Monthly Archives: May 2014

Thoughts After Client Discussions

Recent talks with people that have an academic background surprised me when it came to misconceptions or errors of judgement regarding investing:

1. After a crisis it’s good to hold on to cash because if it happens again, they’ll be prepared. We’re seing record cash levels at the moment held by clients in banks, that should there really be another large hit to sentiment, global growth the tools to counter the crisis could in many cases lead to inflation.

2. Not looking at growth rates, change in growth, performance in percent but looking at absolute numbers or account balances and being lulled into a false sense of security that leads to underperformance or an upward change in spending appetite.

3. When entrusted with managing a fund for beneficiaries: Not investing the generated income with an eye for large unforseen expenses or sharp corrections in value of the investments, but spending on the basis ‘what comes in can be spent now’. This pitfall is very common. We tend to forget the tough times and adjust our expenses to our income in good times.

4. Falling Knife: Gold has come down; so now must be a good time to buy. It’s come down 20-30%. – The issue I see: Not looking what the move up was in the first place, from which level.

This is where I see my value added service:

My role as an asset manager is not to be popular when looking after money in entities set up to be for rainy days (years, decades) or when advising clients planing long term investments. Rather it is to make rational decisions based on a wide range of analytical tools that can increase the probability. I guess you could liken the service to a financial drill instructor or personal trainer. The advantage is gained by years of personal experience and/or from knowledge passed on by teachers, mentors and literature.

In some cases, even people with lots of knowledge will have to bow to pressure from majorities. The crowd effect. If everyone is investing in XYZ, why aren’t we. Or: Look how well that investment has done, why didn’t we do that! This leads to mental paralysis or our instincts kicking in: either ‘get me in on this deal’ or ‘get me out’ . Instincts are of course impulsive behaviour. If you’re familiar with supermarkets and how they are set up, you’ll know that is not the healthy vegteables and fresh fruit you will be tempted by. It’s in those moments you need an independent adivsor that can give you arguments and statistics that change your mind so that you choose what makes sense for your account and long term growth.

Global Investing Through Swiss Listed Companies

In a recent post about Barry Callebaut (and in particular Stollwerck) I pointed out that investing in Swiss companies means investing in the global economy. Here’s another example: CPH Group (Ticker: CPHN) expanding in China where they will invest CHF 10-15 million in a new plant. This is a way to play the double-digit growth rates in Asian blister film demand.

CPH Group expanding to China

Perlen Packaging, the packaging division of CPH Chemie + Papier Holding AG, is to establish a new film coating production facility in China. The new plant will
commence operations in 2016, and should provide further impetus for the present growth in the Asian pharmaceuticals market.


The demand for blister films among Asia’s pharmaceuticals manufacturers is currently seeing double-digit percentage annual growth. China in particular is witnessing a substantial increase in demand for medications owing to a combination of urbanization, rising incomes and an ageing of the population. Perlen Packaging, the packaging division of the CPH Group, already generates some 20% of its sales in Asia, and is now planning to intensify its production and distribution activities in this regional market.


To this end, Perlen Packaging is establishing a production site in China to join its existing facilities in Perlen (Switzerland), Müllheim (Germany) and Whippany (USA). Land is currently being acquired in the Shanghai area, on which a film coating production facility should be built in the next two years. The facility, which will entail a lower-double-digit-million-franc investment, will be certificated to GMP standards, and will serve the Asian market.


“Our Packaging Division has achieved steady growth over the last few years, and is now one of the world’s top three providers of blister packs for the pharmaceuticals market,” says Peter Schildknecht, CEO of the CPH Group. “Our existing film coating facilities will reach their capacity limits in the next few years, though,” he continues. “So this expansion to Asia is a logical step that will enable us to respond even more swiftly to local customer needs.”


“With its new production site in the Shanghai area, Perlen Packaging will be ideally positioned to serve the rapidly-growing Chinese pharmaceuticals market,” adds Wolfgang Grimm, Head of the Packaging Division within the CPH Group.

Commodities Cartel & Central Banks – The Real Market Sharks?

Just to remind the interested reader what a cartel is; this is what wikipedia says:

cartel is a formal, explicit agreement among competing firms. It is a formal organization of producers and manufacturers that agree to fix prices, marketing, and production.[1] Cartels usually occur in an oligopolistic industry, where the number of sellers is small (usually because barriers to entry, most notably startup costs, are high) and the products being traded are usually commodities. Cartel members may agree on such matters as price fixing, total industry output, market shares, allocation of customers, allocation of territories, bid rigging, establishment of common sales agencies, and the division of profits or combination of these. The aim of such collusion (also called the cartel agreement) is to increase individual members’ profits by reducing competition.

Cartels everywhere have one aim, to guard against negative impact on the cartel members material position.

The OPEC for Oil. The Central Bank Gold Agreement for Gold.

Here’s a recent article from the FT (19th May 2014!)


This is why I find it interesting that people; traders at investment banks trying to play alongside these cartels are now being made scapegoats. The high oil prices and high  gold prices are not a result of natural market forces, but clearly, as evidenced by agreements and organsitations at country / central bank level, cartel prices.

It makes you wonder who is really unethical in all these cases the goverments or their watchdogs are leading. It reminds me more of a situation in which small sharks are being culled by order of the larger sharks!


Conduct Problems in Advertising Structured Products in Switzerland

In connection with my recent series of posts highlighting ads by Credit Suisse (Ad 1, Ad 2), Vontobel (Ad 3), Deutsche Bank, Notenstein (Raiffeisen) (Ad 4) pushing structured products such as barrier reverse convertibles, bonus certificates, it was interesting to read this comment from the UK’s Financial Conduct Authority:

Clive Adamson, director of supervision at the regulator, said: “It is particularly important in this sector that advertisements for financial products enable customers to make informed decisions. We think that more can be done to ensure that advertisements are fair, clear and not misleading.” (, May 16th 2014)

This clearly is a problem in the ads I’ve been writing about. The term sheets are often linked to as a by-the-way. I doubt every investor buying the products is reading them. Yet it would be critical.

Also another point is a problem with the ads: the fees and costs of these complex products.

details of fees are either missing or “buried in the terms and conditions”

In todays’ low interest rate environment these products costing maybe 100-200bp (1-2%) are performance destroyers par excellence.

Bonus Certificate CH0239961847 – Advertising on Swiss Newspaper Websites

The latest in the Credit Suisse series of ads for structured products (complex products). The two screenshots below are what you would see just above the headlines on the newspaper website:bonus-zertifikat-2 bonus-zertifikat-1bonus-zertifikat-3

Who are bonus certificates for?

Market Expectation

  • Underlying moving sideways or rising
  • Underlying will not breach barrier during product lifetime

23996184_termsheet_EN  payoff-diagramm-bonus-certificate

If no Barrier Event has occurred, a cash amount equal to the Denomination multiplied by the greater of (a) the Conditional Protection and (b) the sum of (x) the number one (100%) and (y) the Participation multiplied by the difference between (A) the Final Level divided by the Initial Level and (B) the number one (100%), calculated by the Calculation Agent in accordance with the following formula:


If a Barrier Event has occurred, and (a) the Final Level is at or above the Initial Level, a cash amount equal to the Denomination multiplied by the sum of (x) the number one (100%) and (y) the Participation multiplied by the difference between (A) the Final Level divided by the Initial Level and (B) the number one (100%), calculated by the Calculation Agent in accordance with the following formula:


(b) the Final Level is below the Initial Level, a cash amount equal to the Denomination multiplied by the Final Level divided by the Initial Level, calculated by the Calculation Agent in accordance with the following formula:


Valor 23996184
ISIN CH0239961847
RIC CH23996184=CSZH

Dangers of Bonus Certificates

These graphs show the dangers of (multiple) bonus certificates nicely: Just one of the three underlying equities touched its barrier (Credit Suisse). Roche is up over 85% and Zurich is up 20%. However if you invested 1000 in this product you will loose 20% as Credit Suisse stock is down that much and the bonus certificate turned into a tracker certificate of the underlying that touched its barrier.

dangers-of-bonus-certificates dangers-of-bonus-certificates-2

Swiss Sec. Number / ISIN 12 928 937 / CH0129289374 (WKN: CLA1RJ)
Ticker MBCZR

Non-Ethical Behaviour in Advertising Structured Products

I came across this ad (see below) in the Frankfurter Allgemeine Zeitung today. Vontobel pushing equity linked bonds aka reverse convertible bonds (Aktienanleihen) with coupons of 7% to 8.5%. Most people, who have no advisor protecting their interests, will base their investment decision on the information given in this ad. In this case there is no visual or written information regarding the risk (except the general risk of loss if the issuer goes under). How this can be ethical practice I really have big question marks about. Especially as these ads are provenating from a Swiss Private Bank. These banks were famous for looking after clients interests (or providing solid services). The last decade has seen some of them change their mentality and behaviour towards maximising their profits not their customers and expanding their structured products division or investment banking in general. Such ads bring this point home nicely. It’s not fair, in my opinion, or good practice to not tell someone of the risks involved in an investment. I was taught to underpromise and overdeliver if given a choice. In this ad you are shown the maximum profit, but not the maximum loss. That means the probability of an investor being disappointed is certainly larger than of the other way round. I recently read (also in the FAZ) that the cold calling boiler room operations of our day always want to know whether the prospect has an online trading account and is self directed, because those are the ones that are least likely to spot risk. These kind of ads probably cater to the self directed investors who will not get smart advice. Add to that, that this product will cost you 1-2% and already expires next summer, when you will again have to invest and pay 1-2% through the margin built into the product, and you’ll understand that this is not an advisable long term strategy of maximising your savings or wealth.


Aktienanleihen von Vontobel

VZ4B9W, VZ4B9X, VZ4B91, VZ4B92, VZ4B98


Example of Globalisation, Cross Border Risk and Potential of Equities

Some people think they need to diversify across countries by buying equities in different markets (usually at a higher cost than their local market due to exchange rates spread, higher transaction and custody fees).

It is however possible to create an extremely well diversified “global” equity risk portfolio while investing in the companies listed in a very open economy such as Switzerland.


Example Barry Callebaut:

Barry Callebaut, a SIX (Swiss Stock Exchange) listed company with a long tradition is owner of Stollwerck, which opened a plant with 1000 employees in Hungary (Szekeshehervar) in 1995, a plant in Poland (Poznan) in 1995 [DM 44m], a plant in Russia (Prokrov) in 1996 [DM 51m]. That’s just a few examples of where Stollwerck is active.

This short example shows that investing in the Switzerland listed Barry Callebaut gives you risk exposure to Hungary, Poland, Russia (and many other countries).

As an independent wealth manager it is my job (I believe) to show investors and potential investors that they can invest globally while investing in companies with roots or substantial control based in Switzerland. And at the same time minimising transaction costs and custody fees so that the investors wealth can grow thanks to a solid base that doesn’t drain performance.

Efficient Market Hypothesis – Counter Arguments – Series

This headline on just now reminded me of the theory you learn in Finance; Efficient Market Hypothesis.

Additional pent up supply not on the radar of all investors suddenly coming to the market, or just the possibility of it coming to market can lead to big moves; see below



“Our large early investors, as well as of some of our key insiders … don’t intend to sell immediately upon lockup expiration,” Chief Financial Officer Mike Gupta had told analysts during Twitter’s earnings call last month.

But, he added that “a meaningful portion of the supply … could in theory come to market after lockup expiration.”

The company had earlier announced that Twitter Inc. co-founders Jack Dorsey and Evan Williams, as well as Chief Executive Richard Costolo, have no plans to sell any of their shares.

Twitter also said Benchmark venture capital funds, which are affiliated with a Twitter director, also told the company that they have “no present intention to sell or distribute stock to their limited partners before or immediately after the expiration of our lockup.”

The wave of unlocked shares hit at a time when Twitter, despite recording surging revenue, has struggled with worries about slower user growth.

”It’s typical and many times almost a self fulfilling prophecy,” Wedbush analyst Shyam Patil told MarketWatch, as he reacted to the stock drop.


Credit Suisse – Barrier Reverse Convertibles

Advertising on the website of for the Barrier Reverse Convertibles of Credit suisse on Danone, L’Oréal and Sanofi in EURO:credit-suisse-barrier-reverse-convertible-7-percent-2 credit-suisse-barrier-reverse-convertible-7-percent

Further information taken from website of Credit Suisse (the flash banner, of which I took screenshots, above linked to it)credit-suisse-barrier-reverse-convertible-7-percent-3


This is my graphical way of showing this product:



“If the value of the Underlyings decreases, the Final Redemption Amount may be substantially lower than the Issue Price. If a Barrier has been reached or breached during the Barrier Observation Period and the Final Level of at least one Underlying is below its Strike on the Final Fixing Date, the potential loss associated with an investment in Complex Products is linked to the negative performance of the Worst-Performing Underlying. Therefore, a total or substantial loss of the amount invested in Complex Products is possible, although any such loss is limited to the amount invested.” Quote Term Sheet





Valor: 20214804
ISIN: CH0202148042
Ticker: CSAXI

Reason this product can be advertised as in first two images at top:

“The Complex Products do not constitute a collective investment scheme within the meaning of the Swiss Federal Act on Collective Investment Schemes (CISA). Therefore, the Complex Products are not subject to authorisation by the Swiss Financial Market Supervisory Authority (FINMA)  and potential investors do not benefit from the specific investor protection provided under the CISA. The Complex Products are structured products within the meaning of the CISA.”

US – Ukraine Arms Deals Pipeline

The US Motto: Let me wet my beak

I suppose if you’re interested in selling lots of expensive military equipment to the Ukraine (well at least the west of the Ukraine) to defend against a Russian Aggressor in the future, then you should start preparing the terrain by drawing up a list of people they don’t like and try and in turn make their life more difficult. Maybe the new government in the Ukraine would then be more likely to buy Arms with money they received from the IMF? Then I suppose you could put anyone opposing the West Ukrainians on a list and make sure even Switzerlands’ SECO (State Secretariat for Economic Affairs) puts them on a list of persons not to be dealt with for any new business by financial intermediaries, even though Switzerland is supposed to be neutral by default and has a long standing tradition of a system of justice that allows conclusions based on facts, evidence and hearings.

If you read the (very little) justifcation given below, for why and who is on the list you can’t help wondering, as a neutral person, why there only seems to be one political side being sanctioned. Is there any fair trial or process?


SSID: 175-27524
Name: Kozak Dmitry Nikolayevich
DOB: 7 Nov 1958
POB: Kirovohrad, Ukraine
Justification: Deputy Prime Minister. Responsible for overseeing the integration of the annexed Autonomous Republic of Crimea into the Russian Federation.
Modifications: Listed on 2 May 2014

SSID: 175-27531
Name: Belaventsev Oleg Yevgenyvich
DOB: 15 Sep 1949
POB: Moskau
Justification: Plenipotentiary Representative of the President of the Russian Federation into the so called “Crimean Federal District”, Non-permanent member of the Russian Security Council. Responsible for the implementation of the constitutional prerogatives of the Russian Head of State on the territory of the annexed Autonomous Republic of Crimea.
Modifications: Listed on 2 May 2014

SSID: 175-27538
Name: Savelyev Oleg Genrikhovich
DOB: 27 Oct 1965
POB: Leningrad Justification: Minister for Crimean Affairs. Responsible for the integration of the annexed Autonomous Republic of Crimea into the Russian Federation.
Modifications: Listed on 2 May 2014

SSID: 175-27545
Name: Menyailo Sergei Ivanovich
DOB: 22 Aug 1960
POB: Alagir, North-Ossetian Autonomous SSR, Russian Federation
Justification: Acting governor of the Ukrainian annexed city of Sevastopol.
Modifications: Listed on 2 May 2014

SSID: 175-27552
Name: Kovatidi Olga Fedorovna DOB: 7 May 1962
POB: Simferopol, Ukraine
Justification: Member of the Russian Federation Council from the annexed Autonomous Republic of Crimea.
Modifications: Listed on 2 May 2014

SSID: 175-27559
Name: Shvetsova Ludmila Ivanovna
DOB: 24 Sep 1949
POB: Alma-Ata, Russian Federation
Justification: Deputy Chairman of State Duma, United Russia. Responsible for initiating legislation to integrate the annexed Autonomous Republic of Crimea into the Russian Federation.
Modifications: Listed on 2 May 2014
SSID: 175-27566
Name: Neverov Sergei Ivanovich
DOB: 21 Dec 1961
POB: Tashtagol, Russian Federation
Justification: Deputy Chairman of State Duma, United Russia. Responsible for initiating legislation to integrate the annexed Autonomous Republic of Crimea into the Russian Federation.
Modifications: Listed on 2 May 2014
SSID: 175-27573 Name: Sergun Igor Dmitrievich
DOB: 28 Mar 1957
Justification: Director of GRU (Main Intelligence Directorate), Deputy Chief of the General Staff of the Armed Forces of the Russian Federation, Lieutenant-General. Responsible for the activity of GRU officers in Eastern Ukraine. Modifications: Listed on 2 May 2014
SSID: 175-27578
Name: Gerasimov Valery Vasilevich
DOB: 8 Sep 1955
POB: Kazan
Justification: Chief of the General Staff of the Armed Forces of the Russian Federation, First Deputy Minister of Defence of the Russian Federation, General of the Army. Responsible for the massive deployment of Russian troops along the border with Ukraine and lack of de-escalation of the situation. Modifications: Listed on 2 May 2014
SSID: 175-27585
Name: Prokopiv German
Justification: Active leader of the “Lugansk Guard”. Took part in the seizure of the building of the Lugansk regional office of the Security Service, recorded a video address to President Putin and Russia from the occupied building. Close links with the “Army of the South-East”.
Modifications: Listed on 2 May 2014
SSID: 175-27589 Name: Bolotov Valeriy
Justification: One of the leaders of the separatist group “Army of the South-East” which occupied the building of the Security Service in the Lugansk region. Retired officer. Before seizing the building he and other accomplices possessed arms apparently supplied illegally from Russia and from local criminal groups. Modifications: Listed on 2 May 2014
SSID: 175-27593
Name: Purgin Andriy
Justification: Head of the “Donetsk Republic”, active participant and organiser of separatist actions, co-ordinator of actions of the “Russian tourists” in Donetsk. Co-founder of a “Civic Initiative of Donbass for the Eurasian Union”. Modifications: Listed on 2 May 2014
SSID: 175-27597
Name: Pushylin Denys
POB: Makiivka
Justification: One of the leaders of the Donetsk People’s Republic. Participated in the seizure and occupation of the regional administration. Active spokesperson for the separatists.
Modifications: Listed on 2 May 2014
SSID: 175-27603
Name: Gennadevich Tsyplakov Sergey
Justification: One of the leaders of ideologically radical organization People’s Militia of Donbas. He took active part in the seizure of a number of state buildings in Donetsk region. Modifications: Listed on 2 May 2014
SSID: 175-27607
Name: Strelkov Igor
Spelling variant: Strielkov Ihor (Russian)
Justification: Identified as staff of Main Intelligence Directorate of the General Staff of the Armed Forces of the Russian Federation (GRU). He was involved in incidents in Sloviansk. He is an assistant on security issues to Sergey Aksionov, self-proclaimed prime-minister of Crimea.
Modifications: Listed on 2 May 2014


In completely unrelated news:  “Republicans Launch New Push To Arm UkraineSenate Republicans are pressing the Obama administration to do more to help Ukraine and hurt Russia and are introducing a new bill that would provide for weapons, sanctions, and more aid.

“…The bill provides for sharply expanded U.S. and NATO support for the militaries of Poland, Estonia, Lithuania and Latvia, according to a summary provided to Yahoo News. It also calls for Obama to accelerate and expand American missile defense systems in Eastern Europe — something Russia fiercely opposes.”

Or this unrelated news: “Besides small weapons, Rogers urged providing medical supplies, radio equipment and unspecified “defensive posture weapons systems.”

Or this: “Saying that Vladimir Putin’s justification for the annexation of Ukraine’s Crimean peninsula is “eerily similar” to Adolf Hitler’s justification of conquests, U.S. Sen. John McCain (Republican-Arizona) said the United States must arm Ukraine to deter Russia from further invasion.”

Makes you wonder if some of the above names shitstirring shouldn’t be on sanctions lists.