I'm back. And it's not without good intent. I have a strong feeling that Value Investing 'hunting season' will soon be declared, and I hopefully there will be some wonderful opportunities to bag some elephants.
I bade you farewell in January of 2008 as I left the world of money management to take up a senior executive position with Israel's largest and oldest bank. I am still with the company. My timing - though unintentional - was impeccable. Global markets in the past four years witnessed levels of uncertainty and volatility that had never been experienced before. When I first began 'this game', a 1-2% market correction in one day would make headlines. Not today, with such corrections happening with greater frequency.
For value investors, the challenge is far greater - investors go defensive and flock to quality. The obvious blue chip high moat' plays have little margin of safety. One needs to dig deeper, seek new markets, and be creative. Which is why I have returned. I very much miss the intellectual challenge in unearthing value opportunities, and I am beginning to recognize storm clouds amassing on the horizon. It might just be the Perfect Storm.
Let's quickly recap some of the major events that have rocked global markets in the past 50 months.
2007 was the opening shot, when we quickly came to grip with those 3-lettered monsters- CDO's and MBS's, and the infamous Sub-Prime Crisis.
2008's first victim was Societe Generale, with the EUR5 billion 'unauthorized trading loss' at the hands of trader Jerome Kerviel. We saw the UK's bank run of Northern Rock, soon followed by the collapse of Bear Stearns. Other institutional bailouts or busts included: Countrywide Financial, Lehman Brothers, Merrill Lynch, Fannie Mae, Freddie Mac, Washington Mutual, Wachovia, Citigroup and AIG. Incrediby, Citigroup's market value went from USD$244bn in 2006 to $20.5bn. 2008 also saw the UK treasury bailout Lloyds and RBS with a $64 billion injection. The end of the year saw the first sovereign bankruptcy - Iceland, which was the first country that I visited in my new role. It would not be the last.
2009 saw the bailout of the major Irish banks, and we learned of the infamous Bernie Madoff, and his $65 billion ponzi scheme.
2010 was characterized by QE2 - the Fed's attempt to jumpstart the US economy. It was also the first time that we heard the acronym PIGS - to denote those countries that are most likely to face a sovereign debt crisis.
2011 saw UBS trader Kweku Adoboli lose USD2 billion in 'unauthorized trades'. The high debt, no growth economies of Greece, Portugal, Spain and Italy were a major focus, and we all quickly understood the meaning of 'contagion'. By the end of the year, Greece was undoubtedly the economic pariah of the EU.
And now here we are.... 2012. 6 months ago anyone speaking about Greece leaving the EU was considered mad. Now it's a veritable possibility. Last night Fitch announced a downgrade of Spain by 3 notches to BBB.
With all this market turmoil, and talk of an EU-break-up, I'm expecting further weakness in the markets. The prospect of regional conflict between Israel and Iran will also add to market weakness - and some interesting buying opportunities.
Great to be back - wishing you all a great weekend.
Avi
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