Thursday, 5 March 2015

Five things I've been doing this week

1. Hedge fund due diligence

I was lucky enough to get a lunch meeting with UK based volatility fund 36 South Capital Advisors on Tuesday. Fund CIO Jerry Howarth was in town and gave me 90mins or so over lunch at Tattersalls Club in Sydney. I have to be honest and say that 36 South was not on my radar until a client of IBCyclist Consulting mentioned them to me. It's strange given Jerry's history in the volatility space in New Zealand and Australia that we never crossed in the early 90's when I was a market maker on the floor of the Australian options market (92 - 97). Perhaps he was on the other side of some of the positions I had in New Zealand conglomerate Flecther Challenge when it demerged into smaller units at that time? That was a lot of fun and I have a great story about one particular fund manager who thought he was a genius and instead got that one very wrong.

36 South are presenting at the Volatility and Tail Risk Hedging Educational Breakfast being held at Deutsche Bank's HQ in Sydney on Friday. It should be interesting given the difficult environment that the last few years have been for long biased volatility players. There seems to be a bit of light at the end of the tunnel, and I'd expect tail risk and volatility, in general, to throw up some interesting opportunities this year. Chief catalysts for volatility events that I see are:

  • The US Federal Reserve Bank returning to a more normal monetary policy in Q3 - 4
  • The Eurozone reaching a long-term resolution of the Greek crisis, good or bad (end of summer)
  • A solution in respect of the current Ukrainian problems

I expect most of these topics to be covered at the breakfast along with various strategies aimed at either protecting or enhancing portfolio performance.

My write up of 36 South will be available to clients next Wednesday. Prima facie it looked to me that they passed the eye test of delivering what they say they will. If any investors would like me to provide a complete DDQ, please contact me directly to discuss the format and terms. Obviously I always suggest an onsite visit before investing in any hedge fund.

2. Bike Wheels

Believe it or not it is possible to wear out the rims on your bike's wheels. My Fulcrum Racing Zeroes have seen their fair share of kilometers over the last two and half years, and the brake track on the front rim was "cactus". The result was reduced stopping power and a nasty squealing noise when under medium braking conditions.

The answer is either new wheels or a new rim. Luckily for me Fulcrum does offer replacement rims. My local bike shop cheeky monkey is unfortunately at the end of the usual anti-Aussie supply chain economics. That means I had to go to eBay or wait for the Aussie distributor to come up with the goods.

What happened to the spokes?
Seven days later I had the rim from a US bike shop and had delivered it to Cheeky for change over. I pick up the wheel tomorrow. Total cost about AUD400. A new set would have been AUD1100 locally. I think that's a good deal given the hubs (both front and back) are still buttery smooth.

3. Leaky central banks 

The Reserve Bank of Australia is asking local regulator ASIC to look into irregularities in the currency and rates markets ahead of recent policy decisions.

Leaky ship or central bank?
Most of the questions being asked are in respect of the way the AUD traded in its various pairs this week when the RBA chose to keep rates on hold. That is only the tip of the iceberg. Last month the RBA chose to alter a well-inked policy of steady policy and lower rates. At the time, there were concerns that insiders were leaking the change ahead to experienced local commentator Terry McCrann. I don't know the truth of it, just that for years my favourite brokers in Sydney, when asked about policy at the RBA, used to say (I kid you not), just read Terry McCrann's column. Whatever the truth I'd say good luck to ASIC in trying to piece together the why's and why nots of what happened. The winners will be at the bar sipping Krug, and the losers will be whining to whoever will listen.

4. Residential property

Do people who invest in residential property really know what they're doing? Honestly, when was the last time you sat down at a dinner party and heard someone who's just bought an investment property tell you how great the rent yield was? In Sydney, I'd say 65% of them don't even know that they have to pay annual state property tax. So what? Well, if you've ever had to analyze property companies or REITs you'd know that the serious end of town takes cap rate calculations very seriously. A tiny move in gross rent or maintenance costs can put companies in play.

That's why when I met Josh Masters of Sydney based buying agent Buy/Side that I realised I'd finally meet someone who was trying to put investment banking type models into the hands of retail investors. Buy/Side's Suburb Investor app will be available soon in the iTunes and Android shops, and I bet when the dinner party Donald Trump's get a look they might go a little quiet.

5. You know you're a cycling nerd when . . . 

I was accused of being a nerd for tweeting out my latest bike maintenance achievement. For my birthday, I was given the uber-expense Campagnolo chain tool.

That gave me the ability to change my bike chain as per this video:

What a nerd. Guilty. Just to add to this level of nerdiness I've also become a black-belt in headset maintenance. None of this is rocket-science, and my go-to bike mechanic, Mark at Cheeky Monkey, admits there's a lot of trials, errors and broken parts in reaching my level of "nerdiness".

It makes me happy to strip down and rebuild parts of my bikes. Clients of IBCyclist should know I feel the same way about producing appropriate spreadsheet models. When you get the right tools and have clear instructions and some quiet time anything is possible. 


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