Friday, October 14, 2011

Advice For the Wealthy: "The Inside Skinny on the EU"

During the Halcyon Days of 2005-06 I had a senior partner suggest, seriously, that we adopt a mission statement including the line "We make wealth easier".
I was able to dissuade him and thought no more of mission statements until he came across Long or Short Capital's website:
At Long or Short Capital LLC, we leverage our superior intellect and extensive investing experience to recommend explicit Long or Short positions and related abstract trades, which may or may not be possible with real world financial derivatives. We use science to improve the lives of the rich.
It took some doing but after a half-hour of my life that I'll never get back he realized that LoS was parodying the wealth management biz, viz:
Recommendation: Initiate a complication index spread trade. Get long short-term complication and confusion while shorting the out-year complication basket. Things are going to simplify, one way or the other....
I thought of this when I saw this week's Barron's:


Insights and advice for families with assets of $5 million or more.
Penta checked in with François de Visscher, founder of the Greenwich, Ct.-based financial boutique, de Visscher & co. The Belgium-born investment banker advises family businesses and family offices here and in Europe; he is also a shareholder and director of his family’s N.V. Bekaert, a $5.9 billion revenue steel wire producer in Europe.
We tracked de Visscher down in Boston, where he is involved with the Family Firm Institute, and asked him to shine light on what’s really going on behind Europe’s alarming headlines.

De Visscher insists the Euro and the EU are not going to fall apart. “It’s not in the economic interest of anyone, particularly not the Germans.”

Forget the back-and-forth between Angela Merkel and Nicolas Sarkozy that makes for breathless headlines. That’s just sound and fury. In the end, Greece will be forced to restructure its debt in an orderly way, like a quasi-bankrupt company would have to do, with (government backed) banks taking their hits. The rest of the bailout will ostensibly be financed by the EU countries at large through a central fund, but in reality Germany will be picking up the bulk of the tab, because they are the only country standing with the required financial muscle.

That also means Germany and its $3.3 trillion economy is calling Europe’s shots. “Europe is dominated by the Germans. They are the ones who have the money. But they live off 60% exports to Europe. If the Euro was to disappear and they went back to the Deutsche Mark, then their currency would jump and it would kill their economy. They know that.  Merkel knows that. So Europe will not fall apart.”
After the Greece-and-banks restructuring, watch the EU start the longer term work of bringing Europe closer together through economic and political integration.

With Germany the defacto decision maker for all Europe, however, the interesting development to watch, says de Visscher, is Putin’s return to presidential power in Russia. The Central and Eastern European countries joined the EU to get distance between them and Russia, but now that the EU is weakened, watch Putin offer a bear hug.

“We don’t know how Russia is going to play this. But they have a lot of weapons, including the gas pipelines. That’s the medium term issue after Greece is restructured and the banks are stabilized – a rebalancing of power between Germany and Russia. “...MORE
We would concur with Mr. de Visscher's take on Russia and touched obliquely on  the subject last month:
"Poland vows to veto any EU law on shale gas fracking"

 I guess they're more afraid of Russia than they are of France or German Greens....
I'd also have to agree, in a personal capacity, with LoS' complication curve flattener idea.