Shorting a market, profiting from its decline, was never easy. Situation made itself even more complicated after 2008 when central banks started to use whole arsenal of their tools to manipulate markets. To create an illusion of growth and prosperity they gambled with equities and the real estate. Last bull market was there because of ZIRP, global increase of money supply and central banks being on a shopping spree and buying stocks directly. The Bank of Japan and the Swiss National Bank openly admitted investing in shares or REITs. Basic critical thinking tells us that other banks probably have done the same but not everyone is required to publish reports complex enough to show everything.

German banking sector in trouble

Only in the last three months German banking sector lost 21 billion EUR. This hit pushed banks’ stocks down after rally which started in February. Losses in the sector is yesterday’s news but the bigger picture can shed some new light on it. The significant slowdown in international trade shrinked German enterprises’ revenues and this in turn left less taxes for the federal government to collect.

Secondly, Germany has to start worrying about exposure of Deutsche Bank in the derivatives market amounting to 1000% of the EU’s GDP. As long as this position was making money for the biggest bank in Europe no one paid attention. Recently DB has started selling credit default swaps (hedge against bankruptcy of the institution on the contract) to JPMorgan, Citigroup and Goldman worth 1.1 billion USD. Germans do that exactly before another act of the financial crisis is about to begin – this coincided with swaps getting more expensive. Apparently the biggest banks in the US expect liquidity problems and are using the occasion to hedge against it before swaps get pricy. Another part of this puzzle is regulation that made swap trade less profitable.  

For over a decade the World has experienced a peculiar kind of war – the war on cash. According to governmental propaganda, the noble reason behind it is the fight against money laundering and financing terrorism. Meanwhile, the involvement of the HSBC in the biggest money laundering for Mexican drug cartels scandal was swept under the rug. The bank never formally admitted anything. It had to pay a penalty but the fact is that no employee faced charges, not to mention any jail time.

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25.03.2016

Few days ago I had a pleasure of watching The Big Short. This film illustrates a backstage of how the real estate bubble had been pumped and then bursted in 2006-2008. The picture explains in a very simple way how the public can be manipulated, pushed into debt, and then responsibility of paying up can be shifted onto society’s back. In my opinion, it is definitely a great presentation of the rotten Wall Street.

In recent months I have been getting more and more questions about permanent portfolio models. There are too many of them to go through at the same time but the majority is based on similar fundamentals.

The basic rule of a permanent portfolio is that our capital is spread among 2-4 groups of assets. When the price of one asset rises and the other is getting cheaper their share of our portfolio changes automatically. At the end of the year the portfolio is corrected to set the share of each asset group back to the baseline. Thanks to that we capitalise on assets that got relatively expensive, meanwhile buying a discounted group.

Before last week ended the ECB entered a new stage of its madness. The central bank is supposed to be the guardian of a monetary stability. The ECB does everything it can to destroy common currency. These kind of actions were found only done by corrupted to the bone banks in the third world countries. Today we observe a new standard. One that has long-term consequences and only few people seem to comprehend it. Coming back to what happened: on Thursday we heard an announcement of few changes. Three of them have a significant meaning.

Many investors focus on a particular class of assets. Some are interested only in shares, others look exclusively into the real estate. Meanwhile, there are times when market itself highlights an attractive deal; to capitalise on it you need to have some knowledge. Right now a deal has materialised and it can be found in the most ‘detested’ group of assets – commodities.

Buying a flat is treated by many as a safe investment. Especially during an economic storm. No matter the turmoil on the stock exchange – we will own a sure asset which price does not change so rapidly and can insure us against a rate of inflation. If you hate risk – investment in real estate seem to be great choice for you.