2:57 PM
febry
It was a gorgeous day in Montreal so I spent the afternoon swimming and tanning while listening to my tunes. But I did manage to hook up with a buddy of mine who flew in to close the sale of his house and visit friends.
My buddy is smart and has extensive operational experience across manufacturing and the financial industry, most recently managing a major infrastructure project in Greece which went sour following the crisis. He has been extremely negative on Greece over the last three years to the point where he got on my nerves several times. But in the end he was right, Greece is a basket case and the bailout won't work.
Below, I'll share with you topics from our interesting conversation on blogging, bankers and regulation, BRICs, deflation, oil, Greece, the Greek bailout, ratings agencies, Canada, and lots more:
- On blogging: We began by discussing some of my recent posts. My buddy detected "lots of anger" in them and told me that I can be more effective by making my points "more subtly." He added: "I don't care about the Caisse or PSP, but you don't need to be venomous and you won't change the way they conduct business. What are you trying to get out of this?" Told him that I've said everything I've had to say about the Caisse and SARA Fund, will try to be more constructive, giving these pension funds the "benefit of the doubt," but I'm flabbergasted when senior public pension fund managers tell me "they're only accountable to their depositors and not the public." That just doesn't sit well with me and one of the reasons I started this blog was because I got fired in October 2006 after predicting the 2008 credit crisis for being "too negative" and wanted to sound the alarm on the pension crisis. So, to all pension funds, I'm going to remain fair and professional, but don't expect me to only send flowers your way.
- On bankers and the need for regulation: My buddy is a lot more hopeful than I am that regulation will finally hit Wall street hard. He said that senior management at BNP Paribas and SocGen was quietly changed following the 2008 crisis and "it's only a matter of time before the guys in Wall Street get their due. They gotten away with shenanigans long enough." His former boss once told him the story about bankers who went to see Louis the XIV to tell him France was bankrupt and he couldn't save it. "The bankers all got the guillotine." I remain skeptical that better financial regulation is on its way and told my buddy: "they had the perfect opportunity to introduce meaningful reforms following the crisis and as usual, they pandered to the bankers and bungled it up."
- On BRICs: We didn't go over all the BRICs (Brazil, Russia, China, India, and China) but we spoke at length about China. Just like Paul Beattie, who thinks phosphate will be Canada's next Potash, my buddy agrees China will continue to grow exponentially in the coming decades. "Unlike Russia which got its freedom and is now effectively a lawless country run by mafiosos and oligarchs, or India where class warfare is getting worse, the Chinese model is focusing on developing the middle class and slowly nurturing in democracy. China is still a communist country with a huge military, but their leaders know what they're doing and won't repeat the mistakes of Russia or India."
- On oil, interest rates, and the risk of deflation: While my buddy agrees with Paul Beattie that China will continue to grow strongly over the next decades, he isn't sold on higher oil prices or higher interest rates: "It's not about supply and demand. The Saudis created the 82 recession, they're not going to repeat the same mistake. In Greece, right after the government foolishly introduced the petrol tax, our revenues on the highway project plummeted because people stopped driving. People will adapt to higher oil prices and that's why I don't buy that oil will skyrocket or that interest rates are heading higher. The real danger remains deflation."
- On the next financial crisis: While my buddy is bullish on China and relatively bullish on Canada (see below), he sees the next crisis and thinks "it will be much worse than 2008." he added: "In the past, we had a hit to incomes, in the last crisis, a hit to balance sheets, the next one will be a hit to both incomes and balance sheets. It won't be a Depression but it's going to be ugly, especially in Greece."
- On the Greek tragedy: My buddy wasn't surprised that the Greek government passed the austerity bill following the showdown at Syntagma. He said things will calm down over the summer but get much worse next winter: "Unemployed Athenians will flock to the islands desperately seeking any job related to tourism, they'll party, drink up, get laid, but once the summer is over, they'll return to Athens and realize that reality bites. Once winter sets in and the weather gets worse, emotions will boil over again in March." I asked him what was the government suppose to do, not pass the bill and set Greece back 100 years? His response: "Well now they set Greece back 5,000 years and only prolonging the agony. If Papandreou had any sense, and did the right thing for the country and the people, he would have just defaulted, gone back to the drachma and let the German and French banks take a substantial haircut (others agree, Greece should default). Instead, he signed a deal with the French, the Germans followed, but Greece is worse off and they will realize that they will never balance the budget with severe austerity measures. It's a fucking disaster and it will only get worse. Partisan politics destroyed Greece. I think Greeks will castrate all the Greek politicians who raped and pillaged the country over the last decades. They came close to it last week and next time they'll succeed."
- On the real reason behind the Greek bailout: My buddy thinks the real reason behind the Greek bailout was to buy time for French and German banks to clean up their balance sheets. "They're worried about what comes after Greece, Portugal or Spain? This thing can easily spiral out of control." Moreover, he added: "I suspect that French and German pension funds are loaded up with Greek CDS, and this is the real reason behind the bailout."
- On the incompetence and fraudulent activities of ratings agencies: My buddy and I agree on this point, ratings agencies are a joke. He didn't mince his words: "They should be shut down. Period. They're grossly incompetent and the timing of their announcements tells me they're in cahoots with Wall Street and hedge funds. In your last post you said Ed Clark, President and CEO of TD Bank is one of the smartest people in the Canadian financial industry. Want to know why? He doesn't trust ratings agencies and has his bankers do their own due diligence rating paper, which is why TD didn't touch ABCP." It looks like the ratings agencies are up to no good again, trying to wreck the Greek rescue.
- On Canada and Canadian politics: My buddy thinks Canada is "selling its resources cheap" and that the current taxes benefit Alberta but not the rest of Canada. "Alberta should understand more than anyone about interprovincial transfers." As far as Prime Minister Harper is concerned, my buddy thinks "he's basically a dictator and the country is split under his leadership because of the effects of partisan politics." I wrote an open letter to our PM criticizing central control, but also praising him on some initiatives. As far as Vancouver real estate, my buddy thinks it will continue going higher but sections are becoming "ghettos of Chinese." I asked him if he'd like to come back to Quebec, and he said "yes but there are too many vowels in my name." I shared with him the time I went to interview for a job at Hydro Quebec and the manager showed me an org chart of his team and told me: "you see, I got no ethnics working for me." I told him: "thanks for wasting my time, this interview is over." (Quebec's institutions have done the bare minimum at integrating minorities at all levels, it's truly scandalous!)
- On asset gatherers vs money managers: I told my buddy that I couldn't believe Eric Sprott's fund is now at $10 billion. He told me he's not surprised: "These big funds have an army of salespeople, they're basically marketing machines. Same thing happened to Altamira and Frank Mersh. That's why I don't believe in alpha in money management and think most hedge funds are poor performers. I have a lot more respect for a guy like Tim Barakett of Atticus who shut his fund down once his model didn't work anymore and realized he wasn't going to deliver alpha than large asset gatherers who focus on collecting management fees, so he returned the money to investors." Can't argue with him there but mutual funds are even worse.
- On my horoscope: I downloaded this horoscope app on my BlackBerry a while back (don't ask!) and been sort of hooked on it, mostly to entertain myself. Today's horo reads: "You have proven someone wrong, Taurus. Someone in your life has repeatedly claimed that some interest of yours - a goal, a love relationship, or some important personal pursuit - would not last. And yet it has. But whatever it is, you need to examine whether it has lasted because it is truly close to your heart and a source of passion for you - or you have maintained it simply to prove someone else wrong. You don't like it when others claim to know more about you than you know about yourself - most people don't of course. But you take it more personally. Assess what has lasted, and decide if it should continue or not - but for the right reasons."
0 comments:
Post a Comment