The Daily Alpha - 10.01.15

The Daily Alpha - 10.01.15

Garrett Baldwin

Alternative Thinking on Putin’s War Spending, Hurricane Joaquin Phoenix, Watery Profits, the Buyout Bonanza, and High-Net Worth Investments.

“There is no military solution in Syria for any side.”

Russia’s military strikes inside Syria are raising concerns about potential escalation. Geopolitical tensions are on the rise again…

Based on statements from Hisham Jaber, a retired Lebanese Army major-general, this situation doesn’t end any time soon, and it will be a greater source of tension between the United States and Russia for the duration of the Obama presidency or longer…

The Wall Street Journal explains.

But while the U.S. government might not like the Putin offensive, one group of investors really likes Russia right now: Hedge funds.

That’s because the Russia/Eastern Europe Index offered returns of 6.71% through August, according to industry research firm HFR.

According to Jeff Cox, funds are overlooking Russia’s support of Bashir Assad in Syria and 4.6% decline in Q2 GDP, and pumping in investment.

In fact, only the HFRI Technology/Health Care Index and the Japan Index are beating returns from Russia this year.

But… there are plenty of warning signs ahead.

Lior Alkalay at the Street argues that Vladimir Putin is on pace to bankrupt his country. Hedge funds – and other investors – should heed the warning signs.

It seems that the ex-KGB agent didn’t learn the economic lessons of the Cold War. Meanwhile, falling oil prices are hurting the nation’s budget. More than 50% of government revenues come from oil-and-gas receipts. As we’ve been saying, falling oil prices remain the most important economic story in the world today. Russia is just one player that could experience a significant financial downfall should it maintains military spending levels not seen since the Soviet Union.

“Who in their right mind is even suggesting Hurricane Sandy was great for the economy?”

Meanwhile, along the East Coast…


Keynesians rejoice… economic disaster lessons will be in the headlines next week.

The Category 3 hurricane is not quite the space invasion that Paul Krugman once suggested would be positive for the economy, but we’ll likely hear see the broken window fallacy on display.  

As Hurricane Joaquin approaches the East Coast, and takes aim at major metropolitan areas, we can anticipate a few misguided economists will explain how the rebuilding process will benefit the broader economy.

It happens every time…

Here’s Andrew Moran rebutting similar statements in the wake of Hurricane Sandy. It’s stunning that some of the people who pushed that narrative are in charge of educating the youth of America on economics.

“Today we are hearing a lot about the drought in California which, to be sure, is a serious problem. However, the ongoing water crisis in the Colorado River Basin in many ways presents even more fundamental challenges.”

The Alpha Pages has centered its focus on creating a platform for alternative investments and experts to share their insights and opportunities in a variety of different assets.

Over the summer, Global AgInvestor offered an interview with commodity expert Rick Rule of Sprott Asset Management in Carlsbad, Calif. Rule explained that water served as a terrific commodity and offered several ways to invest in the precious resource. [http://www.thealphapages.com/content/rick-rule-its-time-for-change-in-californias-water-policy]

This morning, Encourage Capital – which centers its investment focus on solving social and environmental challenges – released a report that showed exciting potential in the Colorado River Basin.

The river basin supports 35 million people and 5.5 million acres of irrigated agriculture. And Encourage Capital offers an immense amount of research and nine different blue prints for private investment. Be sure to download a copy of LIQUID ASSETS: Investing for Impact in the Colorado River Basin.

“There is as much capital available as there was pre-2007, and you have volatility in the equity market.”

Bloomberg suggest that the massive third-quarter buyout bonanza could set the pace for a “bumper end” to the year. In a phone interview with Bill Sanders of Morgan Stanley, the firm’s managing director and head of financial sponsors suggested that a continued downturn in the equity markets could offer a boost to the public-to-private market.

The numbers are huge… almost too huge.

Here’s the breakdown.

“The good news for the hedge fund portfolio manager is that these firms exist.”

Finally, over at Finalternatives, Bruce Frumerman of Frumerman & Nemeth Inc. explains that independent, fee-only financial planning/investment advisory wealth management firms that serve high net worth investors are often overlooked as opportunities for hedge funds.

That’s important because they can translate a single sale into tens or even hundreds as these "managers of managers" invest their clients in the alternative strategies and managers they’ve selected.

Be sure to sign up for the daily newsletter at Finalternatives to stay ahead of the market and understand what’s happening in the world of hedge funds and private equity investment. You can sign up for free right here. [https://www.finalternatives.com/user/register]

Be sure to check back tomorrow as we prepare for September’s unemployment announcement and more economic data from China.


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