What, Me Worry?

ActivePassiveThis article by John Mauldin takes a close look at the dramatic ascent of passive indexing and the side effects of these products. He writes that passive investing is perverting the financial markets' core economic function; the efficient capital allocation. In terms of stimulating buying interest, a company's fundamental business prospects are now much less important than its presence in (or absence from) popular indices. He says that ETFs have created an environment in which badly managed companies can still see their stock prices rise along with those of well-managed companies. Read more

Surviving in a market you don't trust but where you must act as if you do?

ActivePassiveBen Hunt, Chief Investment Strategist at Salient, past academic and columnist writes about the toll exacted from the collective embrace of ETFs + index products and through our collective tolerance for central bank magic spells. He says that this creates collective risk on a terrible scale, but notes that there's no career risk in collective risk. In particular, he attempts to dispel the notion that ETFs and index products are somehow 'passive' investments. On the contrary, he says that they are 'the very instantiation of active portfolio management, where investors are making an inherently and completely active decision on this sector versus that sector'. Read more

Angst in America, Part 6: Middle Class Blues

JohnMauldin2 2In this article John Mauldin writes that the coming pension crisis will put quite a dent in expectations. He suggests that Americans should have their houses in order before the next rough patch hits. He thinks that the US is approaching that moment when the two greatest bubbles in human history , sovereign debt and government promises will burst, and politicians and central banks will be forced to take actions that are unthinkable today. Read more

Angst in America, Part 5: The crisis we can't muddle through

JohnMauldin2 2In this article John Mauldin explains why pension angst in the United States is understated.He says that pension fund returns come from two sources; cash contributions and interest, dividends, and capital gains earned on the investments into which those cash contributions are placed. But neither of these sources are is producing returns at the necessary levels to deliver the promised benefits. In many cases there is a vanishingly small chance they ever will produce enough. 'And the longer we go without fixing the problem, the smaller the chance becomes', he writes. Read more

Angst in America, Part 4:Disappearing Pensions

JohnMauldin2 2In this article, John Mauldin writes that there was once a time when many American workers had a simple formula for retirement: You stayed with a large business for many years and then gratefully accepted a gold watch and a monthly check for the rest of your life. These pensions, he writes, are all but gone from US private-sector employers, but they are still common in government, particularly state and local governments; and they are increasingly problematic. They are another source of angst for retirees, government workers who want to retire someday, and the taxpayers and bond investors who finance those pensions. Read more

Angst in America, Part 1: Aimless Men

JohnMauldin2 2This series by John Mauldin explores the consequences of sociological anxiety in the United States due to unemployment. He uses US statistics to illustrate his points but the comments he makes have a universal application. He writes that the moribund economy in the United States will have a hard enough time supporting millions of Baby Boomers who lack sufficient retirement savings and that adding millions of nonworking young and middle-aged men to the dependency pool won't help. Read more

Angst in America, Part 2: Men without work

JohnMauldin2 2In the second part of this series John Mauldin writes that there are about 10 million American men of prime working age (25 to 54) who have simply dropped out of the workforce. He adds that the great majority of them have not only dropped out of the workforce, they have also dropped out from any commitments or responsibilities to society. It is not just the labour force they are not participating in; they are not participating in the normal ebb and flow of community life. He notes that while American workers without college degrees have suffered financially for decades it has now come to light that the health consequences of this state is deadly. Read more

Angst in America, Part 3: Retiring Broke

JohnMauldin2 2In the third of this series by John Mauldin, he looks at the long term consequences of the fact that so many Americans have poor retirement. He notes that 33% of Americans have no retirement savings at all; another 23% have less than $10,000; and a further 10% have less than $50,000. So that's 66%, a full two-thirds of Americans, with either no savings at all or not enough to generate significant income. (If you have $50,000 and can pull out 4% a year without drawing down principal – which is hard to do – you'll get something like $160 a month.) Read more

Will Tax Reform Fare Any Better Than Obamacare Reform?

TaxUSColumnist Danielle DiMartino Booth, a former adviser to the president of the Dallas Fed, notes that post the failed attempt to reform Obamacare, all eyes are now on tax reform. 'Can House Speaker Paul Ryan herd enough House cats in a tax bill that's also acceptable to the Senate?' he asks. While it might appear that there is strong support, a closer look shows that the tax code is fraught with squabbles, procedural hurdles and difficult trade-offs. Read more

Tax Reform: The Good, the Bad, and the Really Ugly – Part Five

JohnMauldin2 2In this, the fifth and final edition of the series on tax reform John Mauldin writes that the time for the United States us to make good choices about budgets, taxes, and our economy in general was 17 years ago. 'We are now dealing with the consequences of both the Bush and Obama administrations'compounding poor budgets, spending, and tax decisions – including, in many cases, crucial decisions they declined to make. But some of these problems go back 40 years or more', he writes. Read more

Tax Reform: The Good, the Bad, and the Really Ugly – Part Four

JohnMauldin2 2John Mauldin dedicates this article to analysing trends in the US jobs market and the possible impact of lowering corporate taxes. Unlike President Donald Trump,he contends that no amount of tax reduction will 'get jobs back' from China and Mexico, as 80% of manufacturing jobs have not been lost to globalisation but to increased automation.

He writes that the shrinking workforce participation is not a recent trend and has been happening since the '60s. He writes that it seems that with every major technological advance, a certain portion of the working population doesn't find a way forward to take advantage of the next set of opportunities.

Stats SA's Quarterly Labour Force Survey

StatsSA logoFor some perspective on John Mauldin's article above, read the enclosed Quarterly Labour Force Survey released by Statistics SA on 14th February 2017. This research estimates SA's unemployment rate at 25.5% (up from 24.5% 12months before). To be classified as 'employed' a person of working age has to work for one hour. Our labour absorption rate which measures the proportion of the working-age population that is employed fell from 44.2% to 43.5% between Q4 2015 and Q4 2016 while the labour force participation rate (those willing to work, or working) rose from 58.5% in Q4 2015 to 59.2% in Q42016. Read more

Trump and the weak dollar

USflagIn this article Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management writes that by this time in February, all prior Presidents had their agenda and economic policy announced. But Trump doesn't seem to have a direction and strategy except for the "Tweeter-attack mode". At the first joint session of Congress, there will high expectations for a tax plan, repealing Affordable Care Act, Obamacare, and his trade policy which could include some comments on "the unfair FX policy by China & Germany alike". Read more

The evolution of competition

bhunt2 2In this article Ben Hunt states that the Trump presidency is breaking Americans. Not because of the specifics of his policies or whether they're right or wrong or anything like that. 'It's breaking us because we now routinely talk past or yell at our friends, family, and fellow citizens, despite vast common ground on the really big ideas of what it means to be Americans or, more fundamentally still, a good human being,' he writes. Read more

Not all investment fees are equal

fees2In this article, Bradley Anthony, Chief Investment Officer of Fairtree Capital comments on the explosion of passive investment products, driven by greater appreciation of investment cost as well as the dearth of excess return or alpha amongst active managers. He introduces the concept of the value ratio, arguing that it is impossible to determine whether costs are high or low without framing that cost in the context of the value provided. He argues that it is a mistake to focus on costs in isolation. Read more

Tax Reform: The good, the bad, and the really ugly—Part three

TaxUSIn this article, Mauldin continues with his theme of tax reform. He explains that he is not enthusiastic about the proposed Border Adjustment Tax, BAT as he fears it will bring serious macroeconomic side effects, and potentially trigger a global recession, without necessarily achieving its objective of stimulating the manufacturing base in the United States. Read more

Tax reform: The good, the bad and the ugly. Part 1

TaxUSInvestment commentator John Mauldin looks at the proposed tax reforms in the United States and wonders whether or not they will meet their objective; the creation of new jobs and the boosting of the economy. 'But which jobs, what kind of jobs, and where?' he ask. He predicts that even if the Apple iPhone were to be made in the US, this initiative would not create many jobs as the work would be done on a robotic assembly line. He also expresses concern that the future might mean losing more service jobs in retail centres due to the unstoppable trend to online shopping. Read more

Tax reform: The good, the bad, and the ugly. Part Two

TaxUSIn this newsletter commentator John Mauldin writes that large parts of the US economy exist only because the tax system makes them profitable while others don't exist because the tax system makes them unrewarding. In part two of his series on tax reform he examines the IRS commitment to improve the tax system so that it is simpler, fairer, flatter and creates jobs and growth. Highlights of the new deal include a reduction of the top corporate tax rate from 35% to 20% and a new three-bracket tax rate schedule with the top personal tax rate to only 33%. Read more


TaxUSDr Lacy Hunt of Hoisington Investment Management his partner, Van Hoisington, produce a quarterly letter aimed at the investment community in the United States. In this edition they write how in their view proposed US tax reforms will face enormous headwinds that were not there during previous tax-reform eras. This might mean that the benefits that Republicans think will accrue are likely to take longer to appear and be less than expected, which will mean that it is going to take more than what is presently proposed to jump-start the economy. Read more

The Euro may already be lost

EuroTuomas Malinen, CEO of GnS Economics, postdoctoral researcher at the University of Helsinki writes that January 2017 marked the 18th anniversary of the European common currency, the euro.Despite its success from 1999 to 2007, he writes, after 2008 the euro became a burden for many of its members. Living standards in Italy and Greece are now below the levels when they joined the euro, while Finland (the only Nordic country using the euro)is also the only Nordic country that has not recovered from the financial crash of 2008. Read more

Post inauguration (1)

DonaldTrumpThis editorial from the New York Times 'What President Trump Doesn't Get About America' describes Trump's inauguration speech as 'beyond disappointing'.The article describes his sweeping exaggeration as he speaks of carnage in the inner cities and highlights the fact that when he promised to 'get our people off welfare and back to work' that as of 2016 the number of people receiving federal Temporary Assistance for Needy Families benefits is down by 70% since 1996 and that the unemployment rate has fallen since 2009. Read more

Post inauguration (2)

DonaldTrumpIn this article, written on January 22nd, John Mauldin uses a number of anecdotes to argue that the Trump transition team might not be in complete disarray. While conceding that Trump's management style is going to drive both the media and much of the country nuts, and that no one is in agreement about the proposed tax reform, he describes the process of tackling priorities in the new administration; the creation of a 'landing document' in over 30 departments and an anecdotal conversation with two economists that shows a pragmatic side of the new president. Read more

Update 2017: A Shifting Global Economic Landscape

IMFThis report, produced by the International Monetary Fund predicts that economic activity is projected to pick up pace in 2017 and 2018,especially in emerging market and developing economies. However, it says, there is a wide dispersion of possible outcomes around the projections, given uncertainty surrounding the policy stance of the incoming U.S. administration and its global ramifications. Read more

Forecasting with Friends

JohnMauldin2 2In this article, John Mauldin assembles a cast of his friends and asks them on their views on a range of topics including cuts in corporate taxes, disinflation, deregulation, inflection points and matters affecting the Republican Party. Read more to hear the view of the Gavekal team,led by co-founders Charles Gave, Louis-Vincent Gave, and Anatole Kaletsky, David Rosenberg of Gluskin Sheff and Chris Wood of CLSA, author of newsletter 'Greed andFear'. Read more

2017 Forecast: Sceptically Optimistic

JohnMauldin2 2John Mauldin writes that his theme this year: "Paradigm Shift: A De-globalising World." He writes that never before have global events weighed so heavily on your investments. This is the reason that geopolitics will be a focal point in 2017. He says that the Republican Party in the US are likely to hit the ground running, and it will also be a pivotal year for China; not least among the challenges will be having to deal with a US president who refuses to play by Beijing's rules. Read more

A fresh breeze of reform blowing through India

Peter smallerThis article by director of Rosebank Wealth Group director Peter Nurcombe-Thorne presents two lingering images of a recent investment trip to India. The group's visit to India left no doubt of the scale of India's rising middle class and the concomitant potential for economic growth. Secondly, the widespread support of Prime Minister Modi's efforts to tackle the scourge of 'black money' in India signalled new appetite for anti-corruption measures and support for government. Certainly, nobody can afford to ignore India. Read more

The Art of the Probe

bhuntColumnist Ben Hunt is primarily known for using game theory to get a better understanding of the investing environment. He has written about the game of markets as well as about how new technologies and new perspectives play a role, many times. This article looks at one specific strategy that can be used to become a better game-player; the art of the probe or how you can find out where you stand relative to the markets/ poker game. Read more

India soars high

IndianFlagThis fascinating report on India and it's opportunities from consultants KPMG highlights the recent regulatory reforms, key policies of the Indian government and their impact on business. It includes an overview of the Indian economy and the consequences of the "population dividend". Read more

American Hustle

USflagIn his inimitable way, Ben Hunt attempts to come to terms with the results of the implications of the recent US election. "There are three questions I'd like to answer in this Epsilon Theory note: what did the Narrative Machine tell us about the market immediately before and immediately after the November 8 election, what am I preparing for now as an investor and what am I preparing for now as a citizen? I'm giddy about the first, quietly confident about the second, and pretty darn depressed about the third. Could be worse, I suppose". Read more

What Should Trump Do? – Your Questions Answered

USflagIn this article John Mauldin does his best to answer questions about American debt, the implications of reducing corporate tax to 15% and the challenge of getting the costs of healthcare under control. "The government has only three sources of revenue: taxes, borrowing, and monetization. Borrowing money runs up the debt, and we are getting very close to the point where ballooning debt becomes debilitating". This means that the US will have to increase revenues to pay for what is needed. Read more

What should Trump do now?

USflagIn this article, John Mauldin highlights the difficulties facing the Trump administration and makes some suggestions as to where he could focus his efforts. He writes that the American people want several incompatible things at once including expensive healthcare, tax cuts and a balanced budget. He says that only two of these three are possible. Read more

The Election: Making difficult choices

USElectionIn this article John Mauldin gives his thoughts on the important issues facing the voting public in the US. He writes that he understands the passion around many of the issues the candidates are talking about, which include immigration, income inequality, taxes, defence and overseas wars, Supreme Court nominees, healthcare, Social Security and other entitlements, the environment and regulations, and a host of other things. But for him, top of mind is the future of the economy. Read more

Big government, even bigger sins

DavidHayGavekal partner David Hay wrote a while ago that congress was a key actor in the housing horror story. He says that now, congress is busy messing things up again with its "war on the private sector" behaviour. Read more

Earnings ex-losers look great

John MauldinIn this article John Mauldin reminds readers that, in his words, 'profits are the mother's milk of economic, stock market, and portfolio growth. Employment and tax revenues are driven by profits, too. Nothing good happens unless there are profits and lots of them. So it is no wonder that we pay attention to the earnings of companies in the stock market.' Read more

You had one job

bhunt2 2In this article Ben Hunt compares the design of an investment portfolio to choosing a dog (or team of dogs) as family pets. He writes that every dog needs a job, and every investment does, too. No single dog can be all things to all people, and neither can a single investment. Nor can any pack of dogs accomplish anything and everything you like. The biggest mistake people make when they get a dog is trying to make the dog fit into the life they wish they led, rather than the life they actually lead. Read more

Taking a wrench to healthcare

JohnMauldin2 2John Mauldin writes that one thing is certain after election-day in the United States Barack Obama will stop being president. He will leave behind the signature accomplishment of his eight years in office: Obamacare. He writes that while some see Obamacare as a disaster, others see it as a triumph. He points out that access to health insurance is not the same as access to healthcare. And access to healthcare is not the same as access to affordable healthcare. Read more


Ben HuntBen Hunt writes that his crystal ball is broken and he has no idea whether we are going to see a market of Ice (deflation), a market of Fire (inflation), or more of this Long Gray Slog of markets turned into political utilities. But, he says we are unlikely to see either Janet Yellen (Chair of the Federal Reserve) or Mario Draghi (President of the European Central Bank ) apologise for bad policy making. He writes that a reset — both in markets and in politics — is coming whether we like it or not. We can either prepare for the reset ... we can shape the reset as best we can ... or we can let the reset shape us. Read more

Novare Hedge Fund Survey 2016

NovarelogoHighlights of this year's Novare Hedge Fund survey include the following:

• The 12 month period ending June 2016 attracted R722 million worth of assets. These inflows were less than the R1.4 million inflows in the corresponding period last year.
• Investment growth in the industry over the period under review was 10.3%.
• Note that 53 asset managers collectively managing 106 'uniquely mandated hedge funds' participate in the Novare Hedge Fund Survey. There are an estimated 350 hedge funds in South Africa. Read more


Start Moving Some Dirt

JohnMauldin2In this newsletter John Mauldin writes that there is a reasonable certainty that the next president of the United States of America will have to deal with a recession early on in his or her term of office. He predicts that this recession will be a fairly serious recession with an even slower recovery than last time. Sometime in 2019, he writes, entitlement spending, including defence and interest will consume all the tax revenue collected by the US government. That means all spending for everything else will have to be borrowed. So what's the solution? Mauldin thinks that using bond finance to pay for infrastructure projects might be the way forward. Read more

Hedge fund data in the public domain, at last

Rosebank wealth group About us4In this article published by Moneyweb, John Harman comments on an update on hedge funds released by the Financial Services Board. The FSB report indicated that as of the end of August 2016 there were 280 registered funds; 109 Retail Investor Funds (RIFs) and 151 Qualified Investor Funds (QIFs). Harman writes that the release of new data should be welcomed as it will lead to higher levels of trust and hopefully, in the longer term, a better understanding of how hedge funds can be used by investors to protect capital. Read more

The Original Underclass: Poor white Americans' current crisis shouldn't have caught the rest of the country as off guard as it has

DonaldTrumpThis article by Alec MacGillis, published by The Atlantic profiles two recently published books on the history of the white underclass in the United States. MacGillis compares White Trash: The 400-Year Untold History of Class in America, by Nancy Isenberg (published by Viking) and Hillbilly Elegy: A Memoir of a Family and Culture in Crisis by J. D. Vance (published by Harper) and in the process explains the appeal of presidential nominee Donald Trump. Read more 

The SA market is not that bad, compared with global trends

Rosebank wealth group About us4John Harman, a director of Rosebank Wealth Group was interviewed by Ryk van Niekerk, the editor of Moneyweb. In a wide ranging interview, John discussed the investment philosophy of Rosebank Wealth Group, the current state of the markets and the possible role of hedge funds in a portfolio. Read more

Use of hedge funds in a Regulation 28 portfolio

Rosebank wealth group About us4John Harman, a director of Rosebank Wealth Group writes that changes to legislation in April 2015 have finally meant that registered, South African hedge funds will become regulated under the Collective Investment Schemes Control Act (CISCA), which is the Act that governs unit trust investments. In this article he presents the case for including hedge funds in a retirement portfolio on the grounds that this reduces the volatility of the overall portfolio. Read more

Exploring the alignment of interests between hedge fund managers and investors

fees2This research study, released by the AIMA, the London based Alternative Investment Management Association summarises the results of a survey conducted by the association into the trends in hedge fund fees. The document notes that since the global financial crisis of 2008, the relationship between hedge fund managers and investors has changed. The document notes that fees continue to come down "2 and 20" is increasingly the exception, not the norm. Read more

Negative rates nail savers

JohnMauldin2 2In this edition of John Mauldin's newsletter, he writes that the system is rigged, just not in the way that 99% of the people think it is and not by those they think are doing the rigging. He writes that neither greed nor the usual convenient demons (Wall Street/ big banks/ investment banking houses) are the reason for the rigging. The real culprits are far less sinister and are actually sincere in their motives, they are just Nobel laureates, tenured professors, and other honourable members of the economic academic establishment, what Ken Rogoff calls the "policy community." Read more

Six Ways NIRP Is Economically Negative

NegativeRatesRead this accessible article by John Mauldin; he lists six ways that the Negative Interest Rate Programme (NIRP) is bad for the global economy. They are described as 'Failure to Stimulate', 'Betraying Lord Keynes', 'Policy Paralysis', 'Distorting Signals', 'Killing Insurance Companies and Pension Funds Softly' and 'Repressing Retirees'. The last two are of particular concern to him as in a NIRP environment, the returns insurers and pension plans make on their investments no longer adequately fund the promises they have made. In his view, savers are paying the price for the arrogance and mistakes of central bankers. Read more

View from the top

NegativeRatesThis article by Alexander Gunz, Fund Manager, of London-based Heptagon Capital gives a bird's eye view of current market concerns. He writes that while the limits of Central Bank effectiveness have been reached the positive impact of potential fiscal stimulus may be over-stated. Against a background of the possibility of rising bond yields, he says that Heptagon continues to favour increasing exposure to genuinely uncorrelated and alternative assets, while still ranking equities above fixed income. Read more

Magical thinking

NegativeRatesThe inimitable Ben Hunt writes in his view, the global economy — particularly the U.S. economy and the Chinese economy — is more robust than regulators tend to let on. He thinks that the U.S. can still grow its way out of the massive debt the country has taken on. He goes on to comment on the fact that the high priests of the economy have encouraged 'magical thinking'; an unquestioning adoption of the world view of the regulators. This, he says will have troubling consequences. Read more