long, stellar track records.

Speaking of excellent money managers, does anyone recognize the person at the top of this post? His political views aside, he's my favorite money manager of all-time and arguably the best trader in the history of markets with unbelievable risk-adjusted returns (Hint: He quit the business a long time ago to manage his own money and was profiled in the original Market Wizards).

Below, Bloomberg reports on what hedge funds bought and sold in Q1. Notice their focus is on banks and technology. Also, Paula Vasan, Managing Editor of aiCIO, interviewed Jim MacLachlan, Global Head of Equity Manager Research at Towers Watson who talks about how to weed out 'alpha-pretenders'. Excellent interview, available here.

Monday, May 28, 2012

Hedge Funds Trading Euro Misery?

Katya Wachtel of Reuters reports, Hedge funds find ways to trade euro misery:

Two decades ago, George Soros rose to fame and fortune on his now-historic trade in which he took on the Bank of England and shrewdly wagered on a devaluation of the British pound.

But it's unlikely the current European monetary crisis and worries about Greece's potential exit from the euro zone will give rise to an investing legend like Soros, who made $1 billion in 1992 by betting on a decline in the price of the pound.

Instead, there are a multitude of strategies to play Europe's troubles, and many different participants, hedge fund managers say.

"There is not room for one player to have such impact," said John Brynjolfsson, whose California-based Armored Wolf hedge fund has been betting against the euro for quite some time. "Financial markets are so much bigger today."

A spokesman for Soros, who last year converted his Soros Fund Management to a family office and stopped managing money for outside investors, could not be reached for comment.

The euro zone crisis has gone on for so long it is difficult for investors to pinpoint an entry and exit point for a trading strategy. Positions and hedges require constant adjustment, making it difficult to come up with a single big-winning trade.

"It's unlikely in Europe, because the way Europe works is incremental crisis, incremental recovery," London-based Robert Marquardt, founder of fund of hedge funds firm Signet, said.

Brynjolfsson and several other U.S. money managers who are trying to profit from Europe's misery say they expect the current crisis to produce a lot of winners.

So far this year, the euro is down 3.3 percent against the U.S. dollar.

Money managers say it's hard to swing for the fences the way Soros did because institutional investors are far more squeamish about having too much money riding on any single trade.

There is also heightened sensitivity from pensions and endowments about taking up an investment strategy that might spark political outrage from European leaders.

Another thing working against the rise of a new Soros is that trading the euro zone, or even the fallout from a Greek exit, is much more complicated than betting against a single currency.

Money managers are trading the euro zone crisis by trading currencies, wagering on the direction of bank stocks or using derivatives like credit default swaps to bet on potential corporate and bank failures.

Greenlight Capital's David Einhorn recently said he is bullish on gold and gold miners, in part because of concern about the fallout from a euro zone meltdown.

Some managers are even going both short and long on different European sovereign debt, depending on their views of the financial stability of different countries.

Adam Fisher, manager of the $320 million Commonwealth Opportunity Capital hedge fund, noted that Soros faced a "single country, not 17 different countries, one decision maker, not 17."

Fisher's fund, which has more than 80 percent of its money invested in Europe, is taking a somewhat contrarian position by owning the European sovereign debt of Germany, the Netherlands, Italy and Spain.

TRADING GREECE'S EXIT

Hedge fund managers point out that given the up-and-down nature of the euro zone crisis, most hedge funds have been in and out of trades or forced to adjust positions depending on the changing political winds.

Earlier this year, for instance, it looked like concern about Greece exiting the euro had passed. But with the recent results of the Greek election at odds with the austerity measures demanded by its currency partners, the risk of a Greek departure from the euro zone has risen dramatically.

Recently, Fisher said his Los Angeles-based fund had reduced the size of some of its more bullish sovereign debt trades because he believes there will be "violent" market swings this summer.

"It is going to be incredibly difficult to manage risk through that environment," said Fisher, whose fund was up 8.8 percent through April. "I don't think hedging will do anything. The way you hedge, is you sell. You don't subtract risk by adding risk."

One way to profit from any greater swings in markets would be to play the spread between European and U.S. volatility indexes, Barclays Capital equity-linked strategists say. The European index should rise faster than the U.S. one.

Brynjolfsson, a former top portfolio manager for bond mutual fund firm Pacific Investment Management Co, is betting on Greece exiting the euro. He said it will be hard for European leaders to take the necessary steps to appease the Greek government without infuriating politicians in other euro zone countries.

"As the wheels began falling off the bus, we adjusted to have a short bias and that has worked out," said Brynjolfsson, whose $750 million hedge fund is up 2 percent this year, largely on its short bet against the euro.

Some managers are even preparing for the possibility other countries will exit the euro zone.

One such trade involves taking a long position in Italian government debt denominated in U.S. dollars, and a corresponding short position in the debt denominated in euros, one hedge fund investor familiar with the strategy said. The belief is that if Italy is forced out of the euro - or the threat of that possibility grows - the U.S. dollar denominated portion will outperform.

Axel Merk, president and chief executive officer of Merk Investments, an investment advisory firm that specializes in currencies, said the growing problems with Greece and the euro zone led him recently to dump all the euros in his $517 million Merk Hard Currency Fund, which is up 2.29 percent for the year.

Merk now favors the Singapore dollar, which has climbed 1.34 percent since January.

Ray Dalio's $120 billion Bridgewater Associates gained 23 percent in 2011 in part because of profits made from a series of European bets, said a person familiar with the Westport, Conn.-based fund, who declined to discuss specifics. In a recent interview with Barron's, Dalio said European banks "are now over-leveraged and can't expand their balance sheets" and European nations "don't have enough buyers of their debt."

Dalio may be the U.S. money manager who comes closest to rivaling the Soros of two decades ago. His hedge fund is the industry's largest and he is widely regarded as one of the most successful managers.

RELATIVE VALUE

Among the ways funds are playing the European turmoil, some are betting against the fortunes of Spanish and Italian banks instead of simply focusing on sovereign debt.

John Paulson, among others, bets against European sovereign debt as a way to hedge the overall portfolio of his Paulson & Co hedge fund firm.

Daniel Loeb's Third Point fund put on a long position in Portuguese sovereign bonds in the first quarter because the New York-based manager believed the nation is in better shape than others in the euro zone.

"Portugal's debt profile is more consistent with Italy's than Greece's, its banks are substantially healthier than Spain's, and its government has enacted more aggressive labor reforms and is more stable than regimes in both countries," Loeb wrote in a May 16 investors' letter seen by Reuters.

So-called relative value trading - which involves trying to profit from a mispricing between a pair of related securities - has proved popular in this crisis as managers refrain from directional bets, prime brokers and hedge funds say.

Firms such as Boaz Weinstein's New-York-based Saba Capital and Yan Huo's London-based Capula Investment Management are among the shrewdest names in the sector, with both funds performing well amid market turmoil.

"The thing about Europe is that everything you want to do is a relative value trade. A month from now Greece could be out of Europe, or everything could be OK, you just don't know, so you have to be on both sides of the trade," Signet's Marquardt said.

If nothing else, the European crisis is forcing managers to keep coming up with new strategies to trade. One might say it has almost become an incubator for hedge fund managers to stretch their investment acumen.

Merk said he might look again at Europe if the political and financial situation becomes clearer. But he would likely do it a bit differently.

"If there is clarity in the process again, then we will certainly look at Europe again," he said. "But not through Greek debt, but through German bills."

As I stated in my last comment on anti-austerity winds blowing across the eurozone, I believe Chancelor Merkel will find herself increasingly isolated with her stance on austerity, growth and eurobonds.

As for Europe, the most crowded trade right now is short Euro shares and the euro. With bearish sentiment at extremes, any positive news will propel both higher. Reuters reports European stocks rose for a third straight session on Monday and the euro bounced back from two-year lows, as Greek polls showing growing support for pro-bailout parties eased speculation about a disorderly exit by Athens from the single currency.

I think investors are looking beyond Grexit, openly questioning whether the hysteria surrounding a possible implosion in Europe is way overdone. To be sure, Grexit will kill the global recovery, but this is why smart money is betting against the likelihood of such a doomsday scenario.

Below, Laura Fitzsimmons, VP, Futures & Options, JPMorgan Investment Bank says investors should be short riskier assets like currencies and equities and wait for a short-term bounce to ride out the uncertainty. I disagree and think now is the time for smart money, especially long-term investors, to pounce on risk assets.

If you really want to know how top hedge funds are trading in these markets, you need to read my next comment on what top funds were buying and selling in the first quarter. I believe that in this Risk ON/ Risk OFF schizoid market dominated by high frequency computers trading off the latest macro news in Europe and elsewhere, the best approach is to selectively start taking risk again in financials, tech, commodities and energy. Forget euro misery, start thinking euro jubilation!

Sunday, May 27, 2012

Anti-Austerity Winds Blowing Across Eurozone?

Reuters reports, Dutch support for austerity parties falls:

Support in the Netherlands for the five parties that back budget cuts to meet EU targets has fallen sharply over the past month and below the level needed to form a government after elections in September, a poll showed on Sunday.

The euro zone's fifth-largest economy has been one of Germany's most committed allies in pushing for euro zone fiscal discipline, but that was thrown into doubt by the collapse of Prime Minister Mark Rutte's centre-right government last month.

Although the Dutch coalition fell apart when it failed to reach an agreement on budget cuts, Rutte was still able to push those through with the backing of the two parties in his caretaker government and three small opposition parties.

Those five parties would win 66 seats in the 150-member lower house of parliament, down from 76 last month, a new Maurice de Hond poll showed. The election is set for September 12.

The voter shift against austerity echoes a recent trend in elections in other euro zone countries, including France and Greece.

Rutte's Liberal Party appeared to have lost support to Wilders' populist Freedom Party. The previous coalition fell apart when Wilders' anti-euro, anti-Islam party pulled out of budget talks.

The left-wing Socialist Party, which also opposes austerity, would be the biggest party, with 30 seats, the poll showed.

The Freedom Party would have 25 seats, the Liberals would have 24 seats, while Labour, which also opposed the budget deal, was down two seats to 21.

The poll suggested any government formed after the elections is likely to be fragmented and able to command only a slim parliamentary majority, further lowering the chances of pushing through spending cuts.

We know that austerity isn't popular in Europe's peripheral economies but now we're starting to see a backlash in Northern Europe. Even in Germany, Reuters reports that Merkel party urges opposition to back fiscal pact:

A top ally of Chancellor Angela Merkel's conservatives appealed to the opposition Social Democrats and Greens on Sunday to refrain from "playing political games" and back the government to endorse Europe's new fiscal pact and permanent bailout fund.

The SPD and their allies the Greens - making common cause with France's new Socialist President Francois Hollande and some other EU leaders - say the pact must be accompanied by new measures to promote growth and investment in Europe.

Hermann Groehe, Merkel's top deputy in the Christian Democrats party (CDU), said in a radio interview on Sunday it was important for Germany to send a signal across Europe that it is fully committed to the European Stability Mechanism (ESM).

Merkel needs SPD support in the two houses of parliament to secure ratification of the fiscal pact agreed among EU leaders that will impose tougher budgetary rules.

A two-thirds majority is needed because the fiscal pact, seen as the centerpiece of Europe's drive to overcome its debt crisis and recover market confidence, affects the constitution and national sovereignty.

"There is no room in this question for playing political games," Groehe told Deutschlandfunk radio. "It would be good if we in Germany, as the anchor of stability in Europe, send out a signal that stability and solidarity belong together."

The government and opposition parties have been edging nearer a compromise to pave the way for parliamentary approval of the new fiscal pact and permanent bailout fund.

SPD chairman Sigmar Gabriel has said securing parliamentary approval before the summer recess - as Merkel wants - is possible but hinged on the growth proposals to be put forward by the government. Further talks are planned for June 13.

"We have clear-cut conditions in the interest of a stable euro zone and the coalition has to accept them - otherwise there won't be backing from the SPD," SPD deputy party leader Andrea Nahles said on Saturday.

Greens parliamentary floor leader Renate Kuenast added: "The Greens aren't going to be fooled by a growth package unworthy of that name."

The ESM is scheduled to start work on July 1 but Merkel's government insists that the bailout fund must be approved at the same time as the fiscal pact.

Despite the SPD's demands, the party - which has until now backed Merkel on euro zone policies - has made clear it will not torpedo the fiscal pact, seen as the centrepiece of Europe's drive to overcome its debt crisis and recover market confidence.

Meanwhile, in Greece, former Greek prime minister Lucas Papademos warned Greece may run out of money by the end of June if international bailout funds are cut off following next month's election:

"From late June onwards, the ability of the government to fund its obligations fully depends on the approval of the subsequent installments of loans from the EFSF and the IMF," To Vima newspaper quoted Papademos as saying in a leaked memo.

"The available funds in the Greek government will be reduced gradually from about 3.8 billion euros on May 11 to about 700 million euros on June 18 and from June 20 will enter negative territory at the level of around one billion euros."

Centre-left To Vima said Papademos made the warning in a memo to President Carolos Papoulias dated May 11 that was then circulated to party leaders as they tried to form a coalition after an inconclusive May 6 vote.

Greece in 2010 committed itself to a reform programme in return for hundreds of billions of euros (dollars) in bailout funds from the the European Union bailout fund EFSF and the International Monetary Fund.

On May 6 voters weary with salary cuts and other austerity measures handed second place to radical left-wing party Syriza, which has threatened to renege on the bailout accords.

If Greece broke the terms of the deal and forfeited its bailout funds, it would likely default on its debts and may leave the eurozone.

Ahead of a new election on June 17, Syriza has led at times in the opinion polls, but a series of polls published Sunday indicated conservative party New Democracy was favourite to win.

The new surveys by five separate polling groups predict a New Democracy victory ranging between 23.3 per cent and 25.8 per cent, a result that would still require the party to seek additional allies to form a viable government.

Syriza polled in second place ahead of the socialist former ruling party Pasok, which like New Democracy defends the bailout agreement.

New Democracy, part of the previous ruling coalition that signed on to the bailout deal, has said it will seek to renegotiate parts of the package but not scrap it completely.

As for 'Grexit', ekathimerini published a Bloomberg article citing the IIF's Charles Dallara who warned the cost of Greek euro exit may exceed 1 trillion:

The cost of Greece exiting the euro would be unmanageable and probably exceed the 1 trillion euros ($1.25 trillion) previously estimated by the Institute of International Finance, the group’s managing director said.

The Washington-based IIF’s projection from earlier this year is “a bit dated now” and “probably on the low side,” Charles Dallara said in an interview in Rome on Saturday. “Those who think that Europe, and more broadly the global economy, are really prepared for a Greek exit should think again.”

The European Central Bank’s exposure to Greek liabilities is more than twice as big as the ECB’s capital, said Dallara, who represented banks in their negotiations with the Greek government on its debt restructuring. As a result, he predicted the bank would be unable to provide liquidity and stabilize the euro-area financial sector.

“The ECB will be insolvent” if Greece were to exit the euro, Dallara said. “Europe would have to first and foremost recapitalize its central bank.”

Concern about Europe’s crisis has erased about $4 trillion from global equity values, as policy makers continue to argue over how to stabilize the 17-nation euro area and limit regional contagion. European Union President Herman Van Rompuy said yesterday that contingency planning for Greece leaving the euro “isn’t a priority,” while Morgan Stanley economist Elga Bartsch has said Greece has a 1-in-3 chance of a euro exit.

In February, the IIF estimated that Greece’s liabilities, in the event of a euro exit, could be crippling. “It is hard to see how they would not exceed 1 trillion euros,” the group said in an internal Feb. 18 report that hasn’t been made public.

Spain, Italy and the already-bailed out Ireland and Portugal “remain quite vulnerable to changes in market sentiment” as Europe’s sovereign debt crisis continues, Dallara said. He urged policy makers to remember the shockwave caused by the failure of Lehman Brothers Holding Inc., and that what appears to be a “containable event” may in fact bring on financial meltdown.

For Greece, in its fifth year of recession, it may be more effective to offer extra money to help its battered economy recover, Dallara said. Because Greece’s economy has shrunk so much faster than expected, it may need more time to meet its budget targets and repay its international loans, he said.

Greece’s shrinking economy could be aided “at a cost” of an additional 10 billion euros. “We’re talking about very modest sums compared to what’s already on the table,” he said.

“A small olive branch here carefully defined, nuanced in its presentation, not as an alternative to fundamental reform but a recognition that some elements of this program were not that well designed, would be a wise thing and I would do it sooner rather than later,” Dallara said.

It’s not clear whether Spain will need a bailout as it seeks to help its banks weather the euro crisis, he said. A planned audit of bank loan books is likely to show that the Spanish banking sector’s woes are “manageable” overall, Dallara predicted.

Spain is grappling with how to handle Bankia SA, which was nationalized earlier this month, and other problems in the savings-bank sector. Dallara said the systemic risk posed by Bankia “has been somewhat exaggerated” and that independent inquiries will provide an outside assessment of Spain’s financial condition.

“If it is of manageable proportions, then I think it is the decision of the Spanish government to decide” whether to pursue outside aid, Dallara said.

“The magnitude remains to be determined and I think we should exercise a bit of patience and allow this process to run its course and realize that as it is, Spain is making substantial headway in budget reduction,” Dallara said.

In the long run, the euro area will need to address the “fundamental structural flaw” of sharing a currency while allowing national governments to control fiscal policy, he said. He urged Germany to drop its opposition to shared debt and instead seek a system where joint euro bonds could be an “incentive” to fiscal restraint and structural reform.

“The only way to help markets see past that obscurity is to remove the cloud of uncertainties of national fiscal position and move toward unification,” Dallara said.
Dallara is absolutely right, it's up to Germany to drop its opposition to a common eurobond market and start massive investment projects to kick start eurozone's weaker economies.

Bloomberg also reports the IMF's Managing Director Christine Lagarde said she was sensitive to the plight facing Greece, while reiterating that the wealthy must pay their fair share of taxes.

The comments, posted on Facebook, came a day after Lagarde said in an interview with the Guardian newspaper that children in Africa needed more help than the Greeks and that many in the country were “trying to escape tax all the time.” The posting generated more than 8,300 comments, including hundreds written in the Greek language.

The prospect of Greece leaving the 17-nation euro region increased after parties opposed to the terms of the nation’s second bailout by the European Union and the IMF won most of the votes in May 6 elections. A fresh round of voting will be held June 17. The once-taboo issue of a Greek withdrawal from the 17- nation currency union entered into public debate this month, even as EU forecasts showed the country’s economy will contract by a further 4.7 percent in 2013.

‘Simplistic’ Comments

Lagarde, who was finance minister under the ousted conservative President Nicolas Sarkozy, also came under attack from the spokeswoman of the country’s new Socialist government, Najat Vallaud-Belkacem.

“I think the comments were simplistic and stereotypical,” Vallaud-Belkacem said in an interview on Canal-Plus television today. “It’s not a time to be giving lessons. It’s not like this we will solve the crisis.”

The response to Lagarde’s Facebook page came from across Europe, and expressed a variety of views. Some were unprintable attacks on Lagarde, while others reproduced Greek poems about the country’s revival from past sufferings. A few accused Germany of benefiting from Greece’s predicament. One Greek man said the country will honor its debts and asked fellow European to ignore the “mob” posting comments on Lagarde’s page.

‘Little Kids’

“The last thing we in Greece seek is her compassion,” Alexis Tsipras, head of the Syriza movement that wants to renegotiate the terms of Greek aid, said in an e-mailed statement today. “Greek workers pay their heavy taxes. When it comes to tax evasion she should speak” to Pasok and New Democracy, which led previous administrations, he said.

In the interview with the U.K.’s Guardian, Lagarde said Greek parents have to take responsibility if their children are being affected by spending cuts and “pay their tax.”

“I think more of the little kids from a school in a little village in Niger who get teaching two hours a day, sharing one chair for three of them, and who are very keen to get an education. I think they need even more help” than people in Greece, she said.

Note to Ms. Lagarde, please keep your mouth shut during Greek election period. Same goes for Schaeuble and anyone else. All we need now is to give the delusional Mr. Tsipras more ammunition to go around saying it's war between people and capitalism. All Greek parties slammed her comments.

Of course, Ms. Lagarde isn't way off to scold Greeks on tax evasion. Her timing is terrible but she's absolutely right that Greece needs to reform its tax system and make sure they root out corruption and fraud once and for all.

As I stated in my last comment looking at Greece's prospects over the next decade, only Greek shipowners have a constitutional right not to pay taxes. The problem is that tax evasion is a national sport in Greece, which is why the government started imposing taxes via utility bills (the now hated "haratzi").

In Greece, the most corrupt people are tax collectors and powerful politicians like former Defense Minister Akis Tsochatzopoulos, currently in custody on suspicion of embezzlement and money laundering. Ekathimerini reports he had deposited more than 20 million dollars in a Swiss bank account before he assumed his position in the cabinet and allegedly accepted under-the-table payments, according to documents retrieved from his office.

There are countless other well known politicians from the past who have built villas on Greek islands and sent millions to offshore banking havens. The IMF should place pressure on Switzerland and others to open up bank accounts of Greeks who parked millions in their banks.

For example, ekathimerini reports that Greek demand for London properties shoots back up, pre-polls:

Data issued by foreign realty companies operating in Greece show that local demand for properties in London rose 39 percent in April -- before the May 6 election -- compared to the average for the previous six months.

Most prospecting investors appear to have expressed interest for properties worth more than 1.5 million pounds sterling.

It is estimated that Greeks spent about 126 million euros for residential purchases in London in 2011.

“Now, apart from shipowners and other business magnates, young Greeks have also begun flocking to London due to the high unemployment at home, and are boosting the rentals market,” realtors say.

It is not just Greeks that are seeking more properties in London. In April, demand by Spaniards was up 14 percent, by Portuguese 153 percent and by Italians 46 percent. Demand has shot up again since the proclamation of new Greek elections for June 17, despite the slide of the euro against the pound.

You might be asking yourselves the same question that I'm asking myself: where are all these Greeks, Italians, Spaniards and Portuguese getting the money to buy this property? Some of it is legitimate but I suspect a lot of it is tax evasion, pure and simple. Just goes to show you there will be no fairy tale ending for London real estate.

Below, euronews reports the economic and financial crisis has overthrown governments all-over Europe. In the Netherlands, the political parties have clashed over austerity measures. And while the outgoing government increases the retirement age and VAT, the Dutch are becoming ever more disillusioned.

And Deutsche Welle reports Chancellor Angela Merkel has been taking a bruising over her plans to rescue the euro by enforcing strict austerity measures. The defeat of French President Nicolas Sarkozy and the resignation of the Dutch Prime Minister Mark Rutte have left her further isolated. As anti-austerity winds blow across Eurozone, will Merkel ultimately cave on eurobonds? I think so and believe markets are sensing this too. Perma bears and euro shorts beware!

Saturday, May 26, 2012

Greece 10 Years Ahead?

Sam Ro of Business Insider reports, Here's How Greece Can Dominate The Lucrative Global Olive Oil, Feta Cheese And Greek Yogurt Business:
Financial distress and political turmoil persists in Greece. And now a Greek exit from the euro is what everyone is buzzing about these days.

However, there are numerous actions Greece can take to help turnaround its desperate financial position.

Earlier this year, consulting firm McKinsey & Co. just published a study titled Greece 10 Years Ahead: Defining Greece's New Growth Model and Strategy. As its title would suggest, the report aims to lay out a new growth plan for the financially beleaguered country.

Among other things, McKinsey argues that Greece needs to be more involved in processing foods that currently leave its country as low margin unfinished goods. Greece has some of the most amazing food commodities in the world. However, it lacks the capacity to process it and sell it at high profit margins.

"Greece has significant potential to increase its output, boost exports and contain imports, especially in four major high-potential categories, namely oils & fats, fruits & vegetables, dairy, and bakery products," writes the studies authors.

More from McKinsey's report:

As an example, Greece is the 3rd largest olive oil producer worldwide and exports 60% of its output to Italy in bulk, yet in doing so allows Italy to capture an extra 50% premium on the price of the final packaged product. The fact that Greece holds only a 28% of the global 'Greek Feta' cheese market and 30% of the US 'Greek Style' yogurt markets, further reinforces a clear commercial opportunity for Greece.

You can click here to see McKinsey's strategy for Greece's future. There is, however, a lot more potential in Greece than just olive oil, feta and yoghourt. We just need to get over the next month and move beyond all the talk of Grexit killing the global recovery.

As I've already reported, Greece, Israel and Cyprus are cooperating to exploit natural gas deposits in the Mediterranean, but this could take a decade. It's also a source of tension with Turkey which is warning that waters off the coast of war-divided Cyprus where Greek Cypriots plan to explore for natural gas lie within its continental shelf.

Apart from exploiting natural gas deposits, renewable energy must be a top priority of any Greek government. Bloomberg reported that Greece's Helios solar energy project could raise 15 billion euros ($19.65 billion) to go toward reducing the national debt. Solar has huge potential in many European peripheral economies.

Then there are established industries like tourism and shipping. Earlier this week, ekathimerini reported that Greek-owned merchant fleet remains dominant:

Greek shipping retained its position as world leader in 2011, as it controlled 14.83 percent of the global capacity in deadweight tonnage despite the problems caused by the international crisis and reduced funding from banks, according to a report issued on Thursday by the Union of Greek Shipowners.

However, the slow cash flow and the oversupply of capacity, as well as high fuel prices, resulted in an 8.57 percent drop in profits for Greek shipowners to 14.1 billion euros, from 15.4 billion in 2010, the report said.

Greek-owned shipping companies controlled 3,325 vessels with a total capacity of 226.92 million dwt last year. The Greek-flagged fleet amounted to 2,014 vessels with a capacity of 43.39 million dwt, constituting 39.52 percent of the total European Union capacity.

The head of the shipowners’ union, Theodoros Veniamis, said that the positive results do not allow for complacency but require a constant redefinition of targets, before reiterating the sector’s demand for the re-establishment of the Merchant Marine Ministry.

Greek ship owners do not pay taxes. A friend of mine explains:
The shipping sector is exempt from corporation tax. This exemption has been incorporated in the Greek constitution. The last time that the Greek government tried to impose taxes on the shipping sector, they all moved their operations to London. It took them 30 years to convince them to move back to Greece.

If the Greek government decides to tax them again, they will move out of Greece for good. At the moment, these companies employ quite a few people who pay income tax and contribute to social security.

Additional taxes is not always the answer in Greece. The main contributor to low productivity in Greece is the high cost of labour. Labour is expensive not because Greeks earn high salaries. It is expensive because the Greek government imposes enormous social security costs on its employers.

There is absolutely no way for a Greek company to be competitive and overcome the tax burden associated with operating in Greece. What irks me is the false impressions that the media has created about Greeks (ie calling them lazy etc.). This simply not true.

The problem with Greece is simply poor governance. Until this improves, there will be little or no progress in the country. Everyone is to blame (not only the politicians).
The high cost of labor in Greece is what has basically killed the manufacturing sector there, and my friend is right, the problem isn't high salaries, the problem lies with the enormous social security costs imposed on employers.

To be sure, there are excellent manufacturers in Greece. My cousins run one of the most successful companies in Greece, Plastika Kritis, a well-known European plastics manufacturer based in Iraklio, Crete:
PLASTIKA KRITIS was established in 1970. It is one of the largest Greek plastics manufacturers and one of the leading European producers of masterbatches and agricultural films. It has a strong international orientation with affiliate companies in France, Romania, Poland, Russia, Turkey and China and exports to more than 50 countries around the world. It has been listed in the Athens Stock Exchange since May 1999.
Their father founded that company with the help of my grandmother's brother who, at the age of 19, left to go study finance in Germany. He didn't speak a word of German but learned it there while working to pay his studies.

That generation of Greeks is long gone. They were tireless workers and extremely ethical. Their word was better than any written legal agreement. They didn't live on debt and if they borrowed, they always honored their debts. For them, their name and family honor meant everything.

There are a lot of hard-working Greeks in Greece today but they typically fall victim to a corrupt and grossly inefficient system that kills any entrepreneurial drive. This is why many young and intelligent Greeks decide to pack up and leave the country searching for opportunities elsewhere. This massive brain drain isn't good for the Greek economy.

Tourism is another staple industry in Greece which has gotten hit by the crisis. Ekathimerini reports that Greek Americans give ailing tourism another boost:

After gracing New York City’s iconic Times Square with a giant billboard depicting images of classic Greek scenes -- the Acropolis, a cafe table with two wooden chairs -- in March and April, the Up Greek Tourism campaign has unveiled another -- this one featuring the classic blue dome of an island church with the sea in the background -- in central Washington DC.

The campaign comes at what is proving to be a difficult time for the country’s vital tourism sector, with the Hellenic Association of Travel and Tourism Agents (HATTA) on Friday sending a letter to the leaders of Greece’s main political parties warning of the negative effects that the prevailing political uncertainty is having on the industry. They asked that the political leadership make assurances to Greece’s partners that it is a stable and safe country in which to travel, arguing that “international tourism agents are freezing their bookings and withdrawing their associates from the country.”

Up Greek Tourism is an initiative started in 2009 by a group of Greek Americans in New York, spearheaded by Yorgos Kleivokiotis, Onic Palandjian and Stathis Haikalis, in response to the Greek crisis and the tarnishing of the country’s image in the international media. The group has grown since 2009 to include marketing, management and promotion experts who raise funds and design campaigns promoting the Greek destination.

“We are talking with Boston, Atlanta and Chicago,” said Jim Stoucker, a campaign member. “We hope to be able to expand to these cities soon and to help Greece, and especially the 20 percent of its citizens who work in the tourism industry.”

According to Art Dimopoulos, who coordinated the Washington initiative, the campaign has the support of the American Hellenic Educational Progressive Association (AHEPA) and the American Hellenic Institute (AHI).

“Our aim to increase tourism in Greece,” Dimopoulos said.

AHI President Nick Larigakis noted that “15 percent of Greek GDP comes from tourism. Given the situation, it is imperative that the country’s revenues from tourism increase.”

It is imperative that revenues from tourism increase, however, all the political uncertainty isn't helping. In terms of tourism, Greece also needs major investments to start developing casinos and I know the perfect spot, southern Crete. I say this with great trepidation as it's one of the last natural paradises in Greece, unscathed by commercial tourism.

Love many islands and cities in Greece, but being a proud Cretan, I consider Crete to be another country from Greece. Even my Greek friends who visit agree with me that you simply can't beat Cretan hospitality. The beaches, the food and people truly stand apart.

Finally, Greece needs to find ways to attract financial firms to Athens. Specifically, I'm thinking of hedge funds and other large asset managers. The time difference, weather and untapped human capital are all factors that work in favor of developing the financial industry in Greece but labor costs, taxes and a corrupt bureaucracy all work against such a move.

Below, watch a beautiful video promoting Greek tourism 2012. I also embedded a video from my vacation last year taken on the morning of September 11th in Agios Nikolaos, my favorite city in Crete. There are many beautiful places to visit in the world but nothing compares to Greece. I recommend June and especially September to avoid the mad summer rush but anytime is beautiful in Greece. Take advantage of the 'Greek crisis' to book your vacation now and enjoy. Thank me later. :)

Friday, May 25, 2012

War Between People and Capitalism?

My Friday afternoon follow-up to whether Grexit will kill the global recovery. Last week, the Guardian published an article, Greek leftist leader Alexis Tsipras: 'It's a war between people and capitalism':

"I don't believe in heroes or saviours," says Alexis Tsipras, "but I do believe in fighting for rights … no one has the right to reduce a proud people to such a state of wretchedness and indignity."

The man who holds the fate of the euro in his hands – as the leader of the Greek party willing to tear up the country's €130bn (£100bn) bailout agreement – says Greece is on the frontline of a war that is engulfing Europe.

A long bombardment of "neo-liberal shock" – draconian tax rises and remorseless spending cuts – has left immense collateral damage. "We have never been in such a bad place," he says, sleeves rolled up, staring hard into the middle distance, from behind the desk that he shares in his small parliamentary office. "After two and a half years of catastrophe, Greeks are on their knees. The social state has collapsed, one in two youngsters is out of work, there are people leaving en masse, the climate psychologically is one of pessimism, depression, mass suicides."

But while exhausted and battle weary, the nation at the forefront of Europe's escalating debt crisis and teetering on the edge of bankruptcy is also hardened. And, increasingly, they are looking towards Tsipras to lead their fight.

"Defeat is the battle that isn't waged," says the young politician who almost overnight has seen his radical left coalition party, Syriza, jump from representing fewer than 5% of Greeks to enjoying ratings of more than 25% in polls.

"You ask me if I am afraid. I'd be afraid if we continued on this path, a path to social hell … when someone fights there is a big chance that he will win and we are fighting this to win."

Before Greeks went to the polls on 6 May, neither Tsipras nor his party were a name to be reckoned with. If anything both were the butt of vague mockery: a former pony-tailed student communist leading a rag-tag band of ex-Trotskyists, Maoists, champagne socialists and greens. Tsipras's assistants – wielding Louis Vuitton bags and fashionable sunglasses – readily admit they are signed up "militants" mostly of the anti-globalisation cause.

But today I am the third person to pass through Tsipras's second-floor parliamentary office. The others have been the German ambassador to Greece and the president of the European parliament, Martin Schulz. As Greeks prepare to head to the polls again on 17 June, Tsipras, the politician poised to win the greatest number of votes – after Syriza came in second place in this month's inconclusive election – is the man everyone wants to see. "He is not as dangerous as he appears on TV, but he does have some risky positions," says Schulz emerging form the talks.

"The [upcoming] vote in Greece will decide not just what happens here but what will happen internationally", adds the German before saying what he really wants to say. "If the memorandum [loan agreement] is cast in doubt, the payment [of rescue funds from the EU and IMF] to Greece is cast in doubt."

Tsipras, who turns 38 in July, wants me to know that the war is not personal. The enemy is not Berlin, until now the biggest provider of the monumental rescue funds keeping the debt-stricken economy afloat. "It is not between nations and peoples," he says. "On the one side there are workers and a majority of people and on the other are global capitalists, bankers, profiteers on stock exchanges, the big funds. It's a war between peoples and capitalism … and as in each war what happens on the frontline defines the battle. It will be decisive for the war elsewhere."

Greece, he says, has become a model for the rest of Europe because it was the first country to fall victim to the enforcement of hard-hitting "growth through austerity" policies pursued in the name of resolving the crisis.

"It was chosen as the experiment for the enforcement of neo-liberal shock [policies] and Greek people were the guinea pigs," he insists.

"If the experiment continues, it will be considered successful and the policies will be applied in other countries. That's why it is so important to stop the experiment. It will not just be a victory for Greece but for all of Europe."

Under the current rescue plan, which has subjected the nation to relentless austerity – the average Greek's purchasing power has dropped by 35% – the international financial system, and especially banks, are gaining most, he says. "Who is surviving, tell me?" he asks. "Greeks aren't … The loans are going straight to interest payment and banks."

The other point that Tsipras wants to make is that he is not against the euro or monetary union. Fears that the country is about to exit the eurozone are about terrorising people to keep the status quo, he claims. They are why the nation has seen "more then €75bn" of cash taken out of Greek banks since the outbreak of the crisis in Athens in December 2009.

But Angela Merkel, the German chancellor, should know she has "a huge historical responsibility" – a point he will be making when he holds talks with representatives of the German government in Berlin next week.

"We are not against a unified Europe or monetary union," he insists. "We don't want to blackmail, we want to persuade our European partners that the way that has been chosen to confront Greece is totally counter-productive. It is like throwing money at a bottomless pit."

Over the past two years, Athens had received two bumper bailouts from the EU and IMF: €110bn in May 2010 and then €130bn in March this year, but the stringent fiscal adjustment programmes demanded in return for the aid are clearly not working, he says.

If the emphasis is not now put on re-energising Europe's most moribund economy through development and growth, "in six months we will be forced to discuss a third package and after that a fourth," he predicts,

"European tax payers should know that if they are giving money to Greece, it should have an effect … it should go towards investments and underwriting growth so that the Greek debt problem can be confronted because with this recipe we are not confronting the debt problem, the real issue."

All this sounds remarkably toned down from the fiery rhetoric Tsipras has come to be associated with – until, that is, the mention of rescue funds drying up if (as seems likely) his party emerges as the governing force in a hung parliament.

The first thing Syriza will do in power is tear up the controversial "memorandum of understanding" Greece signed up to with creditors, which details the onerous conditions under which the country receives quarterly injections of cash.

The agreement, he says, was reached without the Greek people ever being consulted. And now in the wake of the 6 May vote, when more than 70% of those opposing the policies voted for "anti-bailout" parties, it is clear it has lost all legitimacy, he insists

It is a high stakes game but, he argues, Europe is holding the gun because ultimately, under European law, Greece can't be ejected from the 17-nation bloc.

"Europeans have to understand that we don't have any intention of pushing ahead with a unilateral move. We will [only] be forced to act if they act unilaterally and make the first move," he says. "If they don't pay us, if they stop the financing [of loans] then we will not be able to pay creditors. What I am saying is very simple."

And if Athens stops paying its creditors, the problem then takes on a different hue. Greece is in a much stronger position than most think.

"Keynes said it many years ago. It's not just the person who borrows but the person who lends who can find himself in a difficult position. If you owe £5,000 to the bank, it's your problem but if you owe £500,000, it's the bank's problem," he said. "This is a common problem. It's our problem. Its Merkel's problem. It's a European problem. Its a world problem."

With his good looks, raven black hair and propensity for rousing oratory, Tsipras comes across more as a pin-up (which is how many in Greece see him) than a saviour, which is how a great deal of others see him.

His aides add in passing that one of his heroes is Venezuelan leader Hugo Chávez, with whom he shares the same birthday. Nor does he believe in political tags "at this time of crisis".

But though he appears to be preparing for power and moderating his tone, he says the war will continue.

While I agree with Tsipras on the futility of draconian austerity measures, he's absolutely delusional if he thinks Greece can easily walk away from the bailout agreement. Greece is running a primary budget deficit, meaning even if they stop paying the interest payments on their debt, they don't have enough government revenues to cover their expenses.

Moreover, Tsipras fails to mention that it's Greece's private sector that has born the brunt of austerity measures. The extremely bloated public sector, protected by powerful and equally delusional unions, hasn't suffered the same job losses or cutbacks.

And don't you just love left-wing leaders who never worked a day in their lives, coming out warning that it's a war between people and capitalism? No, Mr. Tsipras, the problem isn't capitalism, it's crony capitalism, corporate welfare and the insistence on promoting the interests of the powerful and prosperous financial elite at the expense of the restless many.

This is why I agree with those who think the retirement crisis requires new thinking. Left to their own devices, individuals will get slaughtered in this wolf market. We need to protect our retirement system by promoting large, well governed public defined-benefit plans.

But leaders like Alexis Tsipras don't have a clue of what I am talking about. In their delusional world, big, bad Germany is the only one to blame for Greece's woes and they can magically walk away from the bailout agreement and live off revenues from olive oil, feta cheese and Greek yoghourt.

I'm being facetious but if you listen to the nonsense Tsipras is spewing on UK's Channel 4 below, comparing the standoff in Greece to the nuclear cold war between the US and USSR, you got to wonder what planet does this guy live on?

This just shows me that Tsipras and his party represent Greeks with severe entitlement issues, mostly the disenfranchised and public sector workers, who condone this sort of blackmail. All this reminds me of the nonsense happening right here in Quebec where the new ruling class is holding the entire population hostage. It's as if I am watching little children scream "it's either my way or the highway!".

Well dear Quebec student protesters, you have lost the little sympathy I had for you. I think it's time you head back to school, stop whining and start negotiating with civility (listen to CBC's Rex Murphy below). I can say the same thing about those Greeks who are blindly following the delusional Mr. Tsipras. It's time to stop protesting, bitching about austerity and realize that you can't have your cake and eat it too.