MONTHLY COMMENTARY
JOHN O’DONOGHUE
Consultant Adviser
Caratfin Insurance Advisers
So, it is alleged that Bernard Madoff, past chairman of the NASDAQ stock exchange and investment master of Madoff Investment Securities, was in fact running a ‘Ponzi scheme’ that accumulated losses estimated to be in the region of $50 bln, the figure he himself admitted to investigators. The story is quite extraordinary, because the alleged fraud has been running for over 20 years, from an office apparently staffed by fewer than 20 people, and escaped detection over that time from due diligence and other checks conducted by institutional and private investors, regulators, auditors, and industry organisations. The list of investors reads like a who’s who of the banking and investment industries, and the fall-out will only further fan the flames of the 2008 financial crisis. In broad terms, world markets have already lost nearly 50% of value so far this year, and while the Far East and European markets are in positive territory as I write – fuelled by expectations that the ‘Big 3’ US car makers will receive bail out funding from the soon to depart Bush government – what little confidence that can be found in the investment community is bound to be rattled by this latest, very expensive scandal. In addition, with government printing presses running at full tilt producing flat notes for panicking politicians to throw at our problems without much apparent thought for the consequences, we come to the end of a very scary year in a sombre frame of mind.
OK, enough rant already! We have actually seen a small increase in value of the medium risk portfolio, following six successive months of drops that removed $145,000, or 27% from the net asset value. The uptick resulted from a change in tactics and a bit of good timing: collapsing markets have meant that share prices are at their lowest levels, in some cases, for decades and there are some terrific bargains available among excellent companies if you have the cash. And we did have some – $50,000 or so in the cash account following the sales and purchases made in August.
First call on the funds was a top up for Physical Gold with nearly $16,000 spent on the PHAU Exchange Traded Commodity – gold now makes up over 15% of the portfolio, and this latest tranche was bought at a time when the price had slumped temporarily. As you can see from the spreadsheet it has grown by 11% in a month. I am convinced that the gold price is going to climb quickly when the demented chicken of reckless and irresponsible money printing 24/7 comes home to roost. For a similar reason we purchased some $10,000 of Exxon Mobil, the biggest and best run oil company in the world. Also added were similar value holdings of Microsoft and Genentech Inc, which is credited with having founded the biotechnology industry. Their stock ‘ticker’ – DNA – just about says it all. Add in the existing holding in Wal-Mart, and we have four holdings in sector leaders that are cash rich, pay good dividends and are currently selling at deep discounts to real value. We also made a sale – the Ashmore EMLIP, which was one of the funds bought at inception, had – not surprisingly for an emerging market bond fund – seen significant price declines in recent months, and I decided to sell before it reached negative territory. In fact, we made +22%, with the sale proceeds going to the cash account. I’m eyeing a holding in Warren Buffet’s Berkshire Hathaway, another share offering good value these days following a 30% slump in the last two months.
The portfolio gained 2.3%, $8,600 over the last four weeks, and is 27% down year to date – the same figure as the drop experienced over the period June to November. In context, the FTSE 100 is -34% ytd, the S&P 500 -40%, and the MSCI World Index -44%. It would be nice to see an improving trend developing, but I really don’t see it coming soon. That the gain we made came almost entirely from increases in the price of gold and oil is telling – the more paper money is printed with abandon the lower the value of the currency involved falls, and up go the prices of commodities. Mr. ‘Prudence’ Gordon Brown, beware!
Member of CIFSA, Caratfin Insurance Advisers Ltd. is regulated by the Superintendent of Insurance under License no. F.O.S.7. Tel: 22 464190, e-mail: [email protected]. Website: www.caratfin.com.
