Editor’s Letter

BILL McINTOSH

The Gathering Storm published by DV Books is a welcome contribution to the literature analysing the global financial crisis. It is a collection of essays commissioned by Lee Robinson, co-founder of Trafalgar Asset Managers, and Patrick Young, who is the principal of Kolonna Asset Management.

The book’s starting point is that a number of the best financial minds foresaw the disaster that struck world markets in 2008. Thus we get in the opening chapter a very cogent account by James Ferguson, chief strategist at Arbuthnot Securities, of the build-up to the global banking crisis. There is much to recommend in this clear dissection of why financial institutions went to the abyss and how they are still perched there. As for an exit date from the credit crunch Ferguson’s best estimate drawn from looking at past crises is sometime around 2014.

If that is right readers will want to consider closely the contribution from Avenue Capital’s Marc Lasry entitled ‘Opportunities in the Distressed Debt Market’. The argument may be familiar – record debt of over $2.5 trillion spanning all industries and a dearth of competition among buyers – but Lasry believes that the investment opportunities are unprecedented. As sobering as the financial environment maybe, Lasry rightly says that high quality due diligence and patience will reward those who can supply capital in the coming years.

It’s likely that no analysis of the crisis would be complete without a restatement of the Ice Age thesis conjured up a decade ago by Albert Edwards, global strategist at Société Générale. Edwards believes a new downturn is just around the corner – it’s just been having a cyclical snooze – and urges equities investors to hide. Edwards (unlike most of the contributors) offers little by way of investment options unless you consider his message a call to arms for aggressive short selling.

More opportunistic is the approach taken by Tom Burnett and Linda Varoli of established equities research firm Wall Street Access. Their contribution – Broken Deals: Opportunities at a Discount – offers persuasive evidence that there are bountiful pickings in companies that were the target of corporate actions that subsequently got shelved with the market downturn. Here fortune favours bold value investors looking for opportunities at a discount.

Patrick Young closes out the collection of essays. He observes that the Blair/Brown manifesto – a “glorified debt disaster waiting to happen” – prompted him to abandon Britain over 15 years ago. (Both he and Robinson have settled in the sunny, tax friendly climes of Monaco.) Young likens the future of the developed West to that of Argentina during the 20th century. Argentina, of course, blossomed in the 1920s only to fade into relative economic obscurity as the last century wore on. He ends the book admonishing investors that to invest in growth go east – Poland and elsewhere in eastern Europe, and, of course, to Asia.

But the best is saved for last: all profits from the book go to the Altana Charitable Trust. It will distribute an equal share of the earnings to each contributor’s choice of charity or non-profit organisation. Order from www.thegatheringstorm.info.

Bill McIntosh, Editor
bill.mcintosh@thehedgefundjournal.com