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Cluster Family Office Blog

The 'tailored fund' scam

Esta es la última moda en las técnicas de abuso comisionista de la banca, y parece que llegó hace unos meses para quedarse entre los inversores más cándidos. Los fondos perfilados en definitiva son fondos de fondos cuyo criterio de selección es mantener una combinación de aproximadamente media docena de fondos que en su conjunto se adecuen al perfil inversor tipo: Agresivo, moderado, dinámico, conservador, etc. O sea, que en lugar de que el asesor de la entidad bancaria de turno recomiende a sus Clientes tener en cartera 4, 6 u 8 fondos determinados, sustituyendo unos por otros cuando lo considere necesario, le va a proponer comprar sólo uno, el perfilado. Y serán los gestores de éste quienes compran y vendan los que quieran en cada momento, sin que el inversor ni se entere. (more…)

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Fixed Income 2.0

Traditional fixed-income investments, in the form of bonds issued by governments and companies, are going through a very difficult period. Excessive borrowing by developed countries – and increasingly by emerging economies too – combined with central banks printing money at unprecedented levels, is making fixed-income investments generally less and less reliable. If we create money out of thin air without anchoring it to anything, debt becomes mere digits whose solvency is increasingly called into question, as income and the ability to generate cash flows to repay it become increasingly paltry compared to the amount owed. And this applies to both companies and governments in so-called developed countries.

If we also add to this a policy of interest rates at virtually zero that has been maintained for years, and central banks’ absurd asset repurchase schemes, the result is that even the most creditworthy (sic) debt – such as that of Germany or the United States – is subject to negative interest rates. Consequently, the debt of other countries – which are, paradoxically, heavily indebted – also enjoys minimal risk premiums; in other words, they pay an extraordinarily low cost for borrowing money. (more…)

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Accounting traps to inflate GDP.

Accounting creativity« is nothing more than a euphemism for falsehood, for cheating in accounting so that it reflects a distorted reality, to suit the interests of those in power. And today those in power are an EU that at all costs needs to simulate solvency and growth in the countries of its periphery, so that investors do not flee those economies. If they did, there would not be enough money - or will - in northern Europe to avoid bankruptcy and the collapse of Eurozone unity.

It seems, therefore, that it is in nobody's interest that the reality of the economic miseries of the PIGS (Portugal, Italy, Greece and Spain... and some others such as France...) becomes evident and scares away national and international investors. That is why the ECB keeps the risk premium at floor level through all kinds of quantitative and pseudo-covert facilities to banks and states. It is also in charge of keeping alive the profits of banks that have their warehouses full of rotting real estate on the basis of free liquidity bars. And European and Spanish regulators look the other way when financial institutions value these properties above their market price on their balance sheets to avoid obvious bankruptcy. Anything goes to feign stability, for the good of all (sic). Accounting engineering or creativity« is also being used in Spain. when it comes to handling unemployment and other macro figures, on the demand of electoral needs and balancing with the impositions overseen by the Troika. (more…)

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The fund selector and the fund salesman are different animals.

Revealing and extensive data can be found at this report by Cerulli: European Fund Selector 2014, Decoding the buying process. It clearly shows the differences in fund selection criteria that exist between true fund selectors, who are looking for good long-term returns, and mere fund salesmen/distributors, who are only looking for material to place in exchange for juicy commissions.

FundsPeople extracts some interesting graphs such as the one below, in which we see a clear distinction in the difficulty encountered by the funds in being validated by different agents in the investment world. Investors' rigour and stringency was rated between 1 and 5, with 5 being the most demanding level to pass investor due diligence. Among the most demanding group when it comes to approving the investment of their money in a given fund are pension funds, investment accounts of insurance companies, consultants/advisors, investments linked to insurance (e.g. unit linked) and family offices. (more…)

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Analysis of the turkey the day before Christmas.

The turkey paradox is the story in which one of these animals is fattened and cared for throughout its life by its owner, with the intention of eating it on Christmas Day. The paradox comes from the turkey's own subjective view of events, who is pampered, fed and cared for excellently throughout its existence. And nothing makes him think - if turkeys could think - on Christmas Eve that this magnificent owner is going to cut his throat and eat him the next day, after a lifetime of attention from the best friend. I say friend, the best father! Many of you are already familiar with this turkey paradox, but it will be interesting to think about the options for analysing the turkey's situation if we use it as a metaphor that can be extrapolated to any investor, with Christmas Day being the metaphor equivalent to the fall in share prices in the investor's portfolio. (more…)

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Welcome, Mr Putin.

We should all remember the fall of the Berlin Wall and the lifting of the Iron Curtain, as it is barely a quarter of a century since those events that completely transformed the geopolitical landscape. The Eastern Bloc countries broke away from Soviet influence without Russia being able to do anything to prevent it, because its communist economy collapsed like a house of cards. The power vacuum was enormous, surreal in what had until then been the world’s second superpower. And the countries that had been under its political and economic influence were welcomed with open arms by the Western free market, despite their obvious economic backwardness. The new world order finally had victors and vanquished, and the victors were «the good guys» and the vanquished was «diabolical communism». (more…)

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What is really happening in Iraq?

In recent days, the news has been reporting that the Iraqi government is fighting within its own borders against an enemy that espouses the bloodiest form of jihadism: The Islamic State of Iraq and the Levant (ISIL). In other words, the violent, radical shift of the Salafism which is backed by the Saudi government, a country which, for its part, advocates the most literal and puritanical interpretation of Islam. ISIL, which is gaining ground day by day in Iraq and is also fighting against Bashar al-Assad in Syria (hence the addition of the word «Levant» to its acronym), is so bloodthirsty that even its former ally, al-Qaeda, has ceased to support it, at least directly.

It would therefore be an oversimplification to draw a direct link between the Saudi Arabian government and the jihadism of ISIL, which is attempting to seize power across the whole of Iraq. But if we add to this equation the fact that, ethnically speaking, both the Saudi leaders and the ISIL militants are Sunnis, and have been long-standing enemies of the Shia community that has governed Iraq since the withdrawal of American troops, the pieces begin to fall into place a little more clearly. To put it very simply, the Shia people throughout the Middle East have long been the poor population living around the oil fields that are under Sunni control – that is, owned by the emirates and countries such as Saudi Arabia, Bahrain, etc. And in the face of the radicalisation of Sunni jihadists, the West is now inclined to support the Shia community, which governs Iraq. (more…)

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When bets pay better than investments... (temporarily)

Every day we see examples of exultant bettors who think they are seasoned investors, just because their bets have been winning for a few months, even a few years. They confuse investment criteria with the criterion of the winning bet. And they believe that making money in the short term on the stock market or in government bonds is synonymous with being a good investor. I regret to tell them that nothing could be further from the truth.

The fall will be hard, very hard. With permanent losses, meaning that they will not be able to recover until decades from now, when inflation has eaten away the lost value and therefore they will settle for a false recovery. But there are the bettors, buying Spanish bonds more expensive than the very same Norwegian bonds (you can see a quick and illustrative comparison of the fundamentals in this Gurusblog article); American stock markets trading at more than 20 times earnings, or the brand new holders of subordinated debt or mortgage bonds of pseudo-rescued banks on the brink of disaster. It seems that for these gamblers anything goes as long as the result is positive. It doesn't matter that they are buying assets at prices that only the aberrant manipulation of central banks can generate. It doesn't matter how far their price is from the real intrinsic value of the asset, be it profits and annual business growth in the case of the stock market, or the macroeconomic fundamentals of the state in the case of sovereign bonds. All for the sake of the winning bet. (more…)

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How to invest when equities are highly variable and bonds are no longer fixed.

We are already seeing evidence of a new paradigm in the world of finance. The New Normal of which so much we have spoken at repeatedly It is here and it is here to stay. So we have a very uncertain outlook ahead of us. With an influence of central banks that has never been seen before and that distorts everything, but be careful: an intervention that tends to be reduced in the USA and increased in Europe.

Let's take it one step at a time. As far as equities are concerned, it should not escape anyone's notice that stock prices in the US and even in many Eurozone countries are expensive. It is true that the influence of exceptional measures by the respective central banks can keep company prices well above their fair value for a long time. And that this is a desire that every ruler usually embraces, as it improves, at least in appearance, the financial state of the population and its consequent consumption, optimism, voting, etc. But we should not forget that QE in the US is on its way to drying up and that rates are close to a rationalisation in the form of a rally. Therefore, the US stock market has anything but fundamental appeal. And the universal law of the market is implacable, so investments in expensive stocks relative to the fundamentals of these businesses will only lead to disappointment - permanent losses - in the medium to long term. (more…)

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Losing as an investor what you have gained as an entrepreneur.

Being successful as an entrepreneur does not mean that you are also skilled at investing the money generated in the company. Neither in the management of surplus cash within the company itself, nor in the management of money already extracted outside the company. In fact, from our knowledge of many entrepreneurial families, we can assure you that usually the most brilliant entrepreneurs are terrible investors. (more…)

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(+34) 93 626 47 75

Torres Sarrià, Carrer de Can Ràbia, 3-5, 4ª Planta BCN 08017

(+34) 91 794 19 82

Pº de la Castellana, 93 2nd floor MADRID 28046

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