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Money matters:
Graham Macdonald MBMG International Ltd.
A beginner’s guide to the credit crunch, part 3
The period from 2002 - 2007 was, in general, a period that
was good for stocks, property, precious metals and commodities. Throughout that
period our portfolio managers, Martin Gray and Scott Campbell of Midas Miton
Optimal, held exposure to these assets, although during 2007 they decreased
their exposure to stocks and property, and favoured tangible investments, such
as precious metals, commodities and cash even more strongly. They also allocated
more to hedge funds and alternative strategies. During this period they
generally preferred euro as a currency and this meant that our clients achieved
satisfactory returns. The table below shows the managed currency portfolio
performance for US$, Sterling and Australian$ investors (MBMG now offer managed
currency portfolios in a total of 6 currencies, with euro, Thai baht and
Singapore$ also available):
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Year AUD
US$ GBP
2002 14.02% 10.33% 4.97%
2003 21.33% 20.74% 20.04%
2004 14.01% 23.44% 11.25%
2005 14.25% 7.99% 12.79%
2006 9.13% 12.55% 2.65%
2007 13.01% 4.44% 11.83%
Average 14.29% 13.25% 10.59% |
That is quite impressive but what about the
performance since the beginning of this year?
That is also a very good question - markets have been very volatile,
many stock markets falling by 35% or more and this is a time when our approach
really comes to the fore, or as Joanne Baynham of Midas Miton Optimal puts it,
“Markets like these separate the men from the boys.”
So far this year there have been plenty of opportunities to lose money but not
many to actually make it. In light of this, and our stated target to avoid
losing capital in times like this, we believe that the managed currency
portfolios will close out the year on a positive note. Year to date returns are
far from exciting but avoiding excitement and achieving small gains this year is
all that has been on offer to any strategy. Therefore we are satisfied that our
managed currency portfolios have delivered what they are meant to:
US$ GBP AUD
1.7% 1.7% 1.7%
So why would say a Sterling investor not just move all his
money out of investment into a deposit account paying 5%?
Another good question - there are a number of answers, it is only in
hindsight that we can see that over the first eight months of this year, our
portfolio ‘just’ delivered a return of 1.7% to Sterling investors. Not many of
us can predict when returns will be delivered. Over the previous years, the
average return of 10.59% was roughly double the bank rate of return. $100,000
invested into our managed currency portfolio on January 1st 2002 would have been
worth $181,484 on January 1st 2008. The same amount invested into a high rate
bank deposit would have been worth less than $135,000.
Admittedly our portfolio growth has been slower this year but as at the end of
August the portfolio would have been worth $184,570 as opposed to the bank
deposit at $138,365. In addition the depositor would have had to face the issues
of keeping money on deposit at a time when banks in the US, UK and Europe seem
to be failing almost every week, exposing the depositor to the risk of losing
capital. So we would argue that our portfolios not only achieve better returns
but also reduce risk. We have also written a separate paper about banking and
investment risks around the world that covers this issue.
We think that the risk vs performance diagram on this page highlights the way
that the multi-asset class approach manages to achieve this simultaneous
reduction of risk and enhancement of returns. Of all the funds in the UK
balanced managed sector, Miton’s Portfolio has delivered the highest returns but
is also one of the least volatile (i.e. risky) funds within the sector.
Finally, and going back to the point about crystal balls, even if you had
withdrawn all your investment on January 1st this year and you had made 4% at
the bank what would you do going forwards? Would you keep it in a bank with very
low bank deposit rates and watch its real value get eaten away by inflation? Our
target is to outperform bank deposits by 450 basis points (4.5% in normal
English!) over any significant period, say 3-5 years or longer. Therefore,
delaying investment or trying to jump in and out of investments would not make
sense. Because we invest across all asset classes there is no obviously good or
bad time to invest into our portfolios. We aim to be an all weather fund -
achieving good returns in all conditions. Some months will be better than
others, some years will be better than others. However, unlike some traditional
equity funds which can be limited within the charter they operate within (some
are only allowed five percent cash!), by having such a diversified portfolio it
allows the fund managers at Miton to take advantage of the greatest
opportunities when they arise. That moment could well be now?
Really? With everything that’s happening in the world?
It is worth remembering Sir John Templeton’s famous aphorism that the
moment of greatest opportunity in equity markets is also the moment of “maximum
pessimism.”
That said, we foresee even greater pessimism ahead for equity markets and
although we are looking to build some greater exposure to both Asia in general,
and Japan in particular, equities are not our favoured asset class night now;
but we do see opportunities in other classes.
Really? Where are the opportunities?
Firstly with ‘distressed sellers’ the de-leveraging process is
creating exceptional dislocations and therefore good assets can be bought at
distressed prices. An example is J-REITs (Japanese Real Estate Investment
Trusts) which have tumbled in price because of contagion of sub-prime fears even
though these do not actually apply in this case. When Scott Campbell visited
Bangkok in June he also highlighted that panic had led to miss-pricing of UK
commercial property trusts and of leveraged loans and that buying at current
levels would, over the short to medium term offer very attractive opportunities
for high returns at exceptionally low levels of risk.
Are there any other opportunities?
Very much so - there will be huge credit opportunities as banks
continue to be starved of liquidity. Therefore, investment funds that act as
liquidity providers to the credit markets should offer decent returns. In this
context high quality asset-backed lending funds with good liquidity are a strong
buy right now. Commodities remain in a long term super cycle and at current
levels there may be interesting buying opportunities. Asia remains attractive.
As WPP group chairman, Sir Martin Sorrell, recently pointed out Asian growth
rates are slowing but even at say 7-9% Asian, especially Chinese, growth is
something that Western equity markets, sliding into recession, can only look at
enviously. In particular Japan, as also highlighted by Scott Campbell during his
recent visit, will look increasingly interesting once socio-economic reforms
have been implemented.
Anthony Bolton, the famous UK fund manager, echoed Sir John Templeton’s famous
comments last weekend, “Conditions do indeed look grim at the moment. But it is
often when things look worst that the best opportunities emerge.”
So to sum up?
Be careful who you bank with. Look for opportunities and avoid
uncompensated risks. In other words, do what our multi-asset class portfolio
managers, Midas MitonOptimal, are doing. Above all remember that the combination
of diversification and high quality active management can ensure that you can
prosper in all conditions. For more details of our current asset and currency
allocations please see the MBMG Q408 Asset Allocation Report.
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The above data and research was compiled from sources
believed to be reliable. However, neither MBMG International Ltd nor its
officers can accept any liability for any errors or omissions in the above
article nor bear any responsibility for any losses achieved as a result of any
actions taken or not taken as a consequence of reading the above article. For
more information please contact Graham Macdonald on
[email protected]@mbmg-international.com.com
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Snap Shots: by Harry Flashman
Can you use film skills in digital photography?
Niepce’s first photograph.
There are many photography enthusiasts from the ‘old
school’ that think that their knowledge and skill died with the demise
of photographic film. Wrong, wrong, wrong!
I do not know how this happened, but let me assure you that digital and
film cameras do exactly the same job. It is only where the image falls
and how it is stored and recorded that is different. Apart from that,
photography is just the same as it was in 1826 when French inventor
Nicéphore Niépce produced the first ‘print’. However, the picture took
eight hours to expose, so he went about trying to find a new process.
Working in conjunction with Louis Daguerre, they experimented with
silver compounds knowing that a silver and chalk mixture darkens when
exposed to light. Niépce died in 1833, but Daguerre continued the work,
eventually culminating with the development of the Daguerreotype in
1837. Eventually, France agreed to pay Daguerre a pension for his
formula, in exchange for his promise to announce his discovery to the
world as the gift of France, which he did in 1839. That’s 169 years ago,
so I think the principle has been well understood by now.
All photography since has worked on the principle of allowing light
carrying the image to go through a lens and then fall on to a sensitized
surface. Originally this was a glass plate coated with silver compounds
which got darker when exposed to light. The degree of darkness depended
upon how much light came through the lens, and for what length of time.
This is the principle covering aperture (or lens opening), and shutter
speed (how long the aperture is left open). That principle still holds
good today.
Originally, the aperture was literally as large as you could get, and
the time was measured in hours. This was because the sensitized material
was really not too sensitive at all, but we improved.
The first improvement came in the lens design. These could let more
light through in a shorter period of time, and the aperture only needed
to be left open for a few minutes, rather than hours.
The next major development was sensitized film which could record an
image in fractions of a second. Photography as we went into the 1900s
was very similar to the technology today. You could capture an image at
an aperture size of f 11 open for 1/60th of a second, on the film of the
day.
During the next 100 years, lenses got better and gave less distortion,
film became more sensitive and gave clearer, sharper images, and the
mechanical shutter speeds approached 1/4000th of a second. This was
enough to stop a speeding railway train, without the aid of Superman!
Then came what people called the “digital revolution”. A completely
‘new’ way of photography, requiring special new cameras which could show
you the image you had just taken, immediately! Instant gratification for
the “me now” generation.
However, this is where the misnomer occurred. It was not a “revolution”
it was merely an “evolution”. The principles of photography (sometimes
called ‘painting with light’ by the romantics) are just the same. And
the application of them was just the same. A lens let in the light, for
a proscribed length of time, and this was recorded by light sensitive
electronic “film”. The difference was that you did not have to develop
this new electronic “film” in chemicals. It could be viewed immediately
by using electronic processing. Really, there was no difference.
Now, just as the old film cameras had aperture and shutter speed
controls that were adjustable by the photographer, guess what? The new
digital cameras have apertures and shutter speeds that are adjustable by
the photographer as well. And in the same way, you can get creative
results from your digital camera, exactly the same as you could with
your film camera.
The results of manipulation of the aperture and shutter speed are just
the same with digital vis-à-vis film. Your old skills are immediately
adaptable. Don’t be afraid of the electronic evolution, and enjoy the
‘instant’ results!
Modern Medicine:
by Dr. Iain Corness, Consultant
Internet ‘pharmacies’ and you
Every day I receive at least four internet email offers of
cut-price drugs that will keep me in a state of perpetual priapism. For
those unsure of this condition, it is a state of continuing (and painful)
male erection and the term was coined after the Greek god Priapus who is
shown in paintings to have a central member that puts the (in)famous John
Holmes of porn movies to shame.
However, this is actually a serious situation. If most drugs are only
available through pharmacies world-wide, on the prescription of a doctor, is
it safe to just buy over the internet, without any doctor’s advice?
The simple answer is - No! As the American Food and Drug Administration
(FDA) reports in its website, “Patients who buy prescription drugs from
websites operating outside the law are at increased risk of suffering
life-threatening adverse events, such as side effects from inappropriately
prescribed medications, dangerous drug interactions, contaminated drugs, and
impure or unknown ingredients found in unapproved drugs.”
The FDA goes on to warn “… certain drugs be dispensed only with a valid
prescription because they are not safe for use without the supervision of a
licensed health care practitioner. Generally, before the practitioner issues
a prescription for a drug the patient has never taken before, he or she must
first examine the patient to determine the appropriate treatment.
Subsequently, the patient receives the drug from a registered pharmacist
working in a licensed pharmacy that meets state practice standards.” That
situation is certainly not the case when you look at buying blue diamonds
over the ‘net, is it?
So exactly who are you buying from with internet drug suppliers? The numbers
of internet pseudo-pharmacies is very high. In the US, according to the
American Medical Association, there are at least 400 web sites that both
dispense and offer a prescribing service - half of these sites are located
in foreign countries. Some have estimated that the number of websites
selling prescription drugs may now be closer to 1,000.
The American Government House Judiciary Committee on Crime, Terrorism, and
Intellectual Property in June 2008 continues to tackle internet drug abuse,
stating, “These rogue Internet sites, both domestic and foreign, are engaged
in a pattern of illegal activity regarding the prescribing and dispensing of
prescription medications. They are in violation of state and federal laws
governing the legitimate prescribing and dispensing of controlled
substances. These Internet sites are not pharmacies. They are not licensed
by any state or other jurisdiction, and are shipping unapproved,
counterfeit, mislabeled or adulterated products within or into the United
States. Prescription medications sold through these so-called ‘pharmacies’
are often available to consumers without any legitimate relationship with a
physician and without a valid prescription.”
Internet operations manufacturing 500,000 fake pills a day and yielding
millions of dollars in sales have been found. Customs and Border Protection
have seized thousands of fakes, including recent seizures of fake Tamiflu.
Health agencies around the world note that international organized crime
and, in fact, some Asian governments are entering into this high profit, low
risk trade.
The FDA in the US estimates that worldwide sales of fake drugs exceed USD
3.5 billion per year, according to a paper published in April 2005. The
Center for Medicines in the Public Interest in the US predicts that
counterfeit drug sales could reach USD 75 billion globally in 2010 if action
is not taken to curb the trade.
The WHO estimates that 25 percent of medications bought in street markets in
developing countries are fake. My own experience in some of the poorer SE
Asian countries has been that another 50 percent are real but out of date,
leaving around 25 percent genuine manufacturer’s stock.
Some authors say that the figures are even worse than that. An international
study published in Tropical Medicine and International Health in 2004 found
that 53 percent of Artesunate tablet packs sold in the region did not
contain Artesunate. And Artesunate is a vital antimalarial drug.
According to WHO, drugs commonly counterfeited include antibiotics,
antimalarials, hormones and steroids. Increasingly, anticancer and antiviral
drugs are also faked. And you can add to that, the ‘blue diamonds’. Never
forget the phrase “Caveat emptor” (Let the buyer beware).
 Heart to Heart with Hillary
Dear Hillary,
Have you any answer at all to the Thai time(less) problem. For me to go anywhere
with my wife always ends in an argument because she is always late. I’ve tried
going on ahead and telling her to catch up, but she doesn’t. I’ve tried going
without her if she’s not ready, and that just produces the sulks. There has to
be an answer, but I don’t know what it is. What’s your suggestion Hillary? Right
now, we’re usually an hour late for anything.
Jack
Dear Jack,
The answer to this lies in an appreciation of Thai culture and everything it
means to a Thai woman, my Petal. ‘Thai’ means free, and freedom to come and go
is paramount. If you try and put a Thai person in a ‘time’ box, it will never
work. The ‘Thai’ forces will conspire against you. There is, however, a simple
way around all this. Lie. Tell her the meeting is at 6.30, when in actual fact
it is 7 p.m. That way you will only be around 30 minutes late, instead of the
one hour you are having at present. Don’t think of it as lying, more that you
are being economical with the truth! And don’t show this letter to your wife. I
don’t need the agro.
Dear Hillary,
You were too soft on the Dreamer who wrote in with “Do all girls in Pattaya
flirt with all tourists or am I just a walking sign board that says here I am
come take advantage of me? Well I don’t really know who is taking advantage of
who but at times I feel that there really is a spark, a kind of connection. Am I
dreaming this or is it possible?” Is this guy for real? Is he 17 years old? Or
what gooseberry bush has he been hiding under? If he opens his eyes for half a
minute he would soon see that not all girls in Pattaya are flirting, but the
ones who do are on the game. It’s the oldest game in the world, so the Dreamer
must be very wet behind the ears. Hillary, you’re good at telling it how it is,
you should have given him both barrels!
Wide awake Will
Dear Wide awake Will,
I thought I had laid it on the line when I wrote: Now to your specific questions
- do all girls in Pattaya flirt? No, all girls do not. A percentage do, and that
percentage increases exponentially as you approach the bar areas, until after
you have passed through the “Welcome! Sit down please,” threshold, the
percentage is nigh on 100 percent. Is there a spark, a kind of connection, as
you so eloquently put it? Of course there is! That sparkling connection is
called “money”. Surely that was enough, without treading on his tender bits? The
sad part was just the fact that he did not really know, but I think by now,
after your letter and mine, he will know!
Dear Hillary,
I was given some information the other day by someone I considered to be a
reliable fellow. I was asked to keep the information confidential, so I did. Now
I find that everyone seems to know all about it (a marital problem) and he is
accusing me of not keeping the confidence. What should I do under those kinds of
circumstances? Should I confront him, or what?
Secrets
Dear Secrets,
When someone tells you that they have some confidential information, you should
always ask, “Why do you want to tell me?” If it is something which involves you,
then OK, listen to it. If the other person is really just showing off how much
he or she knows, then don’t even stop to listen. Confronting isn’t going to
help, just learn from this bad experience.
Dear Hillary,
We are new in Thailand and I am not sure what to do about our maid and her
attendance. She came with the house and the previous employer gave her a good
reference, so we decided to keep her. The problem is the number of days off that
she seems to have. It is not that she does not come to work, it is that she
tells me that she has to see her mother, or it is a special day for Chinese
people so she will not be here on some day next week. Is this the usual for Thai
maids, or am I being made use of?
Newbie
Dear Newbie,
No, I don’t think you are being overly used. Maids do tend to be a little
erratic in attending work, so it’s not unusual (as Tom Jones might say). What is
unusual is to be given a week’s notice. That is the rare part. At this stage I’d
put up with it, but if she has too many days off, start to cut her salary for
each day she is missing. That is usually the way to see just how ‘special’ is
that special day for Chinese people.
Let’s go to the movies:
by Mark Gernpy
Now playing in Pattaya
Tropic Thunder: US Comedy/ War – I have seen this, and I
heartily recommend the film, but only for those not easily shocked. You
might just have the best laughs you’ve had in years. Robert Downey, Jr.
gives another amazing performance, this time playing a black. Also
starring Ben Stiller, Jack Black, Matthew McConaughey, and Tom Cruise.
It’s an action comedy about a group of self-absorbed actors who set out
to make the biggest war film ever. After ballooning costs (and the out
of control egos of the pampered cast) threaten to shut down the movie,
the frustrated director refuses to stop shooting, leading his cast deep
into the jungles of Southeast Asia where they inadvertently encounter
real bad guys. Generally favorable reviews.
Coming Soon: Thai Horror – Oh, dear! To complete the Halloween
pleasantries, I suppose. To replace the cancelled Saw V, the
Thais offer up their own version of a bloody scream-fest. This one is
about a young projectionist who decides to help a friend illegally film
a newly released horror movie, with dire consequences.
Queens of Langkasuka / Peun yai jom sa-lud: Thai Adventure/ Fantasy
– Nonzee Nimibutr’s 200-million-baht historical action-fantasy, more
than three years in the making, is for me an entertaining Thai
blockbuster – big stars, loads of special effects, lavish costumes, and
an exotic seaborne setting. Sumptuous in production design, it has
whirlwind action sequences merging realistic Thai boxing with theatrical
90s Hong Kong style stunts. I think it has the nostalgic charm of
classics like Sinbad the Sailor, plus it has a truly exhilarating
sea battle at the end. And endless sorcery and swordplay, a fairytale
romance, pan-Asian characters, amazing marine cinematography, dolphins
and whales, even kamikaze hang-gliders.
Body of Lies: US Action/ Drama – See this before it goes! Directed
by Ridley Scott, with Leonardo DiCaprio and Russell Crowe. I liked this
very much indeed: a spy movie as dark as night and as ruthless and vile
as Abu Ghraib. Smart and tightly drawn; it has a throat-gripping
urgency and some serious insights. About a CIA operative who attempts
to infiltrate the network of a major terrorist leader operating out of
Jordan. This film has not done well at the boxoffice in the US, and is
doing poorly in Thailand. It’s really too bad. Moviegoers around the
world seem to be allergic to matters revolving around Iraq and the war
on terror. Films like Rendition and Redacted have
foundered at the box office (and never even made it to Pattaya), as have
movies only tangentially linked to the conflict (like The Kite Runner,
set in a Taliban-controlled Afghanistan). It would be a shame if such
sentiments kept you from seeing this really quite excellent,
thinking-person’s action drama, which unapologetically raises issues
concerning terrorism and the fight to combat it. Rated R in the US for
strong violence including some torture, and for language throughout.
Mixed or average reviews.
Max Payne: US Action/ Thriller – Starring Mark Wahlberg. Based on
the popular interactive video game, it’s the story of a maverick cop
determined to track down those responsible for the brutal murder of his
family. Basically for fans of the game and action movies; has some
striking and stylish visuals in a somber mood, which I really enjoyed
looking at, and an intense performance by Wahlberg. Generally negative
reviews.
City of Ember: US Adventure/Family/Fantasy – It has almost
everything one could want from a science fiction-based family film:
likeable characters, an imaginative setting, and a fast pace – plus a
subtly dark feel rarely seen in kids’ movies. But for me the fabulously
designed underground metropolis proved more involving than the teenagers
running through its streets. The story: For over 200 years the
crumbling, labyrinthine underground city of Ember has been run by a
generator. Now it is breaking down and no one knows how to repair it.
Ominous blackouts regularly plunge the city into darkness and supplies
are depleted. Because the people of Ember, forbidden to venture into
the above-ground world, have forgotten their past, they face
extinction. Mixed or average reviews.
Luang Pee Teng II: Thai Comedy – Bad boy becomes monk, meets
misadventures, makes merit. The first Luang Pee Teng was the top
Thai film at the box office in 2005; this second of the series has a new
star, Thai rapper, hip-hopper, and ex-skateboarder Joey Boy with a cast
filled out by the usual Thai TV comedians.
E-Tim Tai Nae: Thai Action/ Comedy – A boxer in a show in Pattaya
falls in love with a Japanese tourist. Looks dreadful.
Scheduled for Nov 5
Quantum of Solace: UK/US Action – Starring Daniel Craig as
James Bond, and Judy Dench. Seeking revenge for the death of his love,
secret agent James Bond sets out to stop an environmentalist from taking
control of a country’s water supply.
NB: Beverly Hills Chihuahua has now been rescheduled for
December 4.
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