January 2015
Outlook 2015: A Rough and Tumble Year?: I always start the year with my outlook which sets out my market views. If you read it carefully, you will see I made some bad calls on some biotechs (still like the sector) and small cap stocks in general but the big picture was bang on. In particular, I made great calls on deflation, shorting oil and the loonie and told my readers to keep steering clear of energy (XLE), Metals and Mining (XME), Materials (XLB) and commodities (GSG). That advice alone was worth more than a $1000 or even a $5000 annual subscription to this blog from major pensions and financial institutions!!
Prepare for Global Deflation?: A key macro theme I've been harping on for years is deflation. In fact, I laugh when I hear pensions like CPPIB, bcIMC or anyone else discussing "thematic investing." If you want to understand key investment themes, you better understand the advent of global deflation and what it means for all asset classes and thematic investments.
Will the Fed Make a Monumental Mistake?: Steven Roach just published a comment on Project Syndicate, The Perils of Fed Gradualism, but it has been my contention all year that raising rates when the world ex-US is suffering from deflation is a major policy blunder. The Fed did raise by 25 bps in December but it's far from clear what the future path of interest rate hikes will be, especially if we get another emerging markets or financial market crisis.
Greece's Do or Die Moment?: Every couple of years we get another "Greek crisis" to remind us just how screwed up the eurozone truly is. As I wrote in that comment: "I'm very cynical on developments in Greece and the eurozone. I think too many people are being caught up in the theatrics of it all and a lot of investors are losing precious sleep over a lot of nonsense. More worrisome, they're not focusing on the bigger story, global deflation and the possibility of the Fed making a monumental mistake."
February 2015
Will Deflation Decimate Pensions?: This is one of the most important comments of the year. As I've discussed plenty of times, declining rates are the primary driver of pension liabilities, especially when rates are at historic lows. In finance parlance, the duration of liabilities is a lot higher than duration of assets which means when rates are ultra low, a decline in bond yields disproportionately impacts pension deficits.
Will Longevity Risk Doom Pensions?: Another key risk to pension sis longevity risk. As people live longer, it means pensions will have to make more money to cover future liabilities. But make no mistake, longevity risk won't doom pensions anywhere near as much as the advent of global deflation.
The 'Inexorable' Global Shift to DC Pensions?: The world is moving away from defined-benefit (DB) pensions into defined-contribution (DC) plans and while it makes perfect sense for companies to unload retirement risk on to individuals, this trend should scare the hell out of us. Why? Because DC pensions are way more inferior than well-governed DB pensions, and companies are effectively unloading retirement risk on to the state which means higher social welfare costs down the road to deal with rising pension poverty. What else? the shift to DC pensions exacerbates global deflation at the worst possible time (ie., when all these baby boomers retire with little to no savings).
List of the Highest-Paid Pension Fund CEOs?: This was one of the most popular comments of the year but it makes Canada's pension plutocrats very nervous. They all make millions but some make a hell of a lot more than others and this comment highlights thorny issues on compensation including benchmarks used to determine compensation and why are we paying senior public pension fund managers with captive clients millions in compensation which is almost as much, if not more, than they'd be making in the private sector for a comparable job. Canada's pension plutocrats hate it when I shine the light on compensation, benchmarks and ask tough questions which their board of directors conveniently ignore (trust me, I hate writing on compensation too because it reminds me how woefully and ridiculously underpaid I am publishing this blog!!).
March 2015
Fully Funded HOOPP Surges 17.7% in 2014: The Healthcare of Ontario Pension Plan is private (it should be public) but it's unquestionably the best large pension plan in Canada and the world over the last ten years. A lot of HOOPP's success is directly attributable to Jim Keohane, its CEO, who was instrumental in shifting the focus to asset-liability management after the 2001 tech crash. Unlike other large Canadian pensions, HOOPP does everything internally (is run like a multi-strategy hedge fund), has a much higher allocation to government bonds, and uses leverage and derivatives intelligently to deliver solid risk-adjusted returns over the long run. Their large bond allocation and fully funded status puts them in an enviable position, especially if global deflation materializes.
The Unwinding of the Mother of All Carry Trades?: Keep this comment in mind to understand trends in the U.S. dollar, bonds, commodities and emerging markets. It's all part of a massive global carry trade engineered by big banks and their big hedge fund clients which have leveraged this trade to the tilt. Importantly, if you don't understand carry trades, you will lose a lot of money in these markets.
America's Pensions in Peril?: An important comment which explains why America's public and private pensions are in deep trouble. In public pensions, there's a trillion dollar funding gap and in the private side, the great 401(k) experiment has failed. Of course, if you ask the conservative American Enterprise Institute, there is no retirement crisis (they are dreaming!!).
Transforming Hedge Fund Fees?: Institutional investors are finally openly discussing hedge fund fees and terms. They're now realizing what I've been telling them for years, when it comes to hedge funds, it's all fees, no beef. In my opinion, all hedge funds should have a hurdle rate (like private equity funds), a high-water mark (to make up for losses before they start charging a performance fee again) and hedge funds managing multi billions shouldn't be charging any management fee whatsoever (if they're that big and that good, let them live and die by their performance).
April 2015
Fully Funded OTPP gains 11.8% in 2014: Along with HOOPP which I mentioned above, the Ontario Teachers's Pension Plan is one of the best and most recognized pension plans in the world. Teachers is bigger than HOOPP and it manages its assets and liabilities using internal and external managers. It too uses derivatives and leverage intelligently to juice its returns. Its CEO, Ron Mock, took over the reins from Jim Leech in 2015, and has done a great job leading this world class public pension plan.
Time to Short the Mighty Greenback?: Back in October 2014, I explained why the mighty greenback will keep surging to new highs, especially relative to the euro. I said that "I wouldn't be surprised if [the euro] goes to parity or even below parity over the next 12 months. There will be countertrend rallies in the euro but investors should short any strength." My thinking didn't change much since I wrote that comment. While everyone is talking about a recovery in Europe, they fail to understand this is a temporary boost due to the decline in the euro. I would be very careful trying to short the USD in this environment and pay particular attention to the Fed and the ongoing Euro deflation crisis.
Ron Mock sounds the Alarm on Alternatives?: In late April, Ron Mock sounded the alarm on alternatives. He was part of a panel discussion which featured Michael Sabia, CEO of the Caisse and André Bourbonnais, CEO of PSP, when he stated his thoughts. In a world where every large pension and sovereign wealth fund is increasingly allocating more and more risk to illiquid alternatives, I think it's important to heed Ron Mock's wise advice and pay particular attention to pricing and the environment we are in.
May 2015
Are U.S. (Public) Pension Funds Delusional?: Of course they are, read this comment and you will understand why. By and large, they still cling to their pension rate-of-return fantasy. Unfortunately, NASRA is still smoking hopium and nobody wants to talk about the elephant in the room. I fear the worst for pensions as global deflation sets in, decimating them and forcing them to come to grips with the fact that 8% will turn out to be more like 0% or lower in coming decade(s).
CPPIB Gains a Record 18.3% in Fiscal 2015: It was a record fiscal year for CPPIB, Canada's largest public pension fund. Its CEO, Mark Wiseman, and his senior team delivered incredible results across the board. The value of its investments also got a $7.8-billion boost in fiscal 2015 from a decline in the Canadian dollar against certain currencies, including the U.S. dollar and U.K. pound (unlike PSP, CPPIB doesn't partially hedge its currency exposure).
The Bigger Short?: Another hedge fund guru, billionaire investor Paul Singer, came out with his thesis on why government bonds are the 'bigger short'. Singer and others, like the Maestro, warning of the scary bond market are simply wrong. Sure, bonds didn't perform well in 2015 but they didn't crater either and the point is while bonds are boring, they're important in preserving capital. Moreover, as I stated: "I couldn't care less what Singer says and neither does the bond market. I'm telling you there is no question whatsoever in my mind that the titanic battle over deflation will not sink bonds. And if the Fed makes a monumental mistake and starts raising rates too soon, it will all but ensure deflation because this time is different."
June 2015
The Liquidity Time Bomb?: A comment that looked into liquidity issues governing the U.S. bond and stock market. While liquidity issues are a concern, I think it's the fear of global deflation which is weighing heavily on markets and fueling this insane volatility.
Against the Gods?: I attended a luncheon discussing volatility in markets and covered it here. There were many good points raised but the most important debate -- deflation versus inflation -- wasn't covered until Mr. Pension Pulse raised it to his ex-boss who was moderating the discussion.
CPPIB Bringing Good things to Life?: CPPIB's acquisition of GE's Antares was unquestionably the biggest deal of the year and I think this will prove to be one of the best deals for the Fund over the very long run.
OECD's Dire Warning on Pensions?: No need to convince me, global pensions are screwed, which is one reason why I'm a strong proponent of well-governed DB plans.
CalPERS' Fiduciaries Breach Their Duties?: A look at whether CalPERS' fiduciaries breached their fiduciary duties by not disclosing all the fees paid out to their private equity general partners (GPs) throughout the years.
July 2015
Enfin, An Agreekment!: It was about time these Euro ditherers came up with a Greek deal. Unfortunately, it was more of the same, which means another Greek crisis will hit us some time in 2016 or 2017 (double sigh!!).
bcIMC Gains 14.2% in Fiscal 2015: British Columbia's giant pension fund posted solid gains in fiscal 2015 mostly owing to the China bubble. Hope they got out of that trade in time. As for Gordon Fyfe, bcIMC's CEO, I wish him a Happy and Healthy New Year and hope he's enjoying life out in Victoria (Gordon, "some things in life are tough" but you owe me a phone call...).
PSP Investments Gains 14.5% in Fiscal 2015: One of my best comments covering the performance of PSP Investments. It's important to note that PSP partially hedges its currency exposure which is one reason it underperformed CPPIB in fiscal 2015. Still, the results across public and especially private markets were very strong in fiscal 2015. I ripped into the benchmark PSP uses for Real Estate and continue to think it's a sham because it doesn't reflect the risks of that investment portfolio. Also worth noting that since writing that comment, there have been major departures at PSP. Bruno Guilmette, the head of Infrastructure, has left the organization and Jim Pittman, VP of Private Equity, also left PSP (the latter left on good terms out of his own volition but I find it very strange that two senior managers left so close together in December). It looks like André Bourbonnais is putting in his own people but if I was sitting on PSP's board, I'd be asking him very tough questions on these key departures in private markets where the performance was very strong in the last few years (I would also ask him the following: "Mr. Bourbonnais, do you want to surround yourself with a bunch of YES men and women or some truly great independent thinkers?!?").
August 2015
China Big Bang?: By far the biggest global macro event of the year was the devaluation of the yuan. It heightened global deflation fears and it spooked the hell out of world markets. Remember, China pegs its currency to the USD, so a stronger greenback hurts its exports. More worrisome, China is struggling with deflation and if it allows its currency to depreciate, it will force Japan and other Asian countries to do the same, and this will mean America will import more disinflation and possibly deflation if an emerging markets crisis develops in 2016 (stronger USD = lower import prices!).
Trouble at Canada's Biggest Pensions?: More nonsense from the media which fails to understand the key difference between the Caisse, CPPIB, OTPP, PSP, etc. and other Canadian DB pensions is the former are better positioned to weather the storm ahead. Their fortunes aren't tied to the rise and fall of oil prices or the S&P/TSX because they are (for the most part) globally diversified across public and private markets.
Betting Big on a Global Recovery?: There are a lot of big hedge funds and other big funds betting big on a global recovery but 2015 hasn't been kind to them. This theme will be visited and revisited many times in 2016 and while I remain skeptical on any global recovery, it's an important one to keep in mind as we head into the new year.
September 2015
A Sea Change at the Fed?: While the Fed has traditionally emphasized the domestic economy in forming its monetary policy, it's increasingly looking at foreign developments and their impact on the U.S. dollar. This comment explains why this represents as sea change at the Fed.
The End of the Deflation Supercycle?: A comment I will be referring to many times as I simply see no end to the deflation supercycle, which spells big trouble for hedge funds, private equity funds, as well as global pensions and sovereign wealth funds.
A Looming Catastrophe Ahead?: September was a very rough month for stocks and corporate bonds. Lots of gurus like Carl Icahn came out to warn us of a looming catastrophe ahead. Of course, the only catastrophe I saw in 2015 was in Icahn's portfolio which is long a bunch of commodity and energy names that got killed this year!
October 2015
CalSTRS Pulling a CalPERS on PE fees?: It hasn't been a great year for CalPERS or CalSTRS, both of which were under extreme pressure to disclose all the fees doled out to all their private equity funds over the life of those programs. I'm a stickler for more disclosure on fees, benchmarks and a lot more at public pensions.
Prepare For Lower Returns?: Given my thoughts on deflation, the ongoing global jobs and pension crisis and demographic time bomb, I think it's safe to assume we're entering an era of lower returns. This is reflected in the record low bond yields around the world. Already, the CalPERS of this world are lowering their investment targets and I expect more U.S. public pensions to follow suit.
Can Central Banks Save the World?: Ray Dalio is worried about the next downturn but central banks have a few tricks up their sleeve and aren't going to go down without trying everything they can to stave off global deflation.
A Brutal Year For Top Hedge Funds?: No doubt about it, a lot of "hedge fund gurus" got clobbered in 2015. Even Ray Dalio's risk parity strategies which some Canadian pensions replicate internally got whacked hard in 2015. It was a particularly brutal year for Bill Ackman, David Einhorn, and many other well-known hedge fund managers. And I expect this hedge fund shakeout to last for many more years. Still, don't shed a tear for these over-glorified billionaires. Despite huge losses, they're still collecting a 2% management fee on multi billions and spared no expense to party it up at their year-end shindigs.
Four Views on DB vs DC Plans?: There shouldn't be four, five or more views on DB vs DC plans. The sooner policymakers accept the brutal truth on DC plans, the better off hard working people all over the world will be over the very long run.
A Solution to America's Retirement Crisis?: Yeah, Blackstone's solution, which ensures more money under management for alternatives shops (so they can collect more ever more insanely high fees) and the quiet screwing of America.
The Subprime Unicorn Boom?: Who can forget the Theranos affair and the subprime unicorn boom?
November 2015
Towards a New Macroeconomics?: Larry Summers is right, secular stagnation is here to stay and the world desperately needs a new macroeconomic paradigm to address deficient aggregate demand.
Canada's Highly Leveraged Pensions?: A comment which discusses how some of Canada's premiere pensions use leverage to juice their returns and compensation!
PSP Investments' Global Expansion?: From leveraged finance to opening up offices around the world, PSP is on a global mission to bolster its public and private investments. They better start hiring the right people or else they're cooked!!
Forcing Green Politics on Pension Funds?: A critical and sober look at forcing green politics on pension funds.
AIMCo Investing in Renewable Energy?: A discussion with Kevin Uebelein, AIMCo's President and CEO on renewable energy and a lot more.
A Bad Omen For Private Equity Returns?: A must read guest comment on why investors need to temper their enthusiasm on private equity.
Elite Funds Prepare For Reflation?: Oh boy, are they going to be sorely disappointed!!!
December 2015
Are Martingale Casinos About to Go Bust?: If you ask me, this is one of the most important macro comments of the year and it's a must read going into 2016. As central banks try to save the world from a deflationary disaster, they're sowing the seeds of the next financial crisis but have no fear, the Martingale casinos aren't about to go bust, at least not yet.
Overtouting the Canadian Pension Model?: Did someone forget to remind me how great Canada's large DB pensions truly are? While we have our share of pension fund heroes, we also have our share of media "fluff" which typically distorts the truth on what Canada's large pensions are able to do internally.
Negative Interest Rates, Eh?: My former BCA colleague, Bank of Canada Governor Stephen Poloz, put on a brave face but negative interest rates are coming to Canada, and possibly to the United States, sooner than you think.
Will the High Yield Blow-Up Crash Markets?: No, it won't, but lower oil prices will continue to weigh heavily on high yield debt in 2016 and if the Fed goes berserk, watch out, it could really clobber the high yield bond market which is already reeling. This will hit many investors very hard but present great opportunities to a few buying up battered bonds through closed end bond funds.
Canadian Pensions Betting on Energy Sector?: A classic contrarian call which will undoubtedly pan out over the very long, long run but I think this is just hopeful wishing at this time as I see no end to the deflation supercycle wreaking havoc on energy and commodities.
Greek Pension Disease Spreading?: You better believe it is, just ask Illinois, Kentucky and many other states that are struggling with their chronically underfunded public pension plans.
Giant Pensions Turn to Infrastructure?: Leo de Bever, AIMCo's former CEO, shares his thoughts on why giant pensions should invest in unlisted infrastructure. Great insights from the godfather of infrastructure.
No Enhanced CPP For Christmas?: What else is new? So far, Justin Trudeau's Liberals have failed to impress me. They committed the biggest pension gaffe of 2015 and are dithering on enhancing the CPP. Our politicians need to get to work and introduce real change to Canada's pension plan. Don't wait till the economy gets better, if you do you'll never enhance the CPP!
The Year Nothing Worked?: It was a brutal year for a lot of asset allocators who had no place to hide. Except for the every best short-sellers and top multi strategy hedge funds, 2015 was not an easy year to make money in markets.
As you can see, I was very prolific and provided my readers with great insights on pensions and investments in 2015. The amount of work I put into this blog is crazy and trust me, I'm woefully underpaid and greatly under-appreciated for the insights I provide you.
Still, I enjoy sharing my thoughts and I'm closing in on the 5 million page views mark after almost eight years of dedicating my time to this blog. Having said this, I need to move on and do something different to monetize on my efforts and I expect "Canada's pension powers" to help me.
I've sacrificed enough time and money publishing this blog and need your help to move on and get properly compensated for my efforts. Yes, I have progressive MS (and doing well), yes, I'm the furthest thing from a YES man and some may find me abrasive and overly critical at times, but I guarantee you won't find a more honest, hard working and dedicated person than me to help you navigate this uncertain investment landscape.
On that note, I wish you all a Happy and Healthy New Year and ask many of you who regularly read this blog to step up to the plate and join a few of Canada's top pension leaders who do subscribe to my blog and recognize the value and hard work that goes into writing these comments (use the PayPal options on the top right side under my picture).
Below, CNBC's Seema Mody details what 2015 looked like in markets around the globe, highlighting some surprising trends.
And Facebook posted an incredible video recap of the most-talked about events of 2015. If you ask me, it wasn't a great year for the world and I'm looking forward to saying goodbye 2015, hello 2016!!