February 4, 2016
Economists are always right, even when they are not, aren’t they? Fat chance. The reality is very different. Writing these letters is akin to being constantly exposed, and – at times - looking rather silly. But I still enjoy it, so allow me to stick my neck out again and go against the consensus, because that is, at the end of the day, how you make money in this industry. ... The broad consensus is that DM countries are finally returning to some sort of normality (often called the New Normal), following years of Zombie-like conditions. There is, admittedly, a growing recognition that GDP growth is likely to disappoint for quite a while to come, but I believe that ‘quite a while’ should be measured in decades and not, as most seem to believe, in years ... In the following, I will argue that GDP growth will disappoint for a very long time to come, and that will obviously have an effect on corporate earnings growth as well. As I see things, most investors are still way too optimistic on GDP growth and corporate earnings growth for the next many years. ... There are in reality not one but at least four reasons why returns on financial assets will1 disappoint in the years to come, and they are (in no particular order):
1. Regulatory changes.
2. The end of the debt super-cycle.
3. Wealth-to-GDP to normalise.
4. A deteriorating demographic outlook.
The women, it turned out, didn’t even catch the worst of the damage Arno Smit wrought in the Central Valley. He arrived in the late ’90s — boom times for the California dairy industry. Business had dried up by the time Arno disappeared in 2009, but by then he’d made off with an estimated $12 million from local dairymen he’d duped in a massive fraud. Locals were so embarrassed about how badly they’d been taken by Arno Smit that, for a time, most of them didn’t speak about it, even to one another. Their sheepishness meant the extent of his fraudulent activity in the Central Valley wasn’t fully appreciated until after he’d left — until an investigator named Rocky Pipkin came along. ... The scale and scope of the crimes vary. Honey embezzlement. Almond heists. One time, Rocky and his agents spent months on a sting operation to expose an elaborate organic fertilizer fraud. That case involved a decoy plant where the crooks pretended to make organic fertilizer with fish meal and bird guano; a second plant, fortified by walls of wooden pallets stacked 40 feet high, where they actually made the product with chemicals; and an intricate underground pumping system that would clandestinely fill the “organic” tanks with the conventionally made fertilizer.
Bouvier is an opportunist. Pitch him and he will decide if he is in or out. “It is always a question of what I will earn on the deal,” he said. ... “When you buy, it is always to sell,” he said. “You always have the buyer before you have the seller.” ... He got the certificate a few days later and called Rappo. He asked her to set up a proper meeting with the Rybolovlevs at their house in Cologny. This time, Bouvier told me, he offered them his services more generally. He could protect them during their adventures in the art market, he promised. And he could also find them art. ... He was aware that the proposal was audacious. Major buyers typically build collections through several dealers and auction houses, knowing that they will be charged the maximum the market can bear. To protect their interests, many also employ an art adviser or consultant, who works for them and is paid a retainer or a commission—in the region of five per cent—on the works that they acquire. Very rarely are all these roles performed by one person. ... Rybolovlev assumed that the two-per-cent fee was Bouvier’s commission. He was impressed by Natural Le Coultre’s premises in the freeport, which put Bouvier in contact with the owners of expensive art works. “He had insider information,” Rybolovlev said. “He knew the collectors without intermediaries. He knew what was where.” ... “For me, I will be clear,” he told me. “If I buy for two and I can sell for eleven, I will sell for eleven.” ... A freeport offers few tax advantages and scarcely any security features that a standard bonded warehouse cannot provide. But Bouvier’s development in Singapore carried within it two ideas. The first is that freeports will become hubs in the sixty-billion-dollar international art market, destinations in themselves—places for scholars, restorers, insurers, art-finance specialists, consultants, and dealers. The second idea is that the ultra-rich don’t want just another warehouse. ... One rival, who visited the Singapore Freeport and saw the Arad in the atrium, told me, “If a client of mine walked into my office and saw a five-million-dollar sculpture, he would assume I was charging him too much.” Others couldn’t work out where Bouvier was getting the money.
In 1976, the best surfers in the world began seeking Quiksilver because they were the best. The combination of Velcro, snaps and a high waistband made them grip hips and stay on, even in the largest waves. Before long, Hawaii-based Americans such as Hakman sported them. Soon, the surf mags were running photo after photo of pros gliding down famous waves such as Banzai Pipeline and Sunset Beach while wearing them—the best advertising imaginable. ... From its garage-like space, Quiksilver swelled. Within 10 years, it became the first publicly listed surfwear company; soon after, it opened boutiques in New York, Paris, London and Dubai. And by 2004, it announced annual earnings that exceeded $1 billion. ... the brand has crashed mightily ever since, leading up to this past Sept. 9, when Quiksilver sought relief in a Delaware bankruptcy court from $826 million in debt ... "Rossignol, I think, was the thing that killed Quiksilver in itself," Pezman says. "When you try to be all to everyone, you lose the support system. When you de-specialize, you lose your attraction to the specialized markets you had."