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It’s not easy
Hedge Funds
<p>Memo to: Oaktree Clients</p> <p>From: Howard Marks</p> <p>Re: It’s Not Easy</p> <p>In 2011, as I was putting the finishing touches on my book The Most Important Thing, I was fortunate to have one of my occasional lunches with Charlie Munger. As it ended and I got up to go, he said something about investing that I keep going back to: “It’s not supposed to be easy. Anyone who finds it easy is stupid.”</p> <p>As usual, Charlie packed a great deal of wisdom into just a few words. Let’s take the first six: “It’s not supposed to be easy.” While it’s pretty simple to achieve average results, it shouldn’t be easy to make superior investments and earn outsized returns. John Kenneth Galbraith said something similar years ago:</p> <p>There is nothing reliable to be learned about making money. If there were, study would be intense and everyone with a positive IQ would be rich.</p> <p>What Charlie and Professor Galbraith meant is this: Everyone wants to make money, and especially to find the sure thing or “silver bullet” that will allow them to do it without commensurate risk. Thus they work hard (actually, study is intense), searching for bargain securities and approaches that will give them an edge. They buy up the bargains and apply the approaches. The result is that the efforts of these market participants tend to drive out opportunities for easy money. Securities become more fairly priced, and free lunches become harder to find. It makes no sense to think it would be otherwise.</p> <p>And what about the next seven words: “Anyone who finds it easy is stupid”? It follows from the above that given how hard investors work to find special opportunities, and that their buying eliminates such prospects, people who think it can be easy overlook substantial nuance and complexity.</p> <p>Markets are meeting places where people come together (not necessarily physically) to exchange one thing (usually money) for another. Markets have a number of functions, one of which is to eliminate opportunities for excess returns.</p> <p>Ed calls me and bids $10,000 for my car. Then he offers to sell it to Bob for $20,000. If Ed’s lucky and we both say yes, he doubles his money overnight. To put it simply, anyone who expects to make money easily trading cars this way either thinks (a) Bob and I are idiots or (b) the market won’t function in a way that enables us to know about the fair value of my car. If these conditions were met, it would be an “inefficient market.”</p> <p>But if Bob and I have access to market data on used car pricing, Ed’s chances of pulling off this deal are greatly reduced. In most markets, transparency tends to reveal and thus preclude obvious mispricings. (Thanks to the incredible gains in access to data by way of the Internet, this is certainly more true today than ever before.) In my view, this is a good part of the basis for Charlie’s comment: anyone who thinks it’s easy to achieve unusual profits is overlooking the way markets operate. This memo is largely about the challenges they present.</p> <p>Second-Level Thinking</p> <p>I always thought that when I retired, I would write a book pulling together the elements of investment philosophy discussed in my memos. But in 2009, I got an email from Warren Buffett saying that if I’d write a book, he’d give me a blurb for the jacket. It didn’t take me long to move up my timing.</p> <p>Columbia Business School Publishing had been talking to me about a book, and when I told them I was ready, they asked to see a sample chapter. For some reason, I was able to sit down – without previously having given the topic any organized thought – and knock out a chapter about the importance of something I labeled “second-level thinking.” This is a crucial subject that has to be unders</p>
Daily Scan: Japan ends higher on BOJ hopes, rest of Asia dips on choppy trade
Capital Markets
<p>Updated throughout the day</p> <p>September 25</p> <p>Good evening. The Japanese Nikkei 225 index ended on a upswing of nearly 2%, riding on a wave of optimism triggered by hopes that the Bank of Japan (BOJ) will step up easing at its October policy meeting. Prime minister Shinzo Abe met with BOJ governor Haruhiko Kuroda today following disappointing inflation data released early in the morning, the consumer-price index  fell for the first time in two years.</p> <p>The rest of Asia was largely down following a choppy day of trade, thanks to lingering growth anxiety. China markets closed lower: the Shanghai Composite Index is down 1.6%, while the Shenzhen Index finished down #.4%. Hong Kong's Hang Seng index rebounded before closing to finish up 0.4% but was still down for the week by 3.4%</p> <p>Here’s what else you need to know:</p> <p>Abe announces goal to boost Japan’s economy by 20%.Speaking at a news conference, Japanese Prime Minister Shinzo Abe announced his goal to expand his nation’s economy from around $4.05 trillion to $5 trillion. The Nikkei and the Topix sure loved it, but how he plans to do it is totally up to speculation. Wall Street Journal (paywall)</p> <p>PBOC: long term yuan depreciation “unlikely.” Sheng Songcheng, the head of statistics at People’s Bank of China, said in a speech that a long-term drop in the yuan’s value will be unlikely due to several factors including the nation’s higher domestic interest rates and fairly strong economic growth. MarketWatch</p> <p>Yellen receives medical attention. After struggling to finish the last few lines on her speech on inflation, Federal Reserve Chair Janet Yellen was seen by the medical staff at UMass Amherst for possible dehydration. She’s feeling much better now though, and appears ready to let rates rock. Reuters</p> <p>JP Morgan still knows how to make money. Its metals storage and commodity businesses may have posted a loss last year but that doesn’t mean JP Morgan doesn’t know how to make money out of it. Filings show that just before it sold loss-making commodities unit, Jamie Dimon’s port in the storm managed to grab a one-time $150 million dividend. Reuters</p> <p>Macau casino losses pile up.Much like some of its clientele, Macau’s casinos are losing money at a fast clip. After posting a 36.5% year-on-year revenue dive, the casino sector’s daily run rate slipped 19% from the week before and 18% from the quarter’s average, prompting people to withdraw their deposits from various junkets. SCMP (paywall)</p> <p>Cushing drawdowns spike oil prices. Oil prices climbed as much as 1% today after energy intel firm Genscape estimated a 625,000 barrel drawdown out of the Cushing, the mammoth delivery hub of the U.S. oil industry. The estimate came after a 462,000 barrel stockpile drop reported by the EIA, compounding supply worries. Reuters</p> <p>August home sales rise. The revision of new single-family home sales in the U.S. shows a 5.7% rise last month. Reuter</p>
Prosper Marketplace acquires BillGuard
FinTech
<p>Prosper Marketplace is strengthening its competitive stance through an acquisition of financial security startup BillGuard.</p> <p>Prosper Marketplace, an online loan market, is hoping the addition of BillGuard will help them edge out their competitors, reports the New York Times. Lending Club, OnDeck, and other online lenders have seen their stocks drop sharply this year. Prosper has also struck up deals with companies like American HealthCare Lending, which helps finance elective surgeries.</p> <p>The BillGuard deal, valued at about $30 million, is mostly in cash, with some stock as retention incentives for BillGuard staff. BillGuard services will add fraud monitoring and financial management to Prosper.<br /> "It really takes us from being a one-dimensional marketplace to potentially a multiproduct company providing more value," says Stephan Vermut, executive chairman at Prosper Marketplace.<br /> Photo: Simon Cunningham</p>
Daily Scan: Caterpillar slashes jobs and drags down Dow; Stocks drop for third straight day
Capital Markets
<p>Updated throughout the day</p> <p>September 24</p> <p>Good evening,</p> <p>Stocks fell for the third straight day Thursday. The Dow lost 0.5%, recovering slightly from its lowest mark earlier in the day. The Nasdaq fell 0.4% and the S&amp;P 500 slipped 0.3%. President Xi JinPing isn't letting on if the latest news on an alleged Chinese hacking is ruining his visit. On Wednesday, he met with 28 high tech executives, including Facebook's Mark Zuckerberg. Facebook is a no-go in China. This week, the news went from really bad to worse on the Office of Personnel Management hack. The government now says hackers stole 5.6 million fingerprints. Thursday, Xi leaves the West Coast to join President Obama, Secretary of State John Kerry, and National Security Advisor Susan Rice at a working dinner.</p> <p>Here's what else you need to know:</p> <p>Janet Yellen says interest rates should rise this year. Yellen told the University of Massachusetts that inflation pressures should build in the coming years. Read the 40-page speech here.</p> <p>Caterpillar to cut 10,000 jobs. Caterpillar slashed its 2015 revenue forecast, adding that as many as 10,000 jobs will be lost through 2018. Equipment orders have fallen as miners and energy companies put projects on hold. Reuters</p> <p>Duck boat, bus collision leaves at least two dead. A duck tourist boat and a tour bus collided in Seattle Thursday, killing two and critically injuring at least nine. It's not clear why the duck boat hit the bus. CNN</p> <p>Towers Watson CEO sold stock before merger deal. CEO John Haley made almost $10 million by selling his company's shares before a merger deal was announced between Towers Watson and Willis Group Holdings. The deal, announced at the end of June, valued Towers Watson stock at $125.13 a share, a 9% from the prior day's close. Wall Street Journal</p> <p>Suicide bombs in Yemen kills at least 25. The bombing in a mosque Thursday hit during prayers commemorating the beginning of the Muslim holiday Eid al-Adha. A Yemeni-affiliate of ISIS claimed responsibility. A similar attack in Sana killed 32 people earlier this month. New York Times</p> <p>Pope Francis racking up historic moments. The pontiff addressed a joint session of Congress -- a first for the Vatican. The pope challenged Congress to fight climate change, overcome income inequality, battle the victimization of minorities, and be more accepting of undocumented immigrants. Pope Francis then went on to have lunch with homeless people at Catholic Charities in D.C. CNN</p> <p>Putin and Obama to meet in NYC. The embattled world leaders will discuss the tensions regarding Syria and Ukraine, while the leaders are in New York for the U.N. General Assembly. Wall Street Journal</p> <p>Volkswagen to name new CEO. Matthias Muller, current CEO of Porsche, will replac</p>
Odey: We are already in a deflationary downdraft amidst currency wars
Hedge Funds
<p>It's been a rough year for Odey Asset Management's OEI Mac fund. Year-to-date the fund is down 15.8%, although, after a strong August, the fund has managed to regain some composure. according to a September 23rd letter to investors reviewed by ValueWalk.</p> <p>Odey Asset Management founder Crispin Odey’s flagship hedge fund slumped 19.3% during 'Bloody April' after it was caught out when the Australian dollar strengthened against the US dollar.</p> <p>During August, the OEI Mac fund's USD share class gained 6.8%. The performance is even more impressive when compared to the MSCI Daily TR Net Europe USD return of -6.9% and an MSCI Daily TR Net Europe GBP return of -5.3%. Over the past twelve months, the OEI Mac fund has gained 8.7%, a relative outperformance against the MSCI Daily TR Net Europe index of 16.9%.</p> <p>Odey OEI MAC Fund performance</p> <p>Odey's short book and active currency positions were the largest contributors to the fund's performance during the month. Active currencies made a positive contribution of +1.3% to performance; this was attributable to the short AUD/USD position. All other active currency positions made negative contributions.</p> <p>Odey OEI MAC Fund currency exposure</p> <p>Odey: Equity performance<br /> Moving away from currencies onto equities, Odey's short book made a sizeable positive contribution of +12.7% during August after accounting for currency hedging. Positions that contributed most to this performance, before currency hedging were Las Vegas Sands Corp. (NYSE:LVS) (+157bps), Sands China (+99bps) and Swatch (+84bps). A negative performance from Kellogg (-10bps), Antofagasta (-9bps) and Netflix, Inc. (NASDAQ:NFLX) (-9bps) detracted from performance.</p> <p>On the long side, the equity book made a negative contribution for the month of 6.7%. Positive contributions before hedging came from Pendragon (+44bps), Circassia<br /> Pharmaceuticals (+7bps) and TUI (+6bps). However, negative contributions far outweighed these gains. Holdings in Sky, LM Ericsson Telefon, and Barclays PLC (NYSE:BCS) (LON:BARC) detracted -142bps, -45bps and -39bps from overall performance respectively.</p> <p>Government bonds held by the fund returned -0.4%.</p> <p>Odey: Cloudy outlook<br /> Crispin Odey's uses his Manager's Report within the Odey OEI MAC Fund monthly newsletter to warn of further pain ahead for financial markets.</p> <p>The developed world averted a recession in 2008 by cutting rates to 0%, then embarking on QE. We all hoped we would get healing, then growth, then inflation, then rising rates. But we have experienced the distortions of QE without generating enough growth or inflation. Now central banks have ended up with the safe assets and driven pensions and savers into everything else. We haven’t achieved inflation, so we haven’t worked through our debt and the solution may ha</p>
11 European unicorns hit $1B valuation
Venture Capital
<p>The U.S. may be the unicorn kingdom, but Europeans are creating their own tech unicorns too.</p> <p>In the last 12 months, Europe has birthed 11 new startups with valuations of $1 billion or more, reports Business Insider. Most of the list comes from London or Germany, and three are finance related. Here they are:</p> <p> Farfetch-$1 billion- London-based fashion startup. Serves as a storefront for more than 300 global boutiques.<br /> Funding Circle- $1 billion- London-based peer-to-peer lending platform.<br /> TransferWire- $1 billion- London-based, with a background from Estonia, peer-to-peer money transfer service.<br /> Auto1 Group- $1 billion- German-founded car sale startup.<br /> Shazam- $1 billion- Music identification app with ambitions to move beyond just songs.<br /> Home24- $1.03 billion- Online German furniture store.<br /> Ayden- $1.5 billion- Netherlands' payments company.<br /> BlaBlaCar- $1.6 billion- European car sharing service.<br /> HelloFresh- $2.9 billion- German-based food delivery startup.<br /> Delivery Hero- $3.1 billion- German-based platform that allows apps and local websites to partner with local restaurants in other countries.<br /> Global Fashion Group- $3.1 billion- A compilation of fashion startups in emerging markets.</p> <p>Photo: Steven Depolo</p>
Ratan Tata: An archangel of Indian VC
Venture Capital
<p>This week Ratan Tata was listed by LiveMint as one of the “archangels of Indian e-commerce”, a title earned by his long list of investments in the space - but his investment activity goes far beyond that.</p> <p>If you don’t know Ratan Tata, you know his surname.  The 77 year old is chairman Emeritus of Tata Sons - the holding company for Indian mega-conglomerate Tata Group - and one of the leading lights of India’s business community.  He is also a prolific and enthusiastic angel investor.</p> <p>In short, Ratan loves India’s VC scene, and startups love to be associated with him, and his name. His  list of investments also shows he has a knack for picking winners:</p> <p> Altaeros Energies - Wind energy<br /> Snapdeal - E-commerce<br /> Bluestone - E-commerce<br /> Urban Ladder - E-commerce<br /> Swasth India - Healthcare<br /> CarDekho - E-commerce<br /> Grameen Capital - Finance<br /> Paytm - Fintech<br /> Ola Cabs - Ride sharing<br /> Ampere - Electric vehicles<br /> Kaaryah - E-commerce<br /> Infinite Analytics - Marketing analytics<br /> Holachef - Food delivery<br /> Xiaomi Mi - Electronics</p> <p>He is also an advisor to three India-focused VC funds: Jungle Ventures, Kalaari Capital, and IDG Ventures India. He only joined IDG this month, and  now the fund is hoping to to use some of that Tata magic to help raise $200 million for its  next fund.</p> <p>Photo: American Center Mumbai</p>
Asian food delivery startups are gobbling each other up
Venture Capital
<p>Food delivery start-up Foodpanda has just made its ninth acquisition, picking up Singapore-Dine for an undisclosed sum. This is the latest in a string of mergers in this space</p> <p>According to the Straits Times the purchase adds Singapore eateries Tony Roma's, Subway, 4Fingers and California Pizza Kitchen to its list of about 500 restaurants.</p> <p>Food delivery platforms have been gaining popularity in Asia for some time, offering both convenience for consumers and cost savings for restaurants who want to avoid the painful overheads associated with food delivery.</p> <p>With nine acquisitions under its belt, Rocket Internet-backed Food Panda is certainly becoming an apex predator in the space. In Asia it now covers all of Southeast Asia, South Asia, Hong Kong and Taiwan.</p> <p>But its not the only one gobbling up competition in the region.</p> <p>Over the past 18-months we have seen Singapore's Food Runner swallow down Philippine start-up City Delivery and Hong Kong's Koziness Concepts - previously iDelivery - buy Dial-a-Dinner and Soho Delivery.</p> <p>Its not just food delivery sites angling for a top spot in the space, either. In India ride sharing app Ola has launched Ola Cafe while Zomato - the fast growing restaurant discovery site that recently bought US rival Urbanspoon - is expanding into food delivery too.</p> <p>Dubbed by TechCrunch as an "Uber for Food", India-based  Zomato has eight acquisitions to its name and it could soon show FoodPanda that its not the only big fish in sea.</p> <p>&nbsp;</p>
Emerging markets: will they crash or not?
Hedge Funds
<p>Passport Capital’s John Burbank is by no means a lightweight. He cut his teeth working under Julian Robertson at Tiger, his fund always performs in the top percentile, and the man actually looks like he can tear you apart with his bare hands.</p> <p>He recently had an interview with the FT where he said “we are on the precipice of a liquidation in emerging markets,” alluding to the deteriorating fortunes of the region, and adding that “this feels the way that the fourth quarter of 1997 felt.”</p> <p>And he’s not the only one. Burbank here sits with the majority view that emerging markets are currently on track for an epic blow up. The Brazilian real has been shorted to a whisker off its all-time low, the Malaysian ringgit is currently hovering near its Asia Crisis levels (though oil did contribute to this), emerging market ETFs have seen nothing but outflows, and the asset classes’ bonds have been treated like plague-ridden, leperous, venom-spitting bears.</p> <p>His fellow fund manager Mark Dow however, would like to differ.</p> <p>While in no way an emerging market bull, Dow outlined a few months back five reasons why the current situation won't translate into an epic crash (or recessions and an accompanying contagion, for that matter), namely:</p> <p> Most EM’s now have flexible currencies and larger reserves – two things sorely lacking when their most harrowing crises occurred.<br /> No more Original Sin – Original Sin, the label used for the currency mismatch when a sovereign borrows in dollars but collects in local currency, has practically been eradicated.<br /> Deeper local markets – most EM’s now have enough asset managers, pensions, etc. to absorb any tourist selloffs.<br /> Short dollars – in issuing debt, EM’s are now essentially short the greenback, but sans the short dollar gamma positions they had during the previous crises, making things more manageable for them.<br /> We’ve already seen a lot of outflows</p> <p>While current price action is definitely against him, Dow’s argument is actually quite compelling. The Bank of International Settlements does say that EM corporates are hoarding dollars but still, it doesn’t really negate what he’s saying either.</p> <p>Something has the Fed spooked from raising rates though, and everyone seems to be pointing their fingers at the emerging markets. What do you think?</p> <p>Are you on Burbank’s side? Or Dow’s?<br /> Photo: Wiki</p>
What does the internet think of Bitcoin and blockchain?
FinTech
<p>The way the world understands digital money is changing. Related but distinct, Bitcoin and blockchain are two of the biggest buzzwords in fintech. Bitcoin, the crypto-currency,  is the easiest to understand and the most notorious. Blockchain, the technology behind bitcoin, on the other hand is a bit more arcane and a bit more difficult to grasp. So it’s no surprise that when you run both words through Google Trends - the analytics tool for tracking internet searches - you get this:</p> <p>&nbsp;</p> <p>But take a closer look at blockchain on its own and you will see something interesting:  </p> <p>While interest in Bitcoin seems to have peaked - or even started to decline - interest in blockchain has been soaring. Also, a look at the kind of search terms offers an interesting insight into sentiment.</p> <p>Bitcoin remains the top buzzword of the day, people are seeking to get a better understanding of blockchain. But looking at the kinds of questions people are asking, it seems as if blockchain will struggle to shake Bitcoin's reputation.</p>