Posts tagged ‘Iceland’

2012 Investing Caffeine Greatest Hits

Source: Photobucket

Source: Photobucket

Between Felix Baumgartner flying through space at the speed of sound and the masses flapping their arms Gangnam style, we all still managed to survive the Mayan apocalyptic end to the world. Investing Caffeine also survived and managed to grow it’s viewership by about +50% from last year.

Thank you to all the readers who inspire me to spew out my random but impassioned thoughts on a somewhat regular basis. Investing Caffeine and Sidoxia Capital Management wish you a healthy, happy, and prosperous New Year in 2013!

Here are some of the most popular Investing Caffeine postings over the year:

1) The Fund Flows Paradox









Explaining how billions of dollars in stock selling can lead to doubling in stock prices.

2) Uncertainty: Love It or Hate It?

Source: Photobucket

Source: Photobucket








Good investors love ambiguity.

3) USA Inc.: Buy, Hold or Sell?







What would you do if our country was a stock?

4) Fiscal Cliff: Will a 1937 Repeat = 2013 Dead Meat?












Determining whether history will repeat itself after the presidential elections.

5) Robotic Chain Saw Replaces Paul Bunyan

Chain Saw






How robots are changing the face of the global job market.

6) Floating Hedge Fund on Ice Thawing Out

Hedge Fund on Ice







Lessons learned from Iceland four years after Lehman Brothers.

7) Sidoxia’s Investor Hall of Fame











Continue reading at IC & perhaps you too can become a member?!

8) Broken Record Repeats Itself

The suit man and vinyl.










It appears that the cycle from previous years is happening again.

9) The European Dog Ate My Homework

Jack Russell Terrier Snarling









Explaining the tight correlation of European & U.S. markets, and what to do about it.

10) Cash Security Blanket Turns into Tourniquet

Beautiful Baby Sucking Blanket






Stock market returns are beginning to make change perceptions about holding cash.


Wade W. Slome, CFA, CFP®

Plan. Invest. Prosper.

DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold positions in certain exchange traded funds (ETFs),  but at the time of publishing SCM had no direct positions in any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC Contact page.

December 30, 2012 at 2:02 pm Leave a comment

Floating Hedge Fund on Ice Thawing Out

These days, pundits continue to talk about how the same financial crisis plaguing Greece and its fellow PIIGS partners (Portugal, Ireland, Italy & Spain) is about to plow through the eurozone and then ultimately the remaining global economy with no mercy. If all the focus is being placed on a diminutive, calamari-eating, Ouzo-drinking society like Greece, whose economy matches the size of Maryland, then why not evaluate an even more miniscule, PIIGS prequel country…Iceland.

That’s right, the same Iceland that just four years ago people were calling a “hedge fund on ice.” You know, that frozen island that had more foreign depositors investing in their banks than people living in the country. Before Icelandic banks became more than 75% of the overall stock market, and Gordon Gekko became the country’s patron saint, Iceland was more known for fishing. The fishing industry accounted for about half of Iceland’s exports, and the next largest money maker may have been Bjork, the country’s famed and quirky female singer.

In looking back at the financial crisis of 2008-2009, as it turned out, Iceland served as a canary in the global debt binging coal mine. In order to attract the masses of depositors to Icelandic banks, these financial institutions offered outrageous, unsustainable interest rates to yield-starved customers. How did the Icelandic bankers offer such high rates? Well of course, it was those can’t-lose American subprime mortgages that were offering what seemed like irresistibly high yields. Of course, what seemed like a dream at the time, eventually turned into a nightmare once the scheme unraveled. Ultimately, it became crystal clear that the subprime borrowers could not pay the outrageous rates, especially after rates unknowingly reset to untenable levels for many borrowers.

At the peak of the crisis, the Icelandic banks were holding amounts of debt exceeding six times the Icelandic GDP (Gross Domestic Product) and these lenders suffered more than $100 billion in losses. One of the Icelandic banks was even funding a large condominium project in my neighboring Southern California city of Beverly Hills. When the excrement hit the fan after Lehman Brothers went bankrupt, it didn’t take long for Iceland’s stock market to collapse by more than -95%; Iceland’s Krona to crumple; and eventually the trigger of Iceland’s multi-billion bailout by numerous constituents, including the IMF (International Monetary Fund).

Bitter Medicine First, Improvement Next

Today, four years after the subprime implosion and Lehman debacle, the hedge fund on ice known as Iceland is beginning to thaw, and their economic picture is looking much brighter (see charts below). GDP growth is the highest it has been in four years (4.5% recently); the stock market has catapulted upwards (almost doubling from the lows); and the Iceland unemployment rate has declined from over 9% a few years ago to about 7% today.

Source: Trading Economics

Source: Trading Economics

Re-jiggering a phony economy with a faulty facade cannot be repaired overnight. However, now that the banking system has been allowed to clear out its excesses, Iceland can move forward. One tailwind behind the economy has been Iceland’s weaker currency, which has led to a +17% increase in foreign tourist nights at Icelandic hotels through April this year. What’s more, tourist traffic at Iceland’s airport hit a record in May. Iceland has taken its bitter medicine, adjusted, and is currently reaping some of the rewards.

Although the detrimental effects of austerity experienced by the economies and banks of Greece, Spain, and Italy crowd out most of today’s headlines, Iceland is not the only country to make painful changes to its fiscal ways and then taste the sweetness of progress. Let’s not forget the Guinness drinking Irish. Ireland, like Greece, Portugal, and Spain received a bailout, but Ireland’s banking system was arguably worse off than Spain’s, yet Ireland has seen its borrowing costs on its 10-year bond decrease dramatically from 9.2% at the beginning of 2011 to about 7.4% this month (still high, but moving in the right direction). The same can be said for the United States. Our banks were up against the ropes, but after some recapitalization, tighter oversight, and stricter lending standards, our banks have gotten back on track and have helped assist our economy grow for 11 consecutive quarters (albeit at uninspiring growth rates).

The austerity versus growth debate will no doubt continue to circulate through media circles. In my view, these arguments are too simplistic and one dimensional. Every country has its unique culture and distinct challenges, but even countries with massive financial excesses can steer themselves back to a path of growth. A floating hedge fund on ice to the north of us has proven that fact to us, as we witness brighter days beginning to thaw Iceland’s chilly economy to expansion again.

Wade W. Slome, CFA, CFP®

Plan. Invest. Prosper.

DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients own certain exchange traded funds, but at the time of publishing SCM had no direct position in Lehman Brothers, Guinness, or any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC “Contact” page.

June 24, 2012 at 10:42 pm 2 comments

Dominoes, Deleveraging, and Justin Bieber

Despite significant 2011 estimated corporate profit growth (+17% S&P 500) and a sharp rebound in the markets since early October (+18% since the lows), investors remain scared of their own shadows. Even with trembling trillions in cash on the sidelines, the Dow Jones Industrial Average is up +5.0% for the year (+11% in 2010), and that excludes dividends. Not too shabby, if you think about the trillions melting away to inflation in CDs, savings accounts, and cash. With capital panicking into 10-year Treasuries, hovering near record lows of 2%, it should be no surprise to anyone that fears of a Greek domino toppling Italy, the eurozone, and the global economy have sapped confidence and retarded economic growth.

Deleveraging is a painful process, and U.S. consumers and corporations have experienced this first hand since the financial crisis of 2008 gained a full head of steam. Sure, housing has not recovered, and many domestic banks continue to chew threw a slew of foreclosures and underwater loan modifications. However, our European friends are now going through the same joyful process with their banks that we went through in 2008-2009. Certainly, when it comes to the government arena, the U.S. has only just begun to scratch the deleveraging surface. Fortunately, we will get a fresh update of how we’re doing in this department, come November 23rd, when the Congressional “Super Committee” will update us on $1.2 trillion+ in expected 10-year debt reductions.

Death by Dominoes?

Is now the time to stock your cave with a survival kit, gun, and gold? I’m going to go out on a limb and say we may see some more volatility surrounding the European PIIGS debt hangover (Portugal/Italy/Ireland/Greece/Spain) before normality returns, but Greece defaulting and/or exiting the euro does not mean the world is coming to an end. At the end of the day, despite legal ambiguity, the ECB (European Central Bank) will come to the rescue and steal a page from Ben Bernanke’s quantitative easing printing press playbook (see European Deadbeat Cousin).

Greece isn’t the first country to be attacked by bond vigilantes who push  borrowing costs up or the first country to suffer an economic collapse. Memories are short, but it was not too long ago that a hedge fund on ice called Iceland experienced a massive economic collapse. It wasn’t pretty – Iceland’s three largest banks suffered $100 billion in losses (vs. a $13 billion GDP); Iceland’s stock market collapsed 95%; Iceland’s currency (krona) dropped 50% in a week. The country is already on the comeback trail. Currently, unemployment (@ 6.8%) in Iceland is significantly less than the U.S. (@ 9.0%), and Iceland’s economy is expanding +2.5%, with another +2.5% growth rate forecasted by the IMF (International Monetary Fund) in 2012.

Iceland used a formula of austerity and deleveraging, similar in some fashions to Ireland, which also has seen a dramatic -15% decrease in its sovereign debt borrowing costs (see chart below).


OK, sure, Iceland and Ireland are small potatoes (no pun intended), so how realistic is comparing these small countries’ problems to the massive $2.6 trillion in Italian sovereign debt that bearish investors expect to imminently implode? If these countries aren’t credibly large enough, then why not take a peek at Japan, which was the universe’s second largest economy in 1989. Since then, this South Pacific economic behemoth has experienced an unprecedented depression that has lasted longer than two decades, and seen the value of its stock market decline by -78% (from 38,916 to 8,514). Over that same timeframe, the U.S. economy has seen its economy grow from roughly $5.5 trillion to $15.2 trillion.

There’s no question in mind, if Greece exits the euro, financial markets will fall in the short-run, but if you believe the following…

1.) The world is NOT going to end.

2.) 2012 S&P profits are NOT declining to $65.


3.) Justin Bieber will NOT run and overtake Mitt Romney as the leading Republican candidate

…then I believe the financial markets are poised to move in a more constructive direction. Perhaps I am a bit too Pollyannaish, but as I decide if this is truly the case, I think I’ll go play a game of dominoes.

Wade W. Slome, CFA, CFP®

Plan. Invest. Prosper.

DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients own certain exchange traded funds, but at the time of publishing SCM had no direct position in any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC “Contact” page.

November 12, 2011 at 6:59 pm 1 comment

From Bearded Monks to Greek Decline

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Noted author Michael Lewis has sold millions of books and written on topics ranging from professional baseball to Wall Street and Iceland to Silicon Valley. Now, he has decided to tackle the gripping but nebulous Greek financial crisis through the eyes and bearded mouths of Greek monks in a recently released article from Vanity Fair.

At the heart of the story is a Christian monastery (Vatopaidi), located on a northeastern peninsula of Greece. This ten-century old sanctuary has helped expose the tenuous state of the Greek economy, which is estimated to be sitting on $1.2 trillion in debt (representing $.25 million per working Greek adult) – a massive number considering the relatively petite size of the country. Beyond interviewing the Vatopaidi monks, Lewis trolled through the country interviewing various politicians, businessmen, government officials, and natives in order to make sense of this Mediterranean mess.

The Scandal Genesis

Starting in 2008, news filtered out that Vatopaidi had somehow acquired a practically worthless lake and swapped it for 73 different government properties, including a 2004 Olympics center. The Vatopaidi monastery effectively created an estimated $1 billion+ commercial real estate portfolio from nothing, thanks to one of the key Vatopaidi monks negotiating a fishy, behind-the-door government exchange scheme. This scandal, among other issues, ultimately lead to the collapse of the prior Greek ruling party and sent Prime Minister Kostas Karamanlis packing his bags.

The Greek crisis did not happen overnight, but rather decades. A casual observer may mistake the caustic Greek media headlines as proof to blame Greece as the reason behind the global financial meltdown,  Rather, the challenges faced by this island-based country are more symptomatic of the weak global credit standards and the undisciplined disregard for excessive debt levels. Even with an embarrassingly high debt/GDP ratio (Gross Domestic Product) of about 130%, Greece’s desperate financial situation is a relatively minor blemish in the whole global scheme of things. More specifically, the $300 billion or so in Greek GDP represents the equivalent of a pubescent pimple on the face of a $60 plus trillion global economy.

The Greek Concern

The Vatopaidi scandal is still being investigated, but how did this broader debt-induced, Greek fiscal catastrophe occur?

Lax tax collection, absence of legal enforcement, and simple corruption are a few of the contributing reasons. Lewis describes the situation as follows:

“Everyone is pretty sure everyone is cheating on his taxes, or bribing politicians, or taking bribes, or lying about the value of his real estate. And this total absence of faith in one another is self-reinforcing. The epidemic of lying and cheating and stealing makes any sort of civic life impossible; the collapse of civic life only encourages more lying, cheating, and stealing.”


A tax collector and real estate agent from the article had this to say:

“If the law was enforced, every doctor in Greece would be in jail.”  AND
 “Every single member of the Greek Parliament is lying to evade taxes.”


The Greek government also did an incredible job of distorting the reported economic data and swept reality under the rug:

“How in the hell is it possible for a member of the euro area to say the deficit was 3 percent of G.D.P. when it was really 15 percent?” a senior I.M.F. (International Monetary Fund) representative asked.


The Greek debacle was not an isolated incident. The significant dislocations occurring around the earth’s small and dark corners have directly impacted our lives here in the U.S. Take for example Iceland, the country that New York Times columnist Thomas Friedman called a converted “hedge fund with glaciers.” Not only did this historically tiny fishing island do dynamic damage to its southern neighbors in Europe, but damage from its collapsing banks extended all the way to busted condominium developments in Beverly Hills, California.  Or consider Dubai and the multi-billion dollar debt restructuring at Nakheel Development that held the world breathless as people around the world watched in trepidation.

These examples, coupled with the Greek financial crisis highlight how widespread the collateral damage of cheap credit proliferated. The cost of money is still dangerously low, as governments around the globe attempt to stimulate demand, however the regulators and banking industry must remain vigilant in maintaining loan and capital deployment discipline. The hot debates over financial regulatory reform in the U.S., along with the recent Basel III banking requirement discussions are evidence of the need to restore balance and stability to the global financial playing field.

The global financial crisis has spooked billions of people around the world. Like a mysterious boogeyman, the crisis has turned cheap and easy credit into the public’s worst nightmare. The mysticism and general opacity surrounding the inner-workings of Wall Street and global financial markets attacks at investors’ inherent emotional vulnerabilities. Michael Lewis has once again helped turn what on the exterior seems extremely complex and confusing and boiled the essence of the problem down into terms the masses can digest and put into perspective.

Bearded monks loading up on government-swapped commercial real estate may have provided valuable lessons and insights into the global financial crisis, however now I can hardly wait for Michael Lewis’s next topic…perhaps balding nuns in South African gold mines?

Read the whole Vanity Fair article written by Michael Lewis

Wade W. Slome, CFA, CFP®  

Plan. Invest. Prosper. 

DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients own certain exchange traded funds, but at the time of publishing SCM had no direct position in any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC “Contact” page.

September 13, 2010 at 12:57 am 1 comment

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