amsterdamtrader

Dozens of psychologists, economists and behaviourists have studied the cause of several stock market panics. They are still graduating on the 1987′s crash and panic selling. Time for a change.

Back in 1995 my club AFC Ajax was the reigning champion of the Europe – of the world, to be more specific. The old stadium was still in use and the new one had yet to be build. In England the Blackburn Rovers won the title and over here FC Volendam (!) played and lost the cupfinal to Feyenoord after the winning goal from good old Mike Obiku. Our Patrick Kluivert was the rising star. Sorry for this football intermezzo, yesterday’s victory over Fiorentina is still on my mind.
On the other side of the ocean the Twin Towers were still standing there. Bill Clinton was serving his first term and nobody knew miss Lewinsky. In 1995 I never heard of e-mail, and didn’t own a cellular phone. Actually, I hadn’t seen any mobile phone in real life. In the world of derivatives the physical trading pit was the place to be. Today, February 27th, the national AEX index dropped below the 2003 lows into levels last seen in 1995.Hard to believe the world has changed, but the index is back at the same old levels.

After reading Paul Kedrosky’s post about Harvard’s portfolio changes I decided to walk through its holdings in the latest SEC 13F report. Top investments where clearly some Emerging Markets ETF’s, but assumed this was because of the concentration of Emerging Market investments in a few lines, while regular stock holdings were scattered in a lot of different single stocks. Wrong.

After liquidating their US stocks in the last quarter of 2008, emerging markets make up for an astonishing 74% of their listed stock portfolio, and in my calculation France has even been shared under the developed markets. They put their money where their mouth is. Apparently Harvard is one of the last believers of the decoupling theory, in which the US economy is slowing down but the emerging markets continue to grow.

See chart below for their biggest ETF’s in their $ 571 million stock portfolio. Not a real change from three months earlier, just a little shuffle with various nations. Note: I’ve made a small mistake in the x-axis with one decimal. Numbers are in 10 million – hence the biggest ETF is 220 million instead of 22.

After removing the ETF’s, blank check companies and pref shares here’s the top 10 list of their major holdings. Again three emerging market stocks in the list, all of which are mobile phone operators.

Very interesting to see the boys from Harvard had some listed derivatives left as well. Year end 2008 they had a few long positions in single stock options left. No puts, no short positions and only front month far otm calls. Not much value left to liquidate. The x-axis is the quantity of the position.

First impression is that the portfolio “looks like it was chosen by someone who watched a few episodes of CNBC’s Squawk Box and heard that the hot new investments were emerging markets, commodities, and private equity”, as concluded by Daniel Gross in a Slate article in November ’08. Of course the investments listed with the SEC are only a small part of the Harvard Endowment portfolio. Emerging markets make up for only 11% in the whole asset allocation. Missing something, as $422 million of listed emerging markets should make up for around 4 billion of total investments – where one would expect 35 billion. They still have to rebalance I guess.

Worrisome are some of the fashionable real investments, like liquid commodities, agricultural land and real estate (altogether 26%). Sure it works as a fine hedge for inflation, but maybe a little tricky with the first European country in deflation as reported today (Ireland). Last year Harvard announced a $8 billion loss, excluding hard to value assets. Overweighted in private equity, emerging markets and commodities, more financial trouble to be expected at the campus.

Hedge fund manager Paulson did it again. As a present day Gordon Gekko pocketing 270 million pound on short selling Royal Bank of Scotland (RBS). While this is excellent news for mister Paulson and his family – consequences for the hedge fund industry will follow shortly. Politicians will point their fingers at this evil mastermind, the destructing satan of our economy. This policial opportunity is too good to miss. Call for a renewed short-selling ban to “save our banks and the people’s savings“.