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Financial Ramblings

Nathan Kowalski
BUSINESS COLUMNIST
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Nathan Kowalski is the chief financial officer of Bermuda-based investment firm Anchor Investment Management Ltd. He holds Chartered Accountant, Chartered Financial Analyst and Chartered Investment Manager designations. He is currently the president of the Chartered Financial Analyst Society of Bermuda board. Mr Kowalski started his career with KPMG, where he provided assurance, tax and financial advisory services for some of the largest corporations in Canada. He then worked for Deloitte & Touche Corporate Finance Inc, where he specialised in providing advice on mergers and acquisitions, valuations for corporate clients and private-equity firms, entrepreneurs and governments.

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  • Welcome to Bizarro World
    Apr 14, 2015 8:00 am

    Welcome to Bizarro World

    As a kid I read a few DC comics that were set in the Bizarro world of “htraE” (or “Earth” spelt backwards). It was a world where everything is essentially inverted or the opposite of expectations. In fact, one episode depicts a salesman selling Bizzarro bonds that were “guaranteed to lose money”. Ironically, this is not a comic book story anymore. Bizarro world is now part of our current financial markets.

    Bizarro Bond...

  • Doubling down on tourism
    Mar 30, 2015 8:00 am

    Doubling down on tourism

    In the most recent budget statement, the government has suggested that it is a “national economic imperative” to revitalise Bermuda’s hospitality sector. This can be seen in the $930 million list of projects in Table 1 of the budget statement which all, in some shape or form, touch on the tourism sector.

    Bermuda is making a bet that these investments will reinvigorate our fading tourism product and offer a renewed growth engine for an...

  • Sisyphean task of dealing with Bermuda’s debt
    Mar 16, 2015 8:00 am

    Sisyphean task of dealing with Bermuda’s debt

    In Greek mythology, Sisyphus was punished by the gods for his deceitfulness by being condemned to ceaselessly rolling a very large rock to the top of a mountain, only to watch it fall back under its own weight, and thus repeat this action forever. It symbolises, in some aspects, a futile exercise or one that appears to offer no discernible satisfactory resolution.

    The process of eliminating deficits and debts to many countries has...

  • Fifty years of Warren’s wisdom
    Mar 13, 2015 8:00 am

    Fifty years of Warren’s wisdom

    The Berkshire Hathaway’s annual shareholder letter has always been a special event for this writer as I continue to be a devout follower of Warren Buffett (WB). What makes it particularly special is this year marks the 50th anniversary of Warren Buffett at the company’s helm. At the end of the letter, Buffett and his long-time partner Charlie Munger even share what they thought made Berkshire Hathaway so wildly successful. This offers some...

  • What is needed to carve out a bottom
    Feb 19, 2015 8:00 am

    What is needed to carve out a bottom

    The Bermuda economy has been mired in a depression now for six years, with its levels of demand and output still far below its peak seen in 2008. There is growing concern among many that the Bermuda economy could suddenly decline from the simultaneous threat of a weakening and slowing global economy, a lack of true domestic reforms and the untimely move to more fiscal constraint.

    Over the longer term, whether Bermuda can overcome its...

  • The call on energy
    Feb 9, 2015 8:00 am

    The call on energy

    Energy feeds into almost everything we do or have. It is a vital building block for growth and our modern economy would not exist if not for it. Some historians even surmise that cheap energy was one of the most important factors that helped propel the great accession and development of the United States through history to make it the world’s largest economy. Because of its critical importance in almost all aspects of the economy, directly or...

  • 12 surprises for 2015
    Jan 20, 2015 8:00 am

    12 surprises for 2015

    “Unlike, say, meteorologists, who predict specific outcomes at exact times and use percentages to indicate how confident they are about their forecasts, financial pundits rarely assign probabilities to their predictions and make a variety of judgment calls that can be hard to categorise.

    “Why, then, do so many people seem to complain that the weather forecast is inaccurate even as they bet a chunk of their life savings on a prediction...

  • Surprises of 2014: How they panned out
    Jan 12, 2015 8:00 am

    Surprises of 2014: How they panned out

    “A good forecaster is not smarter than everyone else, he merely has his ignorance better organised.”

    — Anonymous

    In January of last year I laid out 12 unexpected events or surprise situations that were, at the time, outside of the conventional consensus opinion that I felt had a reasonable chance of occurring (http://www.royalgazette.com/article/20140114/COLUMN05/140119906). Let’s go back and take a look at how these “surprises”...

  • Is the Bermuda patient in recovery?
    Dec 15, 2014 8:00 am

    Is the Bermuda patient in recovery?

    You may have seen the highly acclaimed television show “House”, which is based on a fictional Princeton Plainsboro Teaching Hospital in New Jersey. Dr Gregory House tackles potentially terminal health mysteries as would a medical Sherlock Holmes. His diagnosis is complicated and treatments involve trying different approaches.

    Bermuda’s economic situation can be compared to one of House’s patients whose fate lies in the hands of an...

  • Be grateful for your delayed gratification
    Dec 1, 2014 8:00 am

    Be grateful for your delayed gratification

    Thanksgiving is about being thankful. We all should take some time to be thankful for what we have regardless of whether or not we celebrate this American holiday tradition.

    The entire process of investing is about sacrificing current consumption for future consumption. Any solid and sensible investment strategy should do the same. Ultimately, to make money you have to be willing to trade off some comfort now for increased comfort...

  • Election reflections – a Republican House and Senate, what that means
    Nov 8, 2014 8:00 am

    Election reflections – a Republican House and Senate, what that means

    The sound and the fury are over. The Republicans have trounced the Democrats in last week’s election. To put the latest shift in a historical perspective, the US President has now lost more house seats since he took office than any White House occupant since Harry Truman. So what does this mean for markets and financial assets? How does the current political landscape affect your investment pocket book and the near-term outlook? Here are some...

  • Scary stuff that isn’t really scary
    Nov 3, 2014 8:00 am

    Scary stuff that isn’t really scary

    Watching the kids bob along in their costumes awkwardly strolling from house to house in search of sugar nirvana amid a sea of other little hunters made me reflect on recent market volatility. October’s roller coaster ride in the market definitely offered up a dose of panic and fear for many who unfortunately check prices daily. Ironically, like little kids in costumes, it wasn’t really that scary. Here are some comments on some spooky themes...

  • The myth about currency
    Oct 6, 2014 8:00 am

    The myth about currency

    Recently the US dollar has surged. Its gain versus a basket of major currencies since the beginning of July as measured by the US Dollar Index ‘DXY’ is almost nine per cent as of this writing. Most of this appreciation has come at the expense of the New Zealand Kiwi, the Australian dollar and the euro. Many people like to point out that the recent weakness in the euro should be a boon to European exporters and large dominant European...

  • Alibaba IPO — and a corporate governance lesson
    Sep 30, 2014 8:00 am

    Alibaba IPO — and a corporate governance lesson

    Two weeks ago Alibaba (‘BABA’), China’s biggest e-commerce company, marked the biggest IPO (initial public offering of shares to the public) in history. The company raised some $25 billion (Visa was second at $19.7 billion in March 2008). This huge IPO also offers a couple large corporate governance lessons.

    Economic Risk Doesn’t Equal Voting Control

    One of the major reasons why Alibaba went public in New York and not in Hong...

  • Braveheart economics
    Sep 15, 2014 8:00 am

    Braveheart economics

    “Well, I have a message for the Scots: Be afraid, be very afraid. The risks of going it alone are huge. You may think that Scotland can become another Canada, but it’s all too likely that it would end up becoming Spain without the sunshine.” - Paul Krugman

    This week Scotland goes to the polls. Recent opinion polls indicate it is very close — maybe too close to call. A “Yes” vote would create considerable economic and...

  • Historic yields — or what’s left of them
    Sep 2, 2014 8:00 am

    Historic yields — or what’s left of them

    A couple of weeks ago we had the central bank “rock-star concert” in Jackson Hole. There we heard Federal Reserve chairwoman Janet Yellen start yelling about the labour market following the Great Recession and provided a few breadcrumbs as to how this narrative may unfold. The president of the European Central Bank (ECB) Mario Draghi meanwhile offered a call for action to halt deflation, even suggesting a European version of quantitative...

  • Don’t focus on nonsense
    Aug 11, 2014 8:00 am

    Don’t focus on nonsense

    “It will fluctuate.” - JP Morgan, when asked what the stock market will do.

    Last week the market took a beating. It shouldn’t, however, change anything you are doing as a true investor. In fact, a great deal of noise in the short-term often obfuscates investors from true long-term fundamental analysis. This is a major reason why investing is so difficult. Sometimes I read the news and just have to laugh. Everyone is trying...

  • Demographics are destiny: Why we need more working-age people in Bermuda
    Jul 22, 2014 8:00 am

    Demographics are destiny: Why we need more working-age people in Bermuda

    It is said that ‘demographics are destiny’ and this is certainly a theme that figures into our economic assessment of Bermuda and one that we have discussed many times in the past. By now no one on this Island should be surprised that Bermuda is facing an unprecedented wave of ageing, or a “grey tsunami”, as the baby boom generation — defined as those people born between 1946 and 1964 — move to the end of their productive careers. The...

  • The credit cycle and Bermuda’s economy
    Jul 14, 2014 8:00 am

    The credit cycle and Bermuda’s economy

    All nations’ economic progress through time can be decomposed into four fundamental components:

    1) Population growth — We have discussed this many times in different forms. Basically if you have more workers producing more goods the economy expands. The very nature of having more working bodies in a country like Bermuda, for example, magnifies the local economic benefit. This is to say, more workers earning money locally will have...

  • Sharing is caring — and makes economic sense
    Jul 7, 2014 8:00 am

    Sharing is caring — and makes economic sense

    Do you remember when you were young and your parents and teachers taught you the importance of sharing? If you have your own kids now, you are probably teaching them to share as well. Sharing does make you a better person as it helps you to interact with others and develop trust with other people.

    All these great aspects of the ‘sharing economy’ should be embraced by everyone.

    Finally, all those years practicing to share your toys...

  • Chaos in Iraq could bode well for North American oil producers
    Jun 30, 2014 8:00 am

    Chaos in Iraq could bode well for North American oil producers

    A few random ramblings on the markets and the macro investing situation to start the week:

    Iraq

    The turmoil and chaos in Iraq is putting a bid under the energy markets. This of course is helping to escalate the price of crude oil and energy cost worldwide. I have a couple takes on this, outside of the fact that increasing unrest in the Middle East and its possible contagion will escalate the “fear premium” in crude.

    1.

  • Jun 9, 2014 8:00 am

    Why interest rates are likely to remain low for longer than most expect

    Lower for Longer?

    “The stock market is never obvious. It is designed to fool most of the people most of the time.”

    -- Jesse Livermore

    Remember when everyone called for higher rates? Recall when it was “only a matter of time” before the ten-year yield in the US approached its longer term “fair value” of near 4.5 percent (two percent inflation plus 2.5 percent real growth)? I can remember. I can also understand why we...

  • Bermuda is bottoming — but we now face key risks to recovery
    May 30, 2014 8:00 am

    Bermuda is bottoming — but we now face key risks to recovery

    When you are in a hole the first thing you need to do to get out is stop digging. Ladies and gentleman, it looks like we have finally stopped digging (furiously, at least). While the economy has contracted for five straight years (2009-2013) we are approaching what I’d refer to as a “statistical bottom”. Although we are near this bottom and should hopefully carve one out this year, we have little to cheer regarding the resumption of robust...

  • May 12, 2014 8:00 am

    Cost of investing as low as free

    The high level of computerisation and the liquidity-induced reduction of bid/ask spreads has slashed the cost of investing to an extremely low level. There isn’t a venue in the world, in my opinion that offers a greater chance for investors to compound wealth if done so in a prudent and judicious manner. One of the most efficient ways to invest these days is through Exchange Traded Funds (“ETFs”). Some funds actually let you invest in small...

  • What is high-frequency trading?
    Apr 29, 2014 8:00 am

    What is high-frequency trading?

    For many people the stock market was already viewed as a casino and a giant gamble; its systems and processes opaque and nonsensical. The latest firestorm on High Frequency Trading (HFT) has not helped dispute this view. Lately the market has been buzzing with discussion involving Michael Lewis’s latest book Flash Boys which is all about HFT. The book goes so far as suggesting that the market is “rigged” and that individual investors are...

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