As promised I am not going to rattle on about China. Instead, look at Putin-land. My tirade has a personal side. I had my teeth cleaned on Wednesday by Irina, the Russian dental hygienist, who scraped at the plaque by leveraging against the saliva suction device so hard that she drew blood at the base of my gums.
Maybe she thought she was fighting western imperialism despite my talking to her in my rudimentary Russian. I remarked that I had just returned from London which was full of Russians, and Irina insisted that they were tourists, not exiles.
Not so. Emigrés are investing in Britain to get out of Russia to protect their wealth and their family's future. The murder of Boris Nemtsov on a Kremlin bridge in Feb. led more activists to flee. Many London Russkiys fear trumped up embezzlement charges or assassination, not that London has proven a safe haven to Alexander Litvinenko, Alexander Perpilichny, or Boris Berzovsky, all dead under mysterious circumstances.
Less prominent Russians are piling into the UK, paying between £1 mn and £4 mn to gain residency rights, with the higher sum working faster. Most of the money is going into high-end real estate holdings to avoid the risk of expropriation by Russia.
Putin is desperate to stop the UK emigration wave which has led a quarter of a million Russians to move to Britain seeking to escape from the Russian state. A new Russian Federal Law 376-FZ, which went into force this year, requires that Russian living abroad report on their overseas commercial interests. This gives Putin a list of hidden assets that can be seized. Housing appears to be exempt, for now. The new law also requires that emigrés report second passports, a more serious threat to the Russian London community.
Irina aside, here are some bullying moves by Vladimir Vladimirovich Putin's country today. First Russia destroyed 150 mn metric tonnes of European Union pork in its cold stores because they had been illegally imported. They came into Russia after it banned pigmeat from the EU, ostensibly on health grounds. This was really an attempt to put pressure on the EU after it imposed sanctions over Ukraine.
Then it threatened to confiscate US-owned property were the US to freeze Russian state assets to enforce a $50 bn damages award to former Yukos shareholders. After its CEO Mikhail Khodorkovsky accused Putin's administration of accepting bribes, Russia deliberately destroyed the oil company with punitive taxes and expropriated its assets.
Yukos shareholders and its employee pension scheme last summer were awarded those damages by the Permanent Court of Arbitration in The Hague. Under the terms of its adhesion to the court, Russia was allowed to name one of the 3 judges (who ruled against it with the other two) and also to plead its case with a team of lawyers. It still lost.
Under the New York Convention, of which Russia is a signatory, The Hague court can ask other countries to enforce its rulings by seizing Russian state assets. That the US Dept. of State authorized under international treaties Russia adhered to. Moreover, other Yukos suits by executives on behalf of shareholders in the International Court of Human Rights resulted in another judgment of euros 1.9 bn against Russia.
Unlike its exiled oligarchs, Russia is short of the ready. It invested in gold to avoid being subject to sanctions enforced by US banks for using dollars. It has lost $2 bn as the gold price fell.
I have long put off writing about how silly an idea robo-investing is. Gen Joe Shaefer, who manages money at www.stanfordwealth.com and writes a monthly called Investor's Edge, beat me to it. Here, with permission, is his note:
“I love new technologies. But it bears pointing that there are many sides to every innovation — and that human intervention should be part of any fail-safe robotic system. Otherwise we all become subjects of the old joke about the new pilotless commercial aircraft, where the announcement comes on after takeoff, ‘Ladies and gentlemen, welcome to USAmDeltaUnited flight # 654 from Detroit to Puerto Rico. Embracing new technology, we are proud to announce there are no pilots aboard the aircraft and a cabin crew is not necessary since anything you need our automated robotic attendants can provide. So relax, sit back and enjoy the flight. And remember, nothing can go wrong, hic!, nothing can go wrong, hic!, nothing can go wrong…'
Like new technologies, a certain style of investment management and portfolio allocation has risen its head yet again — as it always does after a 5 or 6 year bull market. The benefit of these approaches is that they don't require any decision-making. These are automated investment plans.
‘Use a robot!' This will be either some quant black box approach that determines when to buy and sell or, better, rebalances a diversified portfolio tied to many different benchmarks like emerging markets, small cap US, large cap international, etc. The rebalancing forces you to buy low and sell high. When one part of the portfolio performs better than the others and another performs worse, the percent of each held will deviate from your chosen parameters, and you'll rebalance. This approach assumes a steady reversion to the mean so you are, theoretically, selling a part of your winners and adding to your losers, which will revert to the mean and become winners.
“New ‘robo-investing' sites tell you you shouldn't pay someone else when you could be paying the robo-siteless. A robo-investing site that rebalances regularly without a human understanding of market history, technical analysis, fundamental analysis as to the external economic environment, or behavioral analysis of investor and consumer sentiment is a dangerous place to be — a la the automated airplane.
By selling on the basis of an arbitrarily-selected date and a graven-in-stone universe of geographic (US, international, emerging market, etc.) and/or capitalization-weighted (US large cap, foreign mid-cap, etc.) [allocation] one decides, in advance, to leave much on the table in exchange for not losing big.
Besides, if it isn't possible to beat the benchmarks, then what accounts for the steady outperformance over many years of some of my colleagues? I note immodestly that our own G&V Portfolio has returned 9.4% annually versus the S&P's 5% — including all S&P dividends. Maybe I and all my other colleagues I credit in these pages have just been lucky for a decade or more. Or maybe it pays to have a human driver, you, me, or someone else you trust, with a focus steadily on the road ahead and hands firmly on the wheel.”
