This could be the right time to invest in Greece!

A significant correction has taken place in the Athens Stock Exchange (ASE). This is becoming a good opportunity to get into the market! One of the best pieces of advice I got when I was in school was “Talk about what you know”. This is truly good advice and actually being of Greek background I feel that I am well qualified to comment.

The background of the market is as follows… For years the market was lost in obscurity until about 1994/5 when it started rising… then it rose to the point where almost every person on the street had a hot tip about the stock market in 1998/9… then in 2000/1 the market took a steep nosedive and fell more than 60%! Since then the market stabilised considerably and a lot of the interest was lost until about 2 years ago when the market started to recover very VERY slowly and started to pick up some steam last year. With the ‘mini-crisis’ in the world markets that took place this month (as is still unravelling itself) the Greek market lost more than 10%.

This correction makes me feel positive about the future outcome of the Greek market, as this was a welcome break from the high profits. These corrections were missing in the first rally that I mentioned before. People used to tell me “Today… I made enough profit to buy a cheap car” and it happened that they told me this every day of the week and sometimes even longer. At the time the regulators tried to calm the market down artificially by placing limits on the allowed volatility that was allowed on a given stock on a given day. This meant that the nearly the entire market would be locked at the limit-up of 8% with little trading taking place at this level as there were no sellers! The market was not allowed to self-regulate itself with supply and demand rules. This correction prevents us from making the same mistakes again and can only be good.

I would not like to indulge in specifics at this point but I would like to add another theory. The rule that you need to follow when you want to be in the equity market at all time is that you should invest more into the larger companies when you are sceptical about the market (as these are usually depreciating less) and invest more in smaller companies when you believe the market will rise (as these usually appreciate more in bull markets). I feel that the market will do well over the next few months and thus am saying that we should start buying into the medium and small companies.

Selected Links:

www.ase.gr

www.naftemporiki.gr

www.eurobank.gr

www.nbg.gr

PLEASE NOTE: this blog is only meant for information purposes and is not meant to be expert advice. Any decision made by the reader will be after he has considered and accepted all risks associated with his/her decision!

The world cup is around the corner!

The summer is almost upon us and most bankers are starting to plan their after-work activities around the World Cup that is starting in Germany in under a fortnight.

You may ask yourself, why is this important? The answers to this question are limitless but a few of the main ones that spring to mind are: 1) The financial markets are highly influenced but physiological factors and the happier and more relaxed the participants, the better it is for the markets 2) Recreational activities, such as spending time with them mates/guys, helps maintain a well-rounded life 3) It helps team-building, when you watch a game with colleagues, a bond is strengthened and working with that person becomes easier 4) it’s good to talk about something other than work for a change… to name but a few.

This post deviates slightly from the rest as it focuses on the social aspect more rather than the financial. As stated in the first post on this blog, this will happen every now and then.

By the way… since we are on the topic. My predictions are as follows:
Brazil will not retail its title.
Germany (hosts) will not win it either.
That leaves us with France, Spain, Italy, Holland, Argentina and England as the remaining favourites and the winner should come from one of these. I would predict that Argentina, France and Spain would have better chances than the others.
The dark horses would have to be: Sweden (as always), Portugal, Czech Rep., Ghana and Croatia and I would say that the order I have placed them in is not coincidental.

Until next time… enjoy the weekend!

Investing - Hedge Funds

Today is a holiday here in Austria and the markets are closed. With this opportunity lets step back from the markets for a while. Let us ponder the issue of "Hedge Funds" as they are coming out of the shadows again.

We have a funny way of blaming Hedge Funds when markets are volatile and to totally ignore them as if they didn't exist when markets are going relatively smoothly. I saw a report on CNN today saying that a lot of the volatility over the recent period was caused because of the trading activity of Hedge Funds and then they went on to show a few statistics like one fifth of the world's currency conversions is due to Hedge Funds and a half of the world's trades on commodities is due to Hedge Funds, etc. Naturally the report was not totally one-sided so that they did not seem to take sides but after having seen the report, the viewer was left with a feeling that Hedge Funds are somehow 'bad'.

When I talk about asset allocation with clients, one of the issues I bring up is the issue of Hedge Funds because in the US (and Canada) there is an impression in people's minds that Hedge Funds are really risky and that in most cases you would have either badly managed and/or regulated funds or that the people behind them in most cases will just run-off to the Caribbean... with you cash! This is in fact partly true (one cannot deny that) but only so to a small extent. I am one of the people that believe that the world of Hedge Funds is a great place. Every portfolio that is beyond low risk should include a percentage of Alternative Investments (i.e. Hedge Funds). Hedge Funds are not magical, far from it; losses can be very high just as easily as they can be greatly profitable. The point I like about Hedge Funds is that they have the ability to return you a profit when the markets are volatile (even with no apparent direction) and when the markets are falling. Over the past 8 months or so, the returns of Hedge Funds were not that great, this is because the markets were going steadily up. With a lack of volatility Equities (in rising markets) are by far the best option as this ability to profit from both rising and falling markets comes at a cost (i.e. lower returns). This I believe will change over this quarter though as the recent volatility will spark a new round of profitability in this asset class.

In my opinion, the medium sized investor needs to have the following in his portfolio in order for it to be well diversified and properly balanced: Precious Metals, some Equities in major markets, some Equities in emerging markets, Hedge Funds and a portion of Bonds (depending on market conditions). These should ideally be spread over 3 or more currencies as well. For the larger investor, I would also add in a portion of Property investment (currently focusing on emerging markets) and also have a greater diversification in terms of currencies.

Closing thought: There are those who believe that a well balanced and well managed Hedge Fund only portfolio is actually more stable and yields better results (over time) than the traditional portfolios restricted to Equities and Bonds. It does merit some thought but for the time being, Hedge Funds need to work on their PR skills and we need to monitor and regulate them a bit more... but we are getting there!

Where is the GOLD price going?

This is a question on many people's minds over the past few days. We have seen a massive rally in the gold price over the past few months and this has been taken quite lightly as of late. It was regarded as a huge milestone when the price went over USD 600 an ounce but since then people have been expecting it to continue onwards and upwards without paying much attention to how high it actually went! This is very dangerous and I do not want to take a side. Neither do I believe that it is out of pure coincidence that the price reached where it is currently, nor do I believe that the price will hit the USD 1000 mark by the end of the year.

It is my personal belief that the rally needed a good solid correction before it could gain momentum once more. To keep it simple, I was close to suggesting to a friend of mine that we should perhaps sell when it gets near the USD 700 mark (I got it a bit wrong but not by much) but I would find it very difficult not to buy if the price falls below the 580 mark once again.

A brief thought about SILVER as well:
A friend of mine had suggested to me that the price of Silver would reach USD 15 per ounce sooner that you would think. That was about 2 years ago and as it turns out, he was right! It did, but it tumbled down again in a very abrupt fall to about USD 12 where it is currently trading. It had also fallen below the USD 12 mark in morning (European) trading. When the price had hit the USD 15 mark, I congratulated my friend on being so right and reminded him that the price was just below USD 7 at the time (in mid 2004)! He said that he would not consider selling for anything below USD 50 a point which I found to be a bit extreme myself. I had said at the time that USD 15 would be a good price at which to sell (not expecting a falling market at the time) so that you can materialise some of your profits (as we all know, precious metals don't pay out a dividend or interest).

To summarise:
I would be a buyer of Gold at USD 580 and a buyer of Silver at a price of about USD 10.5. If we were to reach these prices, I would set a target price of USD 700 for Gold and USD 14 for Silver in the short to medium term.

Side-note:
As the US Dollar strengthened a little today I thought I should mention that if this continues for a few days more and the USD/EUR rate were to go back to 1.25, I would use this opportunity to get out of the USD for good. In my opinion these rates will be difficult to find in the months to come! The US budget deficit was already priced into the rate but so was the high interest rate differential and with EUR rates set to start increasing soon, it seems inevitable that we will reach the 1.33 mark pretty soon (before the year is finished).

Lastly:
The heading for this post is also a link to Kitco.com. I find that their site is highly regarded and provides some good information as well as almost real time prices!

With this thought I leave you for today...

First Thoughts

Hello all.

A brief overview of where we stand at the moment:
We have seen that the stock market has rallied greatly over the past months and the consensus up until about a week ago was that we would go "onwards and upwards" as phrased by a colleague in the profession. Then the inflation numbers came out in the US and triggered a large sell-off on a world scale! This is easily understood as the US is still the pillar upon most other economies lean heavily on. Now is where things are getting interesting because sentiment is not unanimous on this issue. Some analysts believe that this is a correction and that in the mid-term the securities stock markets should continue to rally. On the other side of the fence though, are the other analysts that say that the US is about to hit a major economic crisis, especially with the property bubble that has grown to enormous dimensions about to burst and take everyone with it.

A brief theoretical background as to the mechanics behind it is discussed below, if you are not a novice, you can skip the paragraph below:
We should also consider that the sentiment is that interest rates about to go for a little hike and that by this time next year we should expect to have higher rates that would actually influence our finances. This is a very important aspect of the economy as the higher the interest rates, the more growth is kept back. This is because, higher rates make people save more (or pay off their loans) as they feel a bigger pinch in their pocket due to higher interest payments. This means that they spend less on luxury goods. Companies that wish to expand also spend less because it does not make sense for them to pay an overly high interest rate to the banks in order to expand their business. A decrease i corporate spending means that less jobs are created and unemployment rises. As unemployment rises, people spend even less as their job becomes more insecure.

What I would do with my money:
At the moment, I would invest a small portion in stock market(s) and a small portion in precious metals. If you want to add in some really risky stuff, you could also add property funds that invest in developing markets. I would keep the rest in cash that would be in a certificate of deposit (time deposits) for not more than 3-month period maturity. When I see that the interest rates have gone high enough (sometime around the summer of next year), I would think of buying some bonds at that time. I would also invest a small portion of my funds in long/short hedge funds (this means that they can make profits in both bull and bear markets) as this would keep me safe from the imminent downturn in equity markets. When it comes to precious metals I would like to say that I have an educated opinion but I don't, in this case it is more of a gut feeling. I think that I would buy some more metals when the price has corrected by another 10% or so. Finally, I would definitely lean my portfolio away from the USD as I believe that we are in for quite a devaluation in the short to mid term.

Last thought:
sometimes we forget that a decrease of 20% from a guide price of 100 takes us to 80 and a subsequent increase of the same amount only takes us back to 96! Timing is not everything but it is Pretty Important!!!

I hope this help any of you trying to find your way out there... let me know if you have questions.

Until next time...

Beginning

This is the beginning of the “Thoughts of a banker”. He will share his thoughts regarding the markets, day-to-day life and society as a whole. You share no obligation to read what he has to say but note that even when he is wrong (and he is sometimes) he still raises a few good points along the way.

His background is in banking and he is in the market on his own and through his clients. He lives in Europe and this sometimes affects his views accordingly. Sometimes his spelling can be a bit bad but he does his best to faze this out :)

There will be no set frequency with which he will report on his thoughts but will do so as time permits and as the markets dictate.

And so it begins…