Lebanon 10 point turnaround road map

1) Form a technocratic government independent of political parties to execute a 2-year turnaround plan
2) Restructure sovereign debt: (i) Haircut all sovereign debt interest rates to 1% and reschedule to a 100-year maturity
3) Haircut deposits > $1mn by 50% on “accrued interest” not principal
4) Reduce interest on business loans to average c. 5% on USD & prorata reduction on consumer credit. Decrease deposit rates further c. 3% on USD
5) Restructure Lebanese civil service, activate judiciary to weed out corruption and significantly reduce ratio of public-sector-cost to GDP. This would generate a fiscal surplus on its own
6) Breakdown all imports into buckets identify products in industries that need low capital requirements to be replaced which can be presented to investors, add an incentive by errecting high tariffs on imports which can ensure a viable market such as pharmaceuticals, food, etc.
7) Commence a dirty float with a band between 1500 to 2000 liras
8) Get the capex funds via the Cedre concessionary loans scheme, arrange projects at a municipal level. Execute capex plans: electricity, garbage, water..
9) No need for an IMF package if it will cause social tension (i) 5000 lira fuel tax, (ii) VAT increase to 20%, and (iii) increase of electricity rate
10) Only begin privatization process after corruption purge, to include unnecessary state owned industries: Tobacco, MEA, Casino, Telecoms, Electricity, Water, and license to produce Cannabis.

Religious Jewry and the holy land

I have recently been surprised to learn of the extent of opposition of religious Jews to the state of Israel. This information came to me as I read more and watched videos pertaining to the Haredim, the religious Jewish community in Israel that refuses to participate in Israeli military service (which is 2 years and 8 months for men & 2 years for women). I was curious to learn the reasons behind this decision, and slowly I learned that an establishment of a sovereign political state of Israel runs contrary to the Torah (the first 5 books of the 24 book Tanakh), because according to religious scriptures the temple mount will be rebuilt with the return of the Jewish messiah, so any attempt to achieve Jewish sovereignty and to rebuild the temple mount, prior to the return of the Jewish messiah, basically runs counter to the will of God according to religious texts.

According to Rabbi Moshe Dov Beck the Jewish bond with the holy land is of a spiritual/ metaphysical nature and attempts to establish a political state is due to the trickery of secular Zionists (mostly non-religious) that were interested in the establishment of a colonial/ political project and played on these sentiments to advance the political project. Judaism began around the 13th century bc with Moses receiving the Ten commandments and ended with Jewish exile following King Nebuchadnezzar of the Neo-Babylonian empire laying siege and destroying Jerusalem and its temple in 587 bc. For most of this earlier era in Jerusalem the Jewish people were subjects in the land and paid taxes but were under the rulership of the Persians, Greeks, and then Romans. The Jews if left alone to practice their religion did not engage in any political projects, the only instance of rebellion were the Maccabees, a group of children of the high priests, whom rebelled under the Greeks whom they had lived under for hundreds of years, but the reasons for this were not political, the Greeks had issued a decree punishable by death if they practiced circumcision or kept the Sabbath.

Furthermore according to Rabbi Dovid Weiss, Zionism as a political project was and still is strongly rejected by the religious Jewish community mostly based in Western Europe and North America because it runs counter to theological teachings, and if the Jewish community had been interested in return to the holy land they did have the financial resources and could have returned en masse to Palestine prior to the mid 19th century when Zionism gained steam.

Even Theodore Herzl the founder of Zionism had once mentioned that the solution to the Jewish question is a mass conversion to Christianity and refused to have his child circumcised. So with the rise of European nationalism Zionism as a political project grew with its leaders considering various locations considered in the beginning such as Uganda and Argentina, however the pull-factor of Palestine was stronger due to the historical affiliation of Judaism with the land.

 

It’s hard to make money in the financial markets as a retail investor

The way financial markets function is that in certain ways they are setup to favour the large institutional investor vs. the retail investor. For example many spread betting trading sites are setup in a way to clean up the pockets of retail investors via an instrument called CFD “Contracts For Difference”, the CFD is setup in a way which forces the retail investor to take on significant amounts of debt without understanding the hazards of doing so. For example CFD’s offer 20x to 30x Leverage this means if you put up $10,000 in equity you can have a $300,000 position in the market. However if your $300,000 position drops ~3.6% your done, basically your position is wiped out because your $10,000 supports that $300,000 and when that equity component is gone you either got a margin call or are closed down automatically. And financial instruments do have swings, even if they are on an upward trajectory, so that ~3.6% swing south is a normal days business.

Second, another way it favours the institutional  investor is actually built in into the infrastructure of the financial markets, the way it works is the following: Investment Banks-> Brokerage firms -> Trading institutes -> Retail Investor. So the Investment Banks who are market makers on most exchanges have an interest in driving volumes up. So they basically supply the funding to the brokerage firms that in turn, provide funding to trading institutes with the aim of incentivizing (i.e teaching) the retail investor to trade and provides them with basic tutorials and training to convince them they too can make money in the financial markets (i.e a steady supply of customers). The brokerage firms also use that funding to provide retail investors with margin lending for their portfolios.

Investment banks earn money from trading in two ways, if we want to assume they are saints and never do anything “creative”: (1) Since investment banks act as brokerage firms on actual exchange they actually make a % commission on trading volume (2) By providing brokerage firms with lending then provided to retail investors as margin lending they receive a lending fee + lending spread.  Similarly the brokerage firms do the same in terms of  commission + lending each taking a slice of the spread. However if we are to assume they are not saints, another way brokerage firms make money is taking counter-positions on some of these small retail investors, for example a brokerage firm with significant volumes can harness these volumes against the retail investor. Lets assume that a retail investor buys Stock A for $10,000, the brokerage firm can temporarily manipulate the market increasing the price of Stock A to the retail investor and benefit from a higher commission & can sell Stock A from its already existing inventory of stock A but at a higher price to the retail investor. The ability to do so with institutional investors is much more limited since the volumes they buy are of a much more significant size which would require the brokerage firm to put up much more financial capital to do so.

Also another not so small side note, financial exchanges are to a large extent self-regulated. Intercontinental Exchange owns exchanges for financial and commodity markets in 12 markets across US, Canada, and Europe including the New York Stock Exchange (NYSE). In May 2000, ICE was founded by Jeffrey Sprecher and backed by Goldman Sachs, Morgan Stanley, BP, Total, Shell, Deutsche Bank, and Societe Generale.

Second, in a response to US financial crisis in 2008, Sprecher formed ICE US Trust based in New York, now called ICE Clear Credit LLC, to serve as a limited-purpose bank, a clearing house for credit default swaps. The principal backers for ICE US Trust were the same financial institutions most affected by the crisis, the top ten of the world’s largest banks (Goldman Sachs, Bank of America, Citi, Credit Suisse, Deutsche Bank, JPMorgan, Merrill Lynch, Morgan Stanley and UBS).

 

 

Antun Saadeh: Volume II 1935-1937 (PART I)

So its been a while without an Antun Saadeh post, as mentioned before the point of these blog posts is not to publish the commonly accepted body of theory associated with Antun Saadeh but rather the nuances and unmentioned aspects of his political theory. In reading Volume II, I came across this interesting excerpt which mentions, perhaps, the logic behind the Greater Syria ideology: claiming that if there is a pure Phoenician Lebanese “Thesis” and pure Arabist “Anti-Thesis”, basically each descending from a religious backdrop (i.e Christian vs. Muslim”), then the principle of the unity of the Syrian nation is a synthesis or combination of both theories, composed of various sects and ethnicities formed with the progress of history a Syrian character with unique mental and psychological attributes.

These et Antithese.jpg

In a separate article “National Israeli Council”, Antun Saadeh writes a sentence which proves that although not a “Jew-lover” one cannot consider Saadeh to be an Anti-Semite as many would like to portray for he states that “their is not a single Lebanese that wants to criticize Jewish sectarian affairs and the goings on of their personal beliefs. However their is not a single Lebanese that accepts an easy going attitude towards the establishment of foreign nationalisms in Lebanon.

Jews1.jpg

In the 4th and 5th sentences of the second part of the same article, Saadeh says that: “And if the Jews do not mean by their nationalist project something exclusively Jewish, then the nationalism in Lebanon, Chem (i.e modern day Syria), and Palestine is one and its neither tribal nor sectarian”. And the last two sentences are an even stronger support for the argument that Saadeh is not an Anti-Semite “The Jews can establish another sectarian council. However to demand the establishment of a nationalist Jewish council in Lebanon is a transgression that cannot be accepted by Lebanese dignity”

Jews2.jpg

The developed vs. underdeveloped, transcending economic sectors, material consumption vs. spiritual consumption. CQS vs. Middle Eastern Banking

So we’ve all heard about the developed economies vs. underdeveloped economies – but the primary reason for these discrepancies are not a result of lagging capital investment or some other economic indicator. It is the direct result of developed or underdeveloped thinking which causes one economy to develop and another to under develop.

This is not only limited to traditional economic sectors (manufacturing, plumbing etc.) but can also be observed in cultural output. For example I like going to music concerts: classical, jazz, and free improvised. What I’ve noticed in Europe vs. a Lebanon or a Dubai, is that if my hobby is going to these music concerts is that I do not have options in Lebanon or Dubai, it is an underdeveloped market, their are just less options.

Why are there less options, because the customers are satisfied with the existing offering or have not been exposed. they like to differentiate themselves with their material consumer consumption but are still lagging in their spiritual consumer consumption. This is not confined to cultural output, let us think of highly capitalistic output such as investor product offerings in the Investment management industry.

If you go to a Lebanon, mainly what you get if you are an investor is a savings account, with some minor access to investor products such as basic online trading, subscription to a classical fund, or some basic discretionary fund.

If you go to Dubai, a touch more developed, you will get something lines of “we are an investment bank, we do asset management, we have a team, we invest in equities, still a very lame or basic approach to investing”.

If you go to London, not only do you get the vortex club in East London dedicated to free improvised music but you also get a CQS. CQS is a hedge fund, a type of investment firm non-existent in shiny Dubai.

This what CQS’s area of activity we are a “credit-focused multi-asset strategy manager” they blend in a Micro fundamental analysis (i.e thorough analysis of a companies income statement, balance sheet, other micro factors such as competitive position, and consequent valuation) with an understanding of the Macro environment in which these asset classes operate: geopolitical, monetary policy, economic growth, employment, and market cycles.

This thorough, thoughtful, and rigorous approach to investing can not exist in a region with lazy numb minds and numb thinking. Their is your difference between underdeveloped and developed. For those unconvinced go visit the website of some regional investment bank and look at the intellectual content available and compare it to what I found deep-diving CQS’ website:

     I.          CQS:

·       Investment Approach:

  • Fundamental analysis with a macro overlay.
  • Rigorous analysis, discipline and hard work, deep dive to generate insights

·       Investment Philosophy:

  • Open minded, holistic outlook, relish complexity, long term

·       Culture:

  • Collaborative environment, excellence, high performance, insights, global approach, innovation

·       Investment Themes:

o   Macro View

  • There is High Volatility which presents an opportunity.
  • There is dispersion in valuation and idiosyncratic opportunity.
  • Belt and road initiative (BRI) $10 trillion: invested in real economy, will stimulate economic growth and is an addition to M1
  • Further quantitative tightening in Western economies
  • Moderated global growth
  • Global trade tensions leading to trade wars
  • Upward sloping yield curves implies economic growth
  • US IG corporate leverage is up and interest cover is down, but concentrated in specific sectors
  • US High Yield (‘HY’) leverage has risen, but interest coverage has remained solid
  • In Europe both net leverage and interest cover have been relatively steady. Yields have already risen in anticipation of an end to QE.
  • In EU HY, net leverage and interest coverage ratios have improved and we see idiosyncratic opportunity
  • Globally Default Rates Likely to Remain Relatively Low
  • different regions and countries are at different stages of their economic cycles, yield differentials are growing
  • The Fed has finished its QE and is raising rates proactively.
  • The ECB is still in QE mode and has signalled it will not raise rates until the end of 2019.
  • Japan has suggested it will consider how to gradually normalise monetary conditions within the next few years once inflation has reach the BOJ’s 2% inflation target.
  • We are overweight Europe versus the US, and Japan is interesting on a valuation basis. 
  • Banks’ ability to absorb market volatility has not improved.  Add to that an end to asset purchases by central banks. The 800 pound gorilla is leaving the room and the central bank ‘put’ is being removed, and there’s the potential for a liquidity mismatch and that means more volatility
  • Major themes you are following: ‘Trump shocks’, European political instability,  and China all directly affect the economy  and markets
  • In 2017, US exports of goods to China were $130 billion while US imports of goods from China were $505 billion
  • Fundamental analysis is the bedrock of our investment approach. However, geopolitical risk is having a material effect on markets. One needs to understand the context to determine the transmission mechanisms into the global economy and markets. This in turn helps inform the pricing and timing of risk taking and the trading of geopolitically-inspired volatility. We can also express these views through hedging market directionality and/or buying or selling volatility.

o   Micro: Strategic Portfolio Allocation

  • CQS is limiting interest rate risk by pursuing long right sized positions in floating rate short duration bonds, duration less than 2 years
  • Convertible bonds They provide convexity – upside participation with downside protection, since are linked to Equity
  • Favour structured credit, ABS, convertibles and loans.
  • In the US, we continue to favour US RMBS opportunities which have been buoyed by a growing economy and a strong housing market.
  • In Europe, we have liked European CLOs, reflecting our preference for corporate related risk in Europe over consumer risk.
  • We pair some of these exposures with highly convex asymmetric hedges including out-of-the money puts and calls to take advantage of volatility and single name and index relative value trades.
  • Idiosyncratic opportunities fallen angels    in distressed situations for example restaurants, retail, telecom, financial, and EPC businesses across the capital structure.

·       Investment Track Record: Generated a 30% return in 2013, best hedge fund award

 

 

 

Modes of thought: Music and Financial Markets

It has come to my attention that across different professional domains one can observe common thought patterns that are concretized into different forms, however in essence the thinking behind these concretized forms is the same across domains. For example in investment philosophy their are many different styles, if we were to categorize the main bodies of theory we can probably segment them into 3 distinct categories: (i) Technical (i.e momentum), (ii) Fundamental analysis (Growth, Value, Modern Portfolio Theory, and even Global Macro), and (iii) Passive (Index funds, and quantitative systematic). I was struck the other day when reading a passage in the alchemy of finance by George Soros: “It may seem paradoxical  that my sense of reality should be rooted in the markets when markets often behave so strangely that they strike other onlookers as unreal; yet as a market participant, I am not merely aware of being connected to reality: I actually feel it in my guts. I react to events in the marketplace as an animal reacts to events in the jungle.” Reading this passage brought to my mind a form of music, named free improvised, a form, as can be denounced from the name, which is based on improvisation rather than pre-meditation which has common characteristics with Soros’ investment style. On the other hand by observing Warren Buffet’s investment style a form of fundamental analysis, named value investing, one can easily draw comparisons with the classical music category in its pre-meditation emphasis on a specific music route that should be executed to the dot.

Antun Saadeh: Volume I 1921-1934 (PART II)

So Part II of Volume I. By the way, side note, writing this blogpost takes a considerable amount of time to (i) read, (ii) take iPhone pictures, and (iii) synthesize. It is worth to mention, my aim by reading the full works of Antun Saadeh is to move away from the more boring “widely known body of content”, which I will not cite. For the more interesting parts lie in the margins, hidden away from the center.

For those unfamiliar with Antun Saadeh and his political ideology, here is a concise summary (and for those more familiar you can skip this part). With regards to the widely known body of content, here goes: Antun Saadeh born on the 1st of March 1904 in Dhour Choueir, he lived abroad for the majority of his life primarily in Latin America, probably was inspired by the revolutionary Bolivarian spirit (look up Simon Bolivar on Wikipedia). He was an autodidact and polyglot fluent in seven languages: Arabic, English, Portuguese, French, German, Spanish, and Russian. I wonder why Saadeh didn’t attempt to learn more relevant Near Eastern dead languages like: Akkadian, Ugaritic, Phoenician, Aramaic, and Hebrew (i.e. which are more relevant to his political ideology). Perhaps, at the time, a lot of the relevant archaeology was not discovered or maybe at the very least the dead languages were not deciphered yet.

As for political ideology, briefly, Antun Saadeh proposed the formation of a Greater Syria including: Including Lebanon, Palestine, Transjordan, Syria, Iraq, parts of southern Turkey, and Cyprus. He was an ardent advocator of (i) secularism, (ii) separation of religion from affairs of State, (iii) abolishment of feudalism, and a (iv) strong army to protect Greater Syrian sovereignty. His father was Khalil Saadeh an MD, newspaper editor, learned man/ erudite of sorts, and with a talent for languages.

Now that we have covered the basics., lets go back to the more interesting stuff:

  • Antun Saadeh and the freemasonic lodge: In this article Antun Saadeh writes a letter of resignation to the Freemasonic (Syria Star Lodge). He starts the article stating that he would like to hand his resignation letter with all loyalty, love, and benefit.

freemasonic0.jpg

He goes on to mention that the honourable president of the masonic lodge Dr. Khalil Saadeh (i.e. his father) had mentioned in his farewell letter (in the previous session) that if the masonic lodge finds that non-interference in political affairs would safeguard it as an entity, that it would be better that the masonic lodge did not interfere in politics.

Freemasonry

Finally Antun Saadeh concurs with his Father’s statement and admits to his wisdom. He goes on to say that his withdrawal from the masonic lodge is not a sign of being upset or angry, but rather that he is sorry to leave Freemasonic (Syria Star Lodge). He ends the article saying that he will not forget the (Syria Star Lodge), and long live the (Syria Star Lodge), and the brother members of the (Syria Star Lodge).

Freemasonry 2

  • A skewed Western view of history Semitics vs. Indo-Aryans: In this article Saadeh criticizes a history book’s racist undertones in its storyline approach, an approach which manipulates and distinguishes between superior and inferior civilizations (This is a nice piece to counter those who try to link to SSNP ideology to Nazism). In the introduction describing the Carthaginian vs. Rome wars (mentioning the Phoenician war heroes Hannibal and Asdrupal), the book mentions that Carthage was larger and richer in statues, vessels, and fortunes than its Roman counterpart.  However it mentioned that Carthage’s Asian/ Semitic race was less civilized than the Romans who were educated in proximity to the Greeks and who had known their arts and culture, and superior military organization into phalanxes and platoons. He criticizes this approach to segregate the continent (Asia) and the race (Semitic) as the reasons for this difference in civilizational development, implying that the Asian Semitic race is inferior to the European (Indo-Aryan) because it does not for example have superior military organization. He goes on to refute this argument, stating that notwithstanding that the Romans had a claimed “superior military organization” that they were in reality military defeated by Hannibal in several wars. Furthermore he argues that he is not trying to make an argument for Semitic superiority over Indo-Aryan races but counters that the reason for a richer Carthage vis-à-vis Rome is due to the ancient Phoenician genius in commerce. His argument is that such a skewed view of history creates generations of European pupils who are naturally inclined to view with contempt Asian peoples (such as Semitics, Phoenicians, and particularly Arabs)

Asian Phoenician Genius

  • The Syrians descendants of the Phoenicians: In the same article mentioned above, Antun Saadeh makes another statement that, yet another time, would view Syrian identity as distinctive from Arab Identity. Ending this paragraph with the phrase “the Syrians are the descendants of the Phoenicians and the partners of the Arabs”.Descendants of Phoenicians close up

 

 

Radical solution to solve the Lebanese governments finances

Radical solution to solve the Lebanese governments finances:

Fiscal Deficit: Lebanon has revenues around $12.5 billion and expenses around $16 billion, so a deficit of $4.5 billion. Land owners don’t pay tax and Lebanon has 10,452,000,000 squared meters of Land applying a 50 cents a year per squared meter in “Land Tax” would bring in $6 billion – we would have a budget surplus of $2.5 billion just doing that, no need to raise VAT on middle classes.
Debt reduction: Lebanon has around $40 billion in foreign reserves and $12 billion in gold. Theoretically they could use that $40 billion (without touching the gold) to pay down the Lebanese debt of $80 billion bringing it down by half. The interest on debt would drop from $6 billion to $3 billion – and if Lebanon enacts a Land Tax that would bring in $6 billion it would then have a budget surplus of $5.5 billion. The Lebanese debt would be fully paid out in 10 years, and the Lebanese economy would be strong, so we wouldn’t need the central bank foreign reserves and a dollar peg to control the exchange rate, the Lebanese Lira would actually strengthen to reflect the new fundamentals of the economy.

Academic economists would say its too radical but it’s not, rich landlords should pay their share, and the government could repay them by not enacting a capital gains tax on profits. And as for the foreign reserves better to use them now and halve the debt before it becomes much larger and losing the option to do so.

Antun Saadeh: Volume 1 1921-1934 (PART I)

So consider this to be a casual book review of some sorts, the Saadeh foundation was an organization with the purpose of publishing Antun Saadeh’s works, which includes the published 12 volumes, covering all his body of work from 1921 until his death in 1949.

Growing up I had a superficial understanding of the SSNP’s principles, one you would learn naturally growing up in an environment such as mine. I must admit, until starting to read this book “Volume 1, covering the years 1921-1934, of Saadeh’s published works” (of a series of 12 volumes), I had limited readings on Saadeh – although I am a big book reader – apart from SSNP party propaganda pamphlets (low intellectual content kind of productions). I also remember reading a quarter of Saadeh’s “Noshoo2 el 2omam”, so apart from the superficial stuff that’s it, all I had known of Saadeh’s works.

This book review is NOT intended to be a description of the nuances of the metaphysical meaning behind each one of Saadeh’s statements but rather one mentioning those moments when I read something and tell myself “oh wow” and wanting to share it with others, so here goes:

  1. The British vs. French: In more than one occasion Antun Saadeh seems to be quite complimentary towards the British, in this excerpt he mentions that the British (i) are more caring about their nation (ii) more faithful (iii) more trustworthy in serving their state. He goes on to explain that the main reasons for this are (i) the beautiful, solid, and grounded cultivation of the British people. Second mutual trust between people and state in both rights & obligations. He describes the English aristocracy as, as aristocratic in appearance but democratic in its essence, which is the rightful aristocracy that represents merit in its most pompous representation.  However he goes on to say that French democracy is democratic in appearance but autocratic in its core, which in its current condition is the worst form of government.British_2922
  2. Trashing the French again!: In this excerpt Saadeh states the values pronounced in the French revolution are not innate to its culture, but rather diametrically opposed to the French temperament. He goes on to say that these values were expropriated from the American revolution, although the French like to ascribe to French philosopher Rousseau. In truth he says, that these values go back longer in history, they originate with the core principles of Christianity, and whoever has read the new testament can witness them in the timeless philosophical sayings pronounced by that “Nazerite Semite”, for it is Christianity that gave these principles to the world. Trashing the French again_2923
  3. English Lions!: Here he claims: “England is the Lion that annihilates all other predators in Europe, and no doubt its rulers are more just than the rest of the  European nation, and that whatever traits such as deception or treachery ascribed to the British are usually because they take a balanced stance of a judge or peacemaker concerning the German question” English Lions
  4. The art of singing: This is an article, beautiful in both style and content, on the art of singing, he mentions how in Syria today (1924) music is basically primitive in form, predominantly focused on the lustful whims of its listeners (not so different from 2018) – goes onto say this primitive art form he describes is representative of the population’s general laziness, ignorance, and lack of focus. He goes on to mention the singing of a Syrian tenor accompanied by an Italian singer and an Italian piano teacher and how such a music form promotes a more refined, elevated, and spiritual content. He goes on to mention the works of Dante (Verdi), Wagner, Moscani, and Lioncavello (Great to know that Saadeh has a solid musical background)
  5. ghinaa1ghinaa2
  6. This was a shocker, Saadeh praised Abdel Aziz Al Saud, Yes Al Saud!: Starting off the piece with the headline “The Hero”. Antun Saadeh describes Abdel Aziz Al Saud with the following words: decisive, courageous, strong will, willing to lead campaigns and raids without knowing any form of fear. He also mentions that Al Saud is well mannered, empathetic to his fallen opponents, patient and knows the right moment to capture an opportunity. He goes on to say that Al Saud’s grandfathers were the greatest arab princes. In another excerpt he went on to mention the wars between the Al Saud’s and Al Rashid’s (who were backed by the Othman’s) and how the Al Rashid’s had routed the Al Saud’s out of Riyadh with Othman backing and how a young 15 year old Abdel Aziz Al Saud sought refuge with the ruling Al Sabah’s of Kuwait. The story goes in a more dramatic fashion describing that when Abdel Aziz Al Saud had come to age he went on with 80 cavalry (Al Sabah supplied soldiers) to Riyadh and during nightfall 8 of them infiltrated the Al Rashid palace where Al Saud assassinated the Al Rashid ruler and claimed back his throne and rule.Al Saud1Al Saud2Darba Oola