Tuesday, 8 October 2013

Internet retail and "prepping" out-loud . . .

Firstly and maybe most importantly an update on the great Cannondale replacement frame situation . . . 

The Germans being the efficient people they are have been able to source me my frame of choice.

As if to underline the difference between web shopping in the country who gave us the motor car, precision optics, Goethe etc. and the usual "get the cash and send out whatever you click for" type operations . . .  I received a mail after placing my order with the team at Bike24 in Dresden, Germany saying they wouldn't be able to sell me the frame of choice without the following information:
As you have read we would like to advise you before buying that frame. To give you a professional
consultation for determining the correct frame size we need some details.
1. Usage of the bike
- all day, free time, training, competition?
- how many kilometres are you going by bike within one year?
2. Body details
- inner leg/inseam length
- body height
- body weight
- back length (measure if sitting on a chair: from seat to top of shoulder)
We will calculate the right frame size/seat position for you.
I had to laugh at the earnestness (if that's the right word) of this mail. Essentially they were not going to sell me anything that wasn't actually suited to me . . . and not just size, but style of riding. This is why these guys are not some phoney Nigerian sting siting behind a server somewhere being manned by 14 year olds in Russia. I answered the above mail with pictures of the remnants of my current Evo which resulted in a confirmation that the order would be processed without further questions pending payment. The frame will be dispatched in the next 24 hours and I should receive it next Monday in Sydney. 
Leaving aside my bicycle purchasing my mind turned to problems in America. Most readers will know that my global asset allocation has been something like:
USA: +65%
UK: +20%
Europe (ex-Germany): +10%
North Asia (ex-Japan): +5%
I've obviously preferred hard assets where possible, though I've mentioned my interest in French and some Northern European equities. Currency wise I've preferred the USD, but GBP has been my other favourite as growth returns to my former country of residence. There comes a time in every asset managers existence when he or she starts to doubt their positioning. 
Perhaps my optimism in respect of the US economy was shaken after watching a couple of episodes of "Doomsday Preppers" on the NatGeo channel last night. 

Usually I watch the show as a kind of light relief, making fun of the various nut jobs and weirdos predicting armageddon type scenarios.  For those readers who haven't watched this weird slice of American life the premise of the show is:

Doomsday Preppers explores the lives of otherwise ordinary Americans who are preparing for the end of the world as we know it. Unique in their beliefs, motivations, and strategies, preppers will go to whatever lengths they can to make sure they are prepared for any of life’s uncertainties. And with our expert’s assessment, they will find out their chances of survival if their worst fears become a reality. 

One particular episode that had my attention yesterday assessed the survival chances of a certain family in Ohio who was predicting economic disaster with the associated collapse in the US economy and the the US dollar. The father had spent every cent he'd earned over the prior 3 years buying guns, canned goods, bottled water, gold, silver and metal detectors. The mother of the family was practically in tears describing how their family's life had been taken over by the her husband's obsession with the collapse of the US dollar. What causes people to do this? 

You would expect that if the "preppers" were right that we would have seen a rally in the gold price to compensate for the collapse of paper money in the US, but the price has been somewhat benign of of late.

Gold is telling me that the consensus bet is not for collapse, but further stimulation of the economy by the Fed as the funds management "preppers" bet on some form of "kick the can down the road" scenario in which the Fed decides not to taper it's $85bn per month of asset purchases. 
Let's put gold aside and look at the world's usual safe haven . . . US T-bonds. Now, given the shenanigans in Washington you might expect yield to be rising. Well they were, but of late they've fallen confirming the belief that the Fed is going to continue to print money.

There is one problem of course and that is that the US T-bond is the cornerstone of the multi-trillion dollar repo system. In 2008-9 when Lehmans etc. collapsed the system went into freeze mode and the central banks had to step in to allow for free flows of funds between financial institutions. This worked because institutions like the Fed have the total confidence of all sane people. The market seems to be acting in the same way, but why?

Firstly and most importantly there is no alternative. The Chinese and all those that hold T-bonds have to make it work or lose their foreign reserves. Some, like the Russians, have hedged by buying gold, but essentially the worlds currency is the US dollar and therefore a Greece type default with Chinese officials visiting Washington and telling the US how to run its economy remains a scenario for only the most paranoid of investors.

Instead of the above October is now highly unlikely to see the Fed taper and this blog now believes it could be until February 2014 before we see the Fed withdraw from the system, though there is a small chance that December might also work in the event of an orderly end to the current impasse. 
Therefore this blog is maintaining its' current asset allocation and continuing to emphasise hard assets such as commercial real estate first and foremost in all its' various forms and where appropriate equity investment in crucial infrastructure (ports, toll roads, etc.) that are likely to remain less volatile than the broader market.

Finally a word on banks. Readers will have noted my recent blogs on risk allocation within the major global banks. Now is the time to dust off the VaR numbers and assess the value of the scenario analysis  contained therein. In the event of high volatility and associated tail risk events it will be interesting to see the relative performance of these institutions. I am tempted if owning said banks to compress my portfolio into the low VaR positions such as UBS and prepare for opportunities to rebalance before the years end.


No comments:

Post a Comment