Investment

Chart of the Month – “Who you trying to get crazy with this thing? Don’t you know I’m loco?”

by Pierre Mouton

“Who you trying to get crazy with this thing? Don’t you know I’m loco?”(*)

Hip-hop does not have a lot in common with financial markets and this 1993 song from Cypress Hill was obviously not aimed at giving any reference to any asset class whatsoever.

But when looking at the overall bond market today, “insane” is clearly the first word that comes to mind. To put it bluntly, how can so many investors accept to pay for holding debt securities? And why do so many market observers try to find far-fetched reasons to justify this present insane situation?

With some hindsight, it is difficult not to feel some reminiscences of the 1999 tech bubble: crazy valuations, spikes in prices, incoherent reasoning, abruptly all good reasons to buy because “things are different this time”, and in many cases the quasi-certitude to lose money over the long term. In fact, those buying German, French, Japanese or Swiss Government bonds today are sure to lose money if they hold it to maturity, whereas in 1999 at least those buying stupidly valued Internet companies could eventually have hoped to see them acquired at an even more stupid price.

In such a situation, it is unfortunately impossible to time the end of the madness, therefore extremely perilous to go short the assets that, in a logical world, should be shorted. A dear price had been paid by many brilliant investors in 1999 for having gone short the Nasdaq too early; the same applies this year with shorts on extended duration fixed income assets. But, remember how rewarding it was in 2000 to be short the Nasdaq, or at least to be away from it; it is a lesson that must be remembered.

The market will, from time to time, test convictions and drive prices far too high or far too low, much farther than most participants can cope with, which explains why there are buyers at tops and sellers at bottoms when common sense would recommend doing the opposite. Driving investors crazy and pushing them to make insane decisions is not an unusual behavior from Mr Market: “Who you trying to get crazy with this thing? Don’t you know I’m loco?”.

Coming back to today’s situation, how to deal with these negative yielding assets? For those who were brave and smart enough to hold them until now, we would advise to drastically reduce the exposure; and for the others to shy away, and concentrate on real businesses which generate cash-flow, increase earnings, invest, and are reasonably valued. Because this is the other insane consequence of abnormally low yields: how to discount future flows with incoherent factors? In theory a good company with low debt, good cash flow and an attractive dividend could be valued at insane multiples as well…

This comforts us with our positive stance towards equities, well balanced across sectors.

(*)“Insane in the brain”, Cypress Hill (https://www.youtube.com/watch?v=RijB8wnJCN0 )

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Antonio Mira
CHIEF FINANCIAL OFFICER, MEMBER OF THE EXECUTIVE COMMITTEE

Antonio Mira joined NS Partners in 2006 as Group Chief Financial Officer. He heads the corporate functions and is involved in coordinating and implementing the decisions of the Executive Committee.
An experienced bank auditor, Antonio started his career in 1995 with Arthur Andersen, where he worked for some 7 years before joining Ernst & Young in 2002 as a Senior Manager.
Antonio is a Swiss chartered accountant and a Business graduate of Lausanne University (HEC).

Sébastien Poiret
DEPUTY HEAD OF WEALTH MANAGEMENT

Sébastien Poiret joined NS Partners in 2008 and manages funds of hedge funds and private client mandates. He also oversees the development of the Group’s offices in Mauritius.

Prior to joining NS Partners, he served as a Trader, Head of Manager research and Portfolio Manager in the USA and Switzerland for a single hedge fund (1998-2004) and for Optimal (2004-2008), Grupo Santander’s fund-of-hedge funds operations.

Sébastien holds a Bachelor’s degree in Corporate Finance from the ESPEME Business School (EDHEC Group) and an MBA in Finance and Economics from the Institute of Business Administration, both in Nice.

Abir Oreibi
BOARD DIRECTOR

Abir Oreibi joined the Board of the NS Partners Group in 2018, where she brings her truly international perspective and rich experience.
Among many other ventures, Abir set up Alibaba.com’s first European office. After living and working in Shanghai, Hong Kong, Bangkok and London, she now lives in Geneva, where she is CEO of Lift Events, an organization that identifies technology trends, their business and social impact through the organization of events and open innovation programs. Issues related to the challenges and opportunities created by new technologies as well as the strategic responses from organizations are at the heart of Lift’s activities.
Abir holds a BA in Political Sciences from the University of Geneva. She is an investor, and member of advisory and innovation boards.

Romain Pidoux, CAIA

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Romain Pidoux joined NS Partners in 2011 and heads the Group’s Risk Management.
He started his financial career in 2005 as Head of Quantitative Analysis for a Swiss Family Office, selecting funds and managing portfolio allocation. In 2008, he switched to the alternative world and joined Peak Partners as hedge funds analyst.
He is a Chartered Alternative Investment Analyst (CAIA) and holds a Master’s degree in international relations from the Graduate Institute of International Studies at Geneva University.

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