绝不是危言耸听 中国人的苦日子快来了

绝不是危言耸听 中国人的苦日子快来了

http://www.creaders.net  2012-10-31 08:49:42  中国经济时报

　　中国人的苦日子快来了
　　美国小复兴与中国探大底

　　10月15日，三季度GDP增速公布，为7.4%，创下14个月来的新低。对此，不少分析人士却纷纷表示乐观。
　　这些评论诸如“经济下行见底或将触底反弹”、“中国经济已触底，不存在硬着陆可能”、“经济出现明显触底信号”等等。若从短期市场信号来看，或许如此，比如人民币再升值、股市反弹、楼市地王再现、钢铁铁矿石价格反弹等等。
　　然而，从全球产业结构变迁和全球货币金融竞争力重构的战略高度来看，中国经济的探底和转型才刚刚开始。
　　之所以做出这个判断，首先要对中国经济过去20-30年的高速增长的动因做出清晰解释主要推动力是两次大浪潮：
　　第一次浪潮是全球制造业向中国集中的“世界工厂”机遇。在1979年中国实行计划生育以前，人口高增长，从1949年的5.4亿增加到了1978年的9.6亿人，使中国储备了巨量健康的劳动力。1991年前苏联解体，冷战结束；1992年小平南巡，中国大力对外开放。恰逢全球信息化革命方兴未艾，随着ERP等远程信息管理手段的推广，跨国公司跨地域管理能力大大增强，同时石油等价格非常廉价，1994年仅每桶14美元。这使得欧美将制造业向外转移成为可能，因为中国劳动力充沛而廉价，珠三角农民工月薪曾长达20年被压在1000元以下，而且不必提供养老医疗等社会保障，资本基本无需投入改善劳动环境。这给资方提供了巨大的利润空间。
　　1997-1998的亚洲金融危机进一步强化了中国的世界工厂地位，东南亚的国家饱受重创，中国因为人民币固定汇率，资本项目未开放而受冲击较小，其稳定的社会政治环境令中国制造业产业集群更具竞争优势。
　　第二次浪潮是由人民币升值所引发的资产泡沫狂潮。2005年中国发生了两件大事：一是人民币开始单边升值，二是股权分置改革。前者意味着投机人民币升值的无风险套利机会，由于中国抓住世界工厂机遇，生产力不断提高，人民币内在价值增强，而长期固定汇率下，人民币的确被低估，这对国际热钱产生了巨大诱惑；后者意味着中国股市基本与国际市场接轨，成为国际热钱可投资的市场。于是乎国际热钱和海外华人资本八仙过海各显神通地涌入中国，先是在2007年10月将A股上证指数推高到6124点的巅峰；再把楼市推到了2010年底的天高。
　　然而，时至今日，当年推动中国经济高速增长的因素，均已在走向衰退或反面。
　　从世界工厂效应而言：1，中国人口红利盛极而衰，1979年的独生子女已经33岁了，即按大学毕业21岁算，独生子女已经进入工作10年了。与以前的劳动力是天壤之别；2，跨国公司早已渡过投入期，每年开始向外转移大量的利润；3，人民币大幅升值了32%，中国制造的货币成本大幅攀升；4，资源由原来国内的廉价提供到不得不使用国际高价资源。石油最为典型，1996年中国变成净进口国，现在56%的石油靠高价进口，100美元的油价已经很平常；5，美国国策改变，开始鼓励跨国公司回流美国或美洲，力推再工业化战略。即使在亚洲也努力寻找对中国的进口替代。6，全球贸易保护升级，东亚政治局势不再安然无恙。
　　资产泡沫的负面效应如今也全盘凸显。在股市和楼市的大博弈中，由于中国企业家和投资者，他们以前并没有与国际投资者同台竞争的经验和能力，在股市10万亿计的财富再分配中，在楼市100万元计的财富再分配中，均成为输家，不仅将过去20-30年的财富积累基本亏在其中，更将未来20-30年的预期劳动收入深深套在楼市泡沫中。同时，楼市的大幅攀升也推高了制造业的成本，让中国企业更难以负荷。
　　与此同时，政府在长期的繁荣周期中，逐渐扩大了财政胃口，以制定规则和手握分配权的优势，财政收入的增幅连续多年2倍于GDP的增长，加上国有企业在金融和资源的垄断，都成为中国制造业不可承受之重。
　　一言以蔽之，中国过去20年的高速增长的动力机制均已盛极而衰，正面效应正陆续转为负面效应，即在旧动力机制快速衰退，在新动力机制未能再造之前，中国经济只能是继续探底，近期也只是很短反弹后，将加速探底。
　　决定中国经济探底有多深的外部重要因素是美国竞争力再造的速度成果。中国上一轮的大机遇，与911事件后，美国共和党小布什政府，在石油军火寡头的诱导下，将战略矛头指向中东石油，从而陷入伊拉克和阿富汗泥沼有关，这让美国债台高筑，同时在国内放任虚拟金融创新，结果诱发了2008年的美国金融危机。那时在中美两大国的竞争天平上，第一次倾斜向了中国。
　　但是，中国并没有抓住这次机遇，进行高新科技创新的产业升级，以应对未来劳动力不足的问题；也未能大力推进环保循环经济，以降低对海外资源依赖；更未能乘国际2008年国际商品资产价格大跌而购买海外优质资产，结果以中央四万亿带动全国18万亿元大兴土木，推起了一个把所有刚需者，也把中国压的喘不过气来的巨大楼市泡沫。
　　与此同时，美国却在民主党奥巴马政府的领导下，努力地进行竞争力再造：先是稳定了美国金融系统；其后帮助大企业撇掉坏账；通过QE1-3，同时打击欧元，推动热钱回流压低资金价格；通过油页岩开发技术和支持新能源压低能源价格；通过加大针对中国的贸易保护，为美国再工业化创造条件。即在中国竞争力持续恶化时，美国竞争力在上升。当然这并不意味着美国没有问题了，西方文明的根本性难题金融寡头利益扩张与选民福利扩张的冲突仍未能解决，它的巨大的虚拟金融泡沫仍将一直是“达摩克利特”之剑。因此，其即使是复兴也是一个阶段性小复兴。
　　很显然，未来几年中国经济的困难要比美国更大的多，同时东亚地缘政治危机，也会让热钱如惊弓之鸟大规模撤离东亚，从而使中国的问题，如同潮水退却后那样，在海滩上显得更加突兀。在未来几年，人民币兑美元将迎来一个中长期贬值周期。
　　中国还有应对方法吗？有的，那就要竞争力再造。这至少包括如下几个方面：1，政治体制改革，自上而下的机构精简和自下而上的扩大民主，以大大降低行政成本；2，合理分配土地和资源财富，大部分转入社会保障体系中；3，凡是市场能做好的都交给市场，激发民间创造活力，特别是金融向民间开放尤其重要；4，A股彻底扭转“利益输送市”，变成真正优化配置资源的财富成长市，激励高新科技、新能源和环保循环经济。此外，遏制汽车等高耗能工业，大大降低对外部资源的依赖等等。
　　坦率地说，从现实的困境到实现竞争力再造，将是极为艰巨的挑战，这首先需要形成一个开明的领导权威，以推动变革。
　　换言之，即便一切配合到位，变革能够有条不紊地进行，中国也至少需要5-6年才能初步竞争力再造。即至少未来5年中，中国人要做好过苦日子的准备了。
　　找准中国经济在亚太的位置
　　2012年CCTV第十三届中国年度经济人物评选将于12月12日揭晓。作为中国经济界“一榜知天下”的年度盛典，本届年度经济人物评选的亮点是，首次推出全新子品牌亚太年度商业领袖。
　　正是藉由新推出的“亚太年度商业领袖”，中国年度经济人物这个品牌正式走向国际。
　　自2000年起至今，CCTV中国年度经济人物评选已走过了12年。应该说，12年里评选的年度经济人物，虽然存在各种争议，但大体实现了“一榜知天下”的初衷。不仅该评选成为中国经济界的年度“奥斯卡”，而且通过上榜的年度经济人物，也能相对清晰地感知、触摸中国经济的波诡云涌，从而为人们观察中国经济提供一个独特的视角。
　　这十几年里，中国年度经济人物评选逐年获得越来越大的品牌效应，中国经济也在世界经济中获得越来越重要的位置。中国崛起乃至中国威胁，成为世界经济和政治角力的热门话题。在当前世界经济处于衰退不振，美国、欧洲、日本这几个老牌经济引擎增长乏力的境况下，中国经济增长的动能更加引起世界的关注。
　　中国经济波动之于世界经济的影响，已不仅仅是纯粹的理论认知，而是实实在在的现实因素。
　　借助中国经济在世界经济中发言权的扩大，将一个国内的评选推广到世界，是一个品牌的合理延伸。但如果跳出这种简单的品牌策略考虑，“亚太年度商业领袖”的推出，实际为中国经济和中国人提供了一个反观自我的机缘。尤其是中国经济经过30多年的高速增长后，正面临减速的微妙关口。如何准确认识自我，成为不容忽视的课题。
　　我们已经习惯于中国经济的高速增长，习惯于以高速增长去追赶世界经济的领头羊。许多人能轻易说出欧美那些着名大公司，但极少人能了解亚太地区有哪些着名企业。除了日本，我们是否熟悉印度？是否熟悉泰国和越南？如果不是所谓的“龙象之争”，我们会否关注印度经济同样在强劲增长？而相比于这些大国，泰国、越南、印尼的经济，其实也取得不俗的成绩。
　　目前，整个亚太经济已占到世界经济总量的55%，占贸易总量的44%。在世界经济危机的影响下，亚太经济尽管增长减缓，但仍是世界上经济增长最快的地区。为何会取得如此快速的经济增长？中国在其中起到什么作用？这些看似简单的疑问，其实并不是简单的世界第二大经济体所能解答。
　　如果不能了解自己在亚太地区处于何种位置和地位，也就很难洞悉自己之于世界经济的角色。“亚太年度商业领袖”评选的真正价值，也许不完全在于让中国年度经济人物评选的品牌走向世界，而是让习惯于高增长的中国经济，在自身经济减速的同时，能够冷静片刻、找回谦逊，不仅理智地审视下自己所处的亚太地区，也理智地审视下自己。

Worst Carry Trades Show Central Banks at Stimulus Limi

By Neal Armstrong and Allison Bennett - Oct 22, 2012 4:23 AM ET

The $4 trillion-a-day foreign- exchange market is losing confidence in central banks’ abilities to boost a struggling world economy.
Rather than sparking bets on growth, the JPMorgan Chase & Co. G7 Volatility Index, which more than doubled in 2007 to 2008 before policy makers employed extraordinary measures to address faltering global expansion, has dropped to a five-year low. While small foreign-exchange swings historically favor the strategy of borrowing in low-yielding currencies to buy those with higher returns, a UBS AG index that tracks profits from the so-called carry trade has fallen to the lowest level since 2011.

Worst Carry Trades Show Central Banks Reaching Stimulus Limits

Andrew Harrer/Bloomberg

The gauge has fallen 4.8 percent from a level of 450.15 on Aug. 9, before the Federal Reserve said it would buy $40 billion of mortgage debt a month until it sees improvement in the economy, the European Central Bank said it would buy bonds of indebted members that ask for aid and the Bank of Japan boosted its asset-purchase fund to 55 trillion yen ($693.4 billion).

The gauge has fallen 4.8 percent from a level of 450.15 on Aug. 9, before the Federal Reserve said it would buy $40 billion of mortgage debt a month until it sees improvement in the economy, the European Central Bank said it would buy bonds of indebted members that ask for aid and the Bank of Japan boosted its asset-purchase fund to 55 trillion yen ($693.4 billion). Photographer: Andrew Harrer/Bloomberg

 

Oct. 22 (Bloomberg) -- Elsa Lignos, a senior currency strategist at Royal Bank of Canada, talks about her foreign-exchange strategy. She speaks from London with Francine Lacqua on Bloomberg Television's "The Pulse." (Source: Bloomberg)

“At this stage it may feel frustrating, but waiting is not a bad strategy,” Mauricio Bouabci, a London-based currency fund manager at Pareto Investment Management Ltd., which oversees $45 billion, said in an Oct. 17 telephone interview. It would take increased volatility to tempt him back into the market, he said.
Foreign-exchange speculation is declining as mandated spending cuts and tax increases in the U.S. next year, concern that European government leaders aren’t moving fast enough to fix the region’s debt crisis, and slowing growth in emerging economies from China to Brazil weigh on sentiment. The world economy will expand 3.3 percent this year, the least since the 2009 recession, the International Monetary Fund said on Oct. 9.

Dwindling Volume

Average daily volume in foreign exchange fell 39 percent in September from a year earlier, according to data from ICAP Plc’s EBS trading platform. That’s also harming currency managers’ efforts to boost returns.
The UBS V24 Carry Index (MXWD) surged 4.55 percent in the first quarter, the most since 2009, amid optimism the economic recovery was gathering pace. It ended last week at 428.71, down 7 percent from this year’s high of 461.01 set on Feb. 29.
The gauge has fallen 4.8 percent from a level of 450.15 on Aug. 9, before the Federal Reserve said it would buy $40 billion of mortgage debt a month until it sees improvement in the U.S. economy, the European Central Bank said it would buy bonds of indebted members that ask for aid and the Bank of Japan boosted its asset-purchase fund to 55 trillion yen ($690 billion). The JPMorgan volatility index fell to 7.47 percent on Oct. 15, the least since October 2007.
“Low volatility is something that participants haven’t felt comfortable with for a while,” Adrian McGowan, head of foreign-exchange forwards, options and trading in Europe at Barclays Plc in London, said in an Oct. 12 interview. Investors haven’t been making “large” bets “because there has been so much uncertainty,” he said.

Real Weakness

The dollar fell 0.6 percent against the euro last week to $1.3024, and rose 1.1 percent to 79.32 yen as speculation the Bank of Japan will boost monetary stimulus sapped demand for that nation’s assets. The U.S. currency was little changed today at $1.3028 per euro and gained 0.5 percent to 79.68 yen as of 9.16 a.m. in London.
Investing the proceeds of dollar-denominated loans should offer easy profits because the Fed has said it’s likely to keep the target rate for overnight lending between banks near zero through mid-2015. The carry trade can lose money when the currency used to fund the strategy strengthens, or the targeted currency weakens, or some combination.
Selling borrowed dollars to buy reais in Brazil, where the target interest rate is 7.25 percent, has lost about 3.4 percent this year as the real tumbled, according to data compiled by Bloomberg. The IMF says Brazil will grow 1.5 percent this year, instead of the 2.5 percent predicted in July.

Implied Volatility

Borrowing euros and using the proceeds to buy the New Zealand dollar, where the official cash rate is 2.50 percent, produced an 8.2 percent loss since Sept. 6, when the ECB’s pledge to offer Spain assistance helped trigger a slump in three-month implied volatility for the pair.
“Carry had such beautiful, fantastic returns -- so alluring, so attractive that I think people got hooked on it like a drug,” David Bloom, global head of currency strategy at HSBC Holdings Plc in London, said in a telephone interview on Oct. 19. “In today’s zero interest-rate policy world, peppered with unconventional policies, it is much more difficult and confusing,” he wrote in an Oct. 12 research report.
Signs of strength in the global economy have emerged, including gains in jobs, consumer confidence and retail sales in the U.S., the world’s largest economy.
The Citigroup Economic Surprise Index for the Group-of-10 countries, which measures when data is beating or trailing the forecasts of analysts, climbed to a seven-month high of 18.4 last week, from this year’s low of minus 56.2 on June 26. The MSCI All-Countries World Index of shares has jumped 15 percent from this year’s low in June.

Smaller Margin

“There are still carry opportunities, but they are not as big as they used to be so your margin of error to get in is smaller,” Brian Kim, a currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities Inc. in Stamford Connecticut, said in an Oct. 17 telephone interview.
The Bloomberg-JPMorgan Asia Dollar Index has climbed 2 percent this year, while the Mexican peso strengthened more than 8 percent against its U.S. counterpart.
Doubts about the strength of the global economy flared on Oct. 19. U.S. stocks slid the most since June as companies from General Electric Co. to McDonald’s Corp. and Microsoft Corp. posted earnings below analyst estimates and euro-area leaders failed to discuss aid for Spain at a summit.

China Investment

Earlier in the day, China’s Ministry of Commerce said foreign direct investment in the world’s second-biggest economy, fell 6.8 percent in September from a year earlier to $8.43 billion. China’s economy expanded 7.4 percent in the third quarter, the weakest pace in more than three years.
In reducing its forecasts for 2012 and 2013, the Washington-based IMF said it now sees “alarmingly high” risks of a steeper global economic slowdown, with a one-in-six chance of growth slipping below 2 percent.
At the same time, the U.S. faces $600 billion in automatic spending cuts and tax increases starting Jan. 1 if Congress can’t agree on ways to reduce the deficit. Economic output would shrink by 0.5 percent next year, and joblessness climb to about 9 percent if the so-called fiscal cliff isn’t averted, according to the Congressional Budget Office.
Policy makers from Australia to Sweden, who had kept interest rates high as their economies grew, are lowering borrowing costs, reducing the allure of carry trades.

Rate Cuts

Australia’s central bank cut rates five times in the past 12 months. The Aussie’s appeal to global investors has flagged, falling 3 percent to $1.0311 since mid-September, as the spread between 10-year Australian and U.S. Treasury yields narrowed to 1.42 percentage points on Oct. 19 from 2.32 percentage points a year earlier.
Rates may be cut further, according to the minutes of a Reserve Bank of Australia meeting on Oct. 2. Sweden’s Riksbank lowered borrowing costs in September, predicting growth will slow to 1.5 percent this year from 3.9 percent in 2011.
Hedge funds focused on foreign-exchange trading have lost 0.6 percent in the past three months, according to industry researcher HedgeFund.net. That compares to an average gain of 1.9 percent since June for the industry.
Trading ranges for currencies have narrowed across major pairs. The average daily percentage change of the Australian dollar versus its U.S. counterpart has declined to 0.47 percent in 2012 from 0.68 percent last year, while for the real it has shrunk to 0.51 percent from 0.72 percent.
“We are likely to stay in an environment of low rates for longer,” Morgan Stanley currency strategists led by Hans Redeker in London wrote in an Oct. 18 research report. In such an environment, potential returns from carry trades are “likely to be limited,” they wrote.
To contact the reporters on this story: Neal Armstrong in London at narmstrong8@bloomberg.net; Allison Bennett in New York at abennett23@bloomberg.net

Risk Parity: The truly balanced portfolio

Risk Parity: The truly balanced portfolio

01 Jun 2012
Martin Steward spoke with Ray Dalio of Bridgewater Associates, the pioneer of alpha/beta separation and risk parity, about strategic diversified beta portfolios
Investors who want at least part of their asset management program to be an efficient, strategic exposure to global markets that requires minimal forecasting or tactical asset allocation ability face a knotty problem.
Finding two types of risk that respond differently to the two fundamental economic environments – growth and recession – is the easy part. Fixed income assets like bonds will do well when things slow down; growth assets like equities will do well when they heat up again. Achieving a balanced portfolio should be as simple as holding both and rebalancing regularly.

But achieving this balance isn’t easy, of course, because bonds and equities exhibit different risk/return characteristics. Split your portfolio 50/50 and, while 50% of your asset allocation is in equities, those equities account for about 70% of your allocation to risk, because they are twice as volatile as bonds. 50/50 is really 70/30. Try to achieve a 50/50 risk allocation, and you end up with something more like a 35/65 portfolio. Which is great – except your gains will be paltry because bonds earn about half the long-term return of equities.

For some time two basic solutions to this problem have been proposed. The most widely implemented has simply extended the modern portfolio theory principle that underpins the initial equity/bond split (combining two assets with low correlation with one another can reduce risk more than it reduces return) into the equity side of the portfolio. By combining ‘diversified growth’ asset classes, the theory suggests that an investor can maintain the return of a growth portfolio while bringing its risk closer to that of a bond portfolio. Reality, particularly the kind of reality we got in 2008, suggests that much of that diversification can evaporate from time to time; and during these times, not only is the risk not lower, it is usually higher because volatility rises as downside directional correlation increases.

The second basic solution has come to be known as a ‘risk parity’ portfolio. As that name suggests, this also tries to bring the relative volatility of fixed income and growth assets into parity, but the key emphasis is less on diversifying the growth part than on leveraging the fixed income part (usually via bond futures). The last few years has seen a flurry of interest in risk parity, particularly among US institutional investors, but it was pioneered 16 years ago by Ray Dalio, president, CIO and founder of $120bn asset management giant Bridgewater Associates – and recent honouree in Time magazine’s list of the top 100 most influential people in the world alongside the likes of Warren Buffet, Hillary Clinton and the Duchess of Cambridge. Founded in 1975 as a provider of economic research and advice, a fixed income and currency hedging manager for corporates and, later, institutional investors, by 1991 it had launched a hedge fund, Pure Alpha, which at $71bn is now one of the world’s largest.

What is a hedge fund manager doing experimenting with dull stuff like strategic beta solutions? Well, Dalio pioneered risk parity in part because he had also pioneered ideas like alpha/beta separation, based on his conviction (now much more widely-accepted) that it is impossible to manage either one efficiently as long as they are being mixed together. Once you have decided that you should manage the two separately, it makes sense to make them both as efficient as possible on their own terms. Moreover, Dalio had a personal reason to develop an efficient strategic beta solution. “In the mid-90s I started to accumulate some money that I wanted to use to establish a family trust, and for that trust I wanted the right asset allocation mix,” he recalls. “That’s when I created the All Weather portfolio, which now accounts for virtually all of that family trust money.”

When Dalio set out the All Weather process in an article a number of Bridgewater’s clients decided they would like to allocate to the strategy, too. “They generally set up pilot programmes that represented 1–5% of their overall portfolios, which then increased through time as we monitored how the All Weather concept worked,” he says. “Typically it has settled at 10–20%; in some cases it has evolved to 100%, where clients have gone on to implement it themselves.”

So this is the essential idea behind risk parity: as Dalio puts it, once you have taken the steps to make all asset classes exhibit approximately the same risk, “you can begin to diversify for all economic environments without giving up expected returns”. Or, to put it another way, your search for diversification need no longer be constrained by fear of its impact on your long-term returns.

The first thing to observe is that All Weather’s approach to diversification differs from classic modern portfolio theory in that it is fundamental and qualitative rather than quantitative. All asset classes are priced according to what an investor would pay for the future cash flows upon which it is a claim, according to Dalio. “That’s how a bond, a stock or a piece of real estate compete,” he says, “so the most important driver of return is when the expectation of that income stream changes.”

Given that, strategic diversification through the economic cycle is achieved through a balance between asset classes whose fundamentals are best suited to different parts of that cycle, defined as rising growth (good for equities, credit, commodities and emerging market debt); falling growth (good for nominal and inflation-linked bonds); rising inflation (inflation-linked bonds, commodities, EM debt); and falling inflation (nominal bonds and equities).

That has the advantage of recognising potential correlations between different asset classes – “any portfolio that contains corporate bonds and credit should put them in the same bucket as equities because they have the same environmental bias”, as Dalio observes. On the other hand, it retains the assumption that pricing rarely dislocates from these fundamentals for long. But don’t we have half a millennium of bubbles, manias and panics to prove otherwise?

“That is consistent with neither logic nor the evidence,” Dalio insists. “In all of my time watching markets I have come to recognise that it is not at all easy to find mispricing – there are very few no-brainers. The market can get temporarily dislocated or out-of-whack for liquidity reasons and so on, but the essential proof of concept is the behaviour of the All Weather portfolio and the returns of each asset class, backtested all the way back to 1925. Imagine how much stress testing I must have done on this – it has virtually all of my money in it!”.

But even if we accept that version of the efficient market hypothesis, we then have to consider the problem it poses to the other pillar of the risk parity strategy, because it requires us to believe that, while different economic environments will affect the strength and directionality of returns to asset classes differently, they will have no effect on their relative volatilities. That is crucial as it will determine the extent to which the leverage that we employ introduces a new, unwanted risk into the portfolio.

Consider what it is we are gearing-up in a risk parity portfolio: the volatility of assets with relatively low volatility. So our next question should be, ‘What causes one asset class to be more volatile than the next?’

Interestingly, Dalio offers two explanations. First – and as we have seen, this seems to be the main theoretical basis for All Weather – he makes a duration argument: “If the income stream of an asset is longer then we assume that it will have structurally higher volatility.” In other words, because most bonds have a set maturity date but cash flows from equities are potentially perpetual, the risk (and therefore volatility) associated with equity cash flows is structurally higher.

“By borrowing cash, the first thing you do is raise the expected return of the item you are leveraging to a higher level than the item you are borrowing,” Dalio explains. “The yield curve is normally upward-sloping, so bonds tend to yield about 2% more than cash over time, so when I borrow cash to lever bonds 1:1, I add another 2% yield by picking up the spread between what I’m borrowing and what I’m buying with the borrowed cash. It’s an increased duration risk. So the question is simply, are these asset classes going to outperform cash? That’s why we stress tested this portfolio through the Great Depression and Japan’s depression: sure enough, it underperformed cash – but still radically outperformed the traditional 60/40 portfolio”.

Risk parity makes the most sense if we believe that the duration is the key determinant of risk premiums, because under that assumption pricing across most asset classes would share a common delta (in the form of duration). As a result, one could expect the volatility regimes of different asset classes to remain proportionate and correlated through time, and this is important because it removes the big risk that leverage might otherwise introduce – the risk that the volatility of (say) bonds increases by a much greater proportion than that of (say) equities for a significant period. That holds even in the case of a severe spike in volatility – as long as it spikes proportionately across all asset classes.

But as an additional explanation Dalio points out that most higher-returning asset classes are already leveraged. “The average public company has a debt-to-equity ratio of 1:1,” he observes. “If a law passed tomorrow that prevented companies from borrowing, the risk and return of equity would be less. That’s where the equity risk premium comes from.” If this holds any water, our conclusions about relative volatilities must be very different: first, we would expect equity volatility regimes to synchronise with the credit cycle, as corporations expand and contract their balance sheets; but more importantly, we might expect the volatility regimes of government bonds and equities to be negatively correlated, as public debt expands to fund automatic stablisers during recessions and contracts thanks to an increased tax-take during the good times.
Common sense would suggest that risk premiums are determined by both of these factors, along with a host of other economic, sentiment and behavioural inputs. But while Dalio acknowledges the importance of debt in determining risk premiums, and the folly of assuming that “the volatility of the recent past is representative of future volatility”, the All Weather strategy is squarely based on “one assumed level of volatility” for each asset class, determined largely by its duration.

“Changes in the volatilities of different asset classes are significantly positively correlated,” says Dalio. “That’s good because it maintains the diversification benefits of the two assets alongside one another. The reason is that the same fundamentals are driving the volatility across all those markets: so in 2008, equity prices shifted from one level that discounted more income for the future to another level that discounted less income for the future, while the same influence was translated into bond price movements. We feel that the returns from these asset classes since 1925, and the performance of All Weather, suggests that these co-movements at different points in time are very reliable.”

Figure 2 tests some of these assumptions using Bridgewater’s simulated total return streams for nominal bonds and equities since 1970. Figure 2.a shows how variable the spread between equity and bond roling annualised monthly price volatility can be – and it is perhaps surprising how much of the line is below zero. Again, that’s not necessarily a problem for risk parity as long as the correlation between the two volatilities remains positive. But figure 2.b also shows that rolling two-year correlation between annual equity and bond volatility can swing from almost perfectly positive to more than 70% negative, and that lengthening the sample period does almost nothing to reduce these extremes (correlation for the five years to February 2003 was –0.72, and to April 1994, +0.97). Correlation over the full 18 years comes in at +0.76; figure 2c shows the coefficient of determination at 0.07, and since the turn of the century that has only risen to 0.26.
As Dalio observes, such dislocation as there has been over eight decades has not been enough to de-rail the All Weather portfolio. We might observe that low correlation appears to have coincided with periods of low-volatility in equity markets, and high correlation with high volatility: that would account for the lack of impact that the dislocations have had on the portfolio. But the idea that the co-determination is stable is questionable, at least, raising the prospect of dislocations coinciding with periods of high equity volatility in the future.

Risk parity strategies have an intuitive plausibility and All Weather, in particular, has an impressive set of real and simulated numbers to confirm that intuition. Like most risk parity strategies, All Weather, which now managers $50bn, set out its stall very effectively during the turmoil of 2011: while US equities finished the year flat and a conventional 60/40 portfolio returned about 1.6%, the risk parity portfolio finished the year up just short of 19%.

But investors who consider this approach for their core beta portfolios might also consider the implications of what may be its internal contradiction: the idea that it is possible to diversify economic exposure to the credit cycle, and yet leverage parts of that exposure differently on the assumption that the credit cycle has no affect (or a uniform affect) on asset volatility. Fundamental diversification is famously the only free lunch in finance. One can leverage that free lunch by gearing-up the entirety of a fundamentally-diversified portfolio. There is no reason to think that gearing-up parts of that portfolio amounts to the same thing.





Author: Martin Steward

Get set to buy stocks after a market crash

Commentary: Old Masters of Wall Street teach the art of investing

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By Jonathan Burton, MarketWatch

The mother of all modern manias, the Tulip mania saw prices for fancy tulip bulbs soar to prices many times a skilled artisan’s annual income. A Satire on the Folly of Tulip Mania by 17th Century Flemish painter Brueghel the Younger is a clear indictment against mindless speculation.

SAN FRANCISCO (MarketWatch) — Wall Street has never been a market for old men — but when the going gets tough, the graying veterans get the 3 a.m. call for help.

Today’s stock-market gurus were 25 years younger on Oct. 19, 1987, when they learned a painful lesson in the throes of a full-blown investor panic. The Dow Jones Industrial Average /quotes/zigman/627449 DJIA -0.12% lost almost a quarter of its value that day — its worst single-session percentage drop ever. “Black Monday” conjured fears of that other October crash almost 60 years earlier, which ushered in the Great Depression.

Click to Play

The five greatest market crashes

In October 1987, Wall Street saw its biggest one-day percentage slide ever. MarketWatch's Christopher Noble and David Weidner take a look at what happened then and in other market crashes throughout history. (Photo: AP)

In fact, the day after Black Monday was a terrific time to buy stocks.
A $10,000 stake in the 30 Dow stocks on Oct. 20, 1987 would be worth more than $137,000 now, according to investment researcher Morningstar Inc. That’s an 11% annualized return, including dividends, and even factoring in shareholders’ “lost decade” between 2000 and 2010.
But buying at points of maximum pessimism takes steel nerves most investors don’t have. Few of us could readily follow Baron Nathan Rothschild’s famous dictum to “buy when there’s blood in the streets — even if it’s your own.” Fear and doubt, in our own lives or caroming off of global, large-scale events, are powerful and limiting emotions. Read more: David Rosenberg on how to protect your money from the next stock crash.
So how do you take the plunge after a plunge?
The old Masters of Wall Street, how well they understood — and still do. Market pros see the wisdom in Warren Buffett’s admonition, channeling his mentor Benjamin Graham, to “be greedy when others are fearful, and fearful when others are greedy.” Read more: Warren Buffett's winning ways, 50 years on.
They realize, as the revered market analyst Bob Farrell noted in his famous “Market Rules to Remember,” that there’s money to be made given that “fear and greed are stronger than long-term resolve.” Read more: 10 investing rules tailored for a tough market.

REVISITING THE 1987 stock market CRASH


Stock crashes are money-making opportunities
If a crash of 1987 proportions happens again, says money manager Jim O’Shaughnessy, stock investors should do one thing: Buy.
• David Rosenberg: Protect your money
• Get set to buy stocks after a market crash
• Another crash like in October 1987 is inevitable
• 10 greatest market crashes
• Listen to memories of Black Monday 1987
• Take our poll: Do you expect another crash?

/conga/story/2012/10/1987crash.html 231503

They heed the advice of the late Sir John Templeton, the legendary stockpicker, who included “Do not be fearful or negative too often” among his “16 Rules for Investment Success.” Read more: Templeton's 16 rules.
And they respect Jack Bogle, founder of the Vanguard Group and the patron saint of the individual investor, who has said time and again that “investors win and speculators lose.” Read more: Bogle: Forget trading and start investing.

All shook up

After the market closed on Oct. 19, 1987, it was easy around lower Manhattan to recognize who worked on Wall Street: they looked ashen and shocked. Yet a few investors read the situation differently. The next morning they arrived at their offices with wallets open. Read more: Jim O’Shaughnessy says market drops create money-making opportunities for stock buyers.
Templeton was one of them. “Let’s find stocks to buy” was his reaction to the crash, recalled Martin Flanagan, now chief executive of mutual-fund firm Invesco Ltd. and then the chief operating officer of Templeton’s firm.

“Today you could see that was an obvious thing to do,” Flanagan recounted in an obituary of Templeton in July 2008. “At the time it was not obvious at all. To have that kind of conviction and leadership is absolutely unique.” Read more: John Templeton, a pioneer investor.
Most of us, in contrast, would be inclined to sell on the cheap during downturns and hold tight when prices are expensive.
“In fearful times, people think that returns will be low and risk is high. In times of exuberance, people think that returns will be high and risk is low,” said Meir Statman, a finance professor at Santa Clara University in California.
Statman added: “First, understand this is a natural emotion. Second, find ways to counter it. You have to be a contrarian with your emotions. If your emotions say put it all in gold, you should have another voice — a voice of reason — saying if gold is so good, the price must be reflecting that.” Read more: Why another stock crash like 1987 is inevitable.

Michael Belkin predicts 40% stock market drop

Hedge Fund Consultant Michael Belkin spoke at The Big Picture conference, predicting a 40% stock market drop in the coming 12-15 months.

Easier said than done. What in someone’s wiring allows them to override the instinct to run from danger, and to give up a seat at the table when everyone else is eager to play?
Statman ventures that its helpful for investors to think like traders, who tend to see the big picture. They realize that one bad day in the market isn’t going to wipe them out, so they regroup and get back on the horse.
“Losses are part of what you are going to experience,” Statman said. “It’s not the end of the world.”
Behavioral studies show that people with such an attitude don’t have as much loss aversion — our strong preference to avoid losses even more than make a gain. “They know that not every decision is going to be a winning decision, but they ask themselves, What is a smart decision?” Statman said. “If they continue to make smart decisions, then luck is going to average out.”
Big scores after tumultuous events can also iron out a lot of misses.
“Opportunities to make fortunes usually come in times of greatest dislocation,” said Soo Chuen Tan, a managing member of investment firm Discerene Value Advisors in Stamford, Conn. “You can train yourself to look for dislocations and read all the material on value investing and see the returns one can get if one invests at points of maximum pessimism.
“But that only takes you part of the way,” Tan added. “An important element of value investing is psychological temperament. You either ‘get’ it in your gut, or you don’t. When you read a headline about Greece blowing up, do you think, ‘Where’s my cash and can I move it to a safer bank account?’ Or do you say ‘When’s the next plane out to Athens?’”

MarketWatch this week has been revisiting the 1987 stock market crash. What do you think? Do you expect another crash like 1987’s? Make yourself heard: Click here to take our poll :

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Jonathan Burton is MarketWatch's money and investing editor, based in San Francisco.

U.S. home construction surges in September

Data show new units hitting a four-year high, underscoring recovery

 

By Jeffry Bartash, MarketWatch

WASHINGTON (MarketWatch) — U.S. home builders broke new ground in September at the fastest pace in more than four years, data showed Wednesday, as building permits also rose sharply in the strongest sign yet that recovery in the construction trade is becoming firmly entrenched.

Construction on new homes accelerated by 15% to an annual rate of 872,000 last month from a revised 758,000 in August, the Commerce Department said. The increase easily surpassed the 770,000 estimate of economists surveyed by MarketWatch.

 

Work on new single-family homes, which account for about three-quarters of the housing market, rose 11% last month.
Construction on multi-dwelling units such as condos and townhouses climbed an even faster 25%, but that’s a category that can swing sharply from month to month and is thus less an indicator of overall housing demand.
The number of permits requested, however, underscores the likelihood that the housing market’s recovery is finally for real after a nearly six-year slump.
Building permits also shot up to a four-year high, rising 11.6% to an annual rate of 894,000. August’s permits were revised down slightly, to 801,000.
Permits for single-family homes rose 6.7% to an annualized 545,000 rate last month, while multi-dwelling permits increased 20.3% to 349,000.
In September, housing starts rose in all regions except the Northeast, with construction strongest in West and South.
The nation’s construction industry has finally perked up in 2012 after its worst slump in the modern era, following the collapse of a housing bubble in 2006. Super-low interest rates, a modestly improved economy and a receding foreclosure crisis have all contributed to the upward shift in the demand for new homes.
Yet even though the pace of construction is nearly 35% higher compared to a year ago, construction activity overall remains considerably shrunken from its pre-bubble heyday. Before the bust, housing starts topped 2 million a year.

Still, an expanding housing market is a welcome sign for a U.S. economy that’s been struggling to gain traction, even if it only adds a little to the nation’s growth. Housing is one of the few segments of the economy not to experience a big hiccup this year.

The improving real-estate market has also been a boon for publicly traded home builders such as Meritage
In normal times, a strong housing market is a good economic tonic, since large amounts of raw materials and finished goods are required to build and furnish homes, and the construction trade employs millions of workers directly or indirectly.

大逆转：人民币走势凶猛，兑美元再创新高

大逆转：人民币走势凶猛，兑美元再创新高！

http://www.creaders.net 2012-10-16 09:44:27 第一财经日报

　 10月15日的人民币境内即期市场，开盘即冲破6.26关口，创出汇改以来的新高价格。“一开盘的那几个单子很重要，往往会给一天的市场走势定调。而且这几天就一直处于人民币升值的气场中，开盘突破6.26后，市场的升值预期一下子又上来了。”一位国有银行的外汇交易员说。
《第一财经日报》报道，近几天来，人民币的上升趋势连加火力，而且势头“凶勐”。
　　首先是人民币中间价在三个交易日内连续飙升337点，这样的升势相当于将前三个月的跌幅在三个交易日内全部收回。仅在昨天，人民币中间价就大幅飞升152点至6.3112。
　　而即期汇率也屡创新高，并且连日来都以大幅高于中间价的价格进行交易。到昨天，即期汇率更是在开盘时便一举突破6.26关口，又创汇改以来新高。
　　人民币连创新高背后的深层原因是什么呢？
　　“一下子找不到原因。”一位资深的外汇市场分析人士如此笑称。

　　首先从美元来看，近日的国际外汇市场上美元并没有出现走弱的趋势，在昨天反而有些许走强的意味。从人民币汇率与美元的相关性上来看，这显然不能用来解释人民币升值。
　　而从基本面上来看，中国最新公布的相关经济数据似乎并不像此前那样困难，经济筑底企稳似乎成为人民币升值最有力的解释。
　　而9月份的贸易顺差扩大，也是市场认为人民币升值的原因之一。“贸易顺差的扩大，会影响市场的心理预期，结汇规模此后可能会扩大，人民币此后的升值压力预期会更大一些。”上述国有银行外汇交易员说。
　　而美国第三轮量化宽松政策（QE3）的影响也成为此次人民币由贬值向升值反转的解释。
　　人民币是突然间的反转，还是改变了此前的贬值趋势？
　　在日前IMF和世行于日本东京举行的秋季年会上，央行副行长易纲表示，人民币汇率已接近基于市场供需的均衡水平，央行已经“大幅减少”对外汇市场的干预，这一点从外汇储备规模停止扩大就可以看出来。其实，在今年的“两会”期间，温家宝总理也曾表达过人民币汇率接近“均衡”水平的观点，央行人士盛松成也在今年6月份陆家嘴论坛上有过类似的观点表达。
　　易纲的最新发言让很多市场人士从人民币可能会走向升值通道的判断有了一些折中的缓释。
　　什么原因能够很好地解释市场节奏的突然变化呢？
　　有分析认为，除了国庆期间的结汇盘突然增多外，最重要的当属一系列重大国际政治时点临近。美国大选已进入“白热化”，有关人民币汇率问题依然在大选中被提及，更有消息称，候选人罗姆尼扬言一旦当选将立即将中国列为汇率操纵国。
　　值得关注的是，美国财政部本来预定10月15日公布半年度汇率报告，但由于11月4～5日将举行G20财长会议，美国财政部决定推迟报告公布的时间；而11月6日为美国总统大选日，汇率报告可能最终将在11月6日以后公布。
　　“为避免政治摩擦对外贸领域的影响，特别是在外贸刚刚见到企稳迹象的时刻，不排除中国货币当局做出某种阶段性的调整，这或许是近期中间价连续意外大幅高开的原因之一。”招商银行高级分析师刘东亮称。
　　对于后期走势，刘东亮说：“在经济尚未明确见底，外贸刚刚隐现好转端倪之际，我们认为人民币并不具备可观的升值空间，近期的迅勐升势难以持续。倘若人民币继续保持升值势头，我们会将其看作是经济筑底过程中的风险点之一。”
　　但也有金融学界人士认为人民币如果能反转贬值预期应是好事，在经济筑底尚未明显之际，人民币的贬值预期会造成大量资金外流，这是最可怕的事情。

The sacking of Bo Xilai

A princeling’s downfall reveals the rottenness at the heart of Chinese politics

Mar 17th 2012 | from the print edition

LATE this year, the world's two biggest powers will each choose their leaders. The way America does it looks messy and inefficient. China's bureaucratic method, by contrast, is designed to provide a smooth transition and a continuity of policy. It has long been signalled that this year Xi Jinping will inherit the Communist Party's leadership from Hu Jintao. But there are many other posts to be filled. Behind closed doors, it is fair to assume that politics in China are no less vicious than in the Rome of Julius Caesar.
The sacking on March 15th of Bo Xilai as party chief of the south-western region of Chongqing provided a rare glimpse inside those doors. The son of Bo Yibo, a leader of the Party's Long March generation, Mr Bo had seemed destined for the zenith of power in China—the nine-member standing committee of the party's Politburo. His downfall represents the biggest public rift in China's leadership for two decades. There are reasons to celebrate it; yet the manner of his going is a sharp reminder of what's wrong with China's political system.

In this section

• Can it be…the recovery?
• Unlocking companies’ cash
• »The sacking of Bo Xilai
• All the wrong messages
• Too much risk, not enough reward

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The first reason to cheer is that some of Mr Bo's ideas, and the style of his rule in Chongqing, were disturbing. Two policies made him famous. The first was a popular crackdown on Chongqing's “mafia”. Many ordinary Chinese welcomed his no-holds-barred approach to going after gangsters, many of whom would have had links with corrupt officials. But there are credible allegations that Mr Bo used his campaign for his own political ends, selectively attacking his opponents. A local businessman, now in hiding abroad, has said he suffered torture and extortion at the hands of Mr Bo's henchmen.
The other policy was to pay homage to some aspects of Maoism—favouring state enterprises, for example, and reviving “red songs”, including some popular during the Cultural Revolution. The campaign showed breathtaking hypocrisy as well as forgiveness. Mr Bo himself suffered during the Cultural Revolution. But thereafter he resumed the privileged career path of the princeling. This “leftist” sends his children to elite schools in the West. Both “red” and “anti-mafia” campaigns can be seen as part of a power struggle, designed to discredit Wang Yang, his predecessor in Chongqing, and rival for a standing-committee seat. Mr Wang, now party secretary in the southern province of Guangdong, has a reputation as something of a liberal. That he seems to have come out on top in this battle is good news.
Welcome, too, is the little window the affair opens into the corrupt, fratricidal ways of party politics. Mr Bo's downfall was precipitated by the flight to an American consulate of Wang Lijun, his former police chief and right hand in the anti-mafia drive. Mr Wang is now under investigation in China. Mr Bo, too, may soon find himself answering awkward questions. That Chongqing's dirty linen was aired in front of American diplomats on his watch may matter more than the dirt itself. But his sacking will not herald a new era in which party and government officials are to account for their actions. Crimes and misdemeanours, like ideology, are merely weapons in a power struggle. Winners can still get away with it.
The day before the sacking, Wen Jiabao, China's prime minister, had foreshadowed it with a rare public ticking-off for the Chongqing leadership at a press conference. In another presumed dig at Mr Bo, however, Mr Wen said something rather remarkable: that, without political reform China might suffer another tragedy, “like the Cultural Revolution”. This seems preposterous: fast-growing, increasingly plural China is not on the brink of a similar outbreak of party- fanned mass hysteria like the one that gripped China in the late 1960s.
The party is not over
Mr Wen is right, however, to point out that the political system remains basically unaltered. It is still one in which the factional squabbles of a few men in Beijing are fought out across the whole nation. It is still one in which, as recently as 1989, a succession struggle was waged in blood on the streets of Beijing. It is still one in which the Communist Party has only managed one smooth transfer of leadership, its most recent transition in 2002. By comparison, America's laborious process looks rather attractive.

The Legal Aspects of Raising Money From Private Investors

By Kim Lisa Taylor, Esq.
Question: What Securities Laws apply to raising money from private investors?
What is the purpose of Securities Laws?
The Securities Act of 1933 was enacted in the wake of the stock market crash in the 1930s after many investors lost money to investment “promoters” (aka “sponsors” or “syndicators”) who promised returns that were never realized. The government subsequently passed laws to protect investors from unscrupulous sponsors. The new laws defined what constituted a “Security” and required that anyone selling a Security be required to disclose all of the risks of the investment necessary for the investor to make an informed decision, among other requirements.
What is a Security?
Both federal and state Securities laws contain a comprehensive list of items that are considered Securities by definition, one of which is an ‘investment contract’. In 1946, the U.S. Supreme Court determined that “an offering of units of a citrus grove development, coupled with a contract for cultivating, marketing, and remitting the net proceeds to the investor, was an offering of an ‘investment contract’”, U.S. v. Howey, 328 U.S. 293 (1946). The Supreme Court held that: “The test is whether the scheme involves an investment of money in a common enterprise with profits to come solely from the efforts of others.”
Based on Howey and subsequent case law, the current standard for determining whether an investment constitutes an ‘investment contract’ and thus a Security, has been reduced to a four-prong test including: a) an investment of money; b) in a common enterprise; c) with the expectation of profit; d) based solely on the efforts of the promoter. A good rule of thumb is that whenever someone raises money from private investors and then makes decisions on their behalf, a Security has been created.
Under federal and state Securities laws, the sale of Securities must be registered with the government as a public offering unless the sponsor or the transaction otherwise qualifies for an exemption from registration.
What if I want to pool money?
A typical investment contract (sometimes called a syndication, private placement or group investment) involves a sponsor that proposes to pool money from private investors for a specific purpose; such as to buy commercial real estate; buy and flip foreclosure real estate properties; or to provide funds for the startup of a new company, etc. The sponsor will identify the opportunity for which funds are needed; formulate a business plan or property information package containing financial projections; and assemble a group of investors interested in investing in the opportunity.
The sponsor will acquire the property or start the business using the investor’s funds, manage it, and pay the investors a return on their investment from cash flow during operations and/or on resale of the property/business. Investors may earn interest on their investment and/or a percentage of the cash flow or equity. The sponsor will be reimbursed for their startup expenses and will typically be paid a percentage of the cash flow and equity for finding, organizing and managing the investment. The sponsor may alternatively (or additionally) earn fees on acquisition, refinance, or resale.
Can I avoid creation of a Security if I am raising private money?
Because registering an offering can be a prolonged and expensive process, many sponsors seek measures to avoid creation of a Security altogether. For example, a Security may not created if all investors participate unanimously in decisions involving the investment, such as in a “Member-managed LLC,” or in a Tenant in Common (TIC) ownership.
Another example of an exempt transaction is where a private lender loans money to an investor to purchase real estate using a promissory note and mortgage or deed of trust secured by the real estate. As long as investor funds have not been pooled or the note has not been fractionalized by combining investor funds to make up the total loan amount, this may qualify as an exempt transaction.
What if the sponsor is only raising money from family and friends?
It doesn’t matter who the investors are, if the sponsor is making decisions on their behalf, it’s still a security. However, there is an exemption from registration known as a private placement exemption that allows a sponsor to raise money from people they know without registering the offering. One such exemption is offered by the federal Securities and Exchange Commission (SEC) under Regulation D (17 CFR § 230.501 et seq.), Rule 506. Under this exemption an unlimited number of ‘accredited’ investors can be used; an unlimited amount of money can be raised; investors can come from any state; and state Securities rules are generally superseded as long as required notices are filed.
In addition to the Regulation D, Rule 506, most state Securities agencies also offer exemptions from registration and there are other federal exemptions available, e.g., Regulation D, Rules 504 and 505; each of which has its own specific set of rules. As an example, the rules for a Regulation D, Rule 506 private placement exemption include the following:

1. The sponsor must not engage in general solicitation or advertising of the opportunity. The sponsor must have a substantive, pre-existing relationship with any investor to whom they offer the Securities. This is what distinguishes a private placement exemption from a public offering in which general solicitation is allowed.
2. The sponsor must qualify prospective investors as ‘accredited’ or ‘sophisticated’ based on their income, net worth, financial or investment experience, or assistance of their professional financial advisors, before their funds (i.e., ‘Subscription’) can be accepted.
3. The sponsor must disclose all foreseeable risks of the investment and may not guarantee returns. This is typically done in a Private Placement Memorandum using a format prescribed by the SEC (Guide 5).
4. The sponsor must promptly return all money to investors if the minimum investment amount has not been raised in the time frame specified in the offering documents or if the objectives of the investment are not realized (i.e., the property is not purchased or the company is not opened, etc.).
5. A notice of the sale of Securities must be filed with the SEC (Form D) and any states in which Securities have been sold. The notices (and applicable fees) must generally be filed within 15 days of the first sale of Securities.

To whom does a private placement exemption apply?
The sponsor may be called a ‘Syndicator’, ‘Promoter’, ‘Manager’, ‘General Partner’, etc., however, regardless of title, the exemption generally applies to the ‘issuer’, i.e., the person, group, or company that is actually selling (promoting) the Securities.
What is the usual source of investment funds for a private placement offering?
Investors can invest their savings or retirement funds in private placement offerings. Many retirement accounts allow the account owner to use a third party administrator or custodian to set up a self-directed individual retirement account (IRA) or self-directed 401(k) account. The account owner can direct the custodian to release their retirement funds to purchase private placement interests, interests in a limited liability company or limited partnership, etc.
What if the sponsor doesn’t comply with Securities Laws?
Failure of the sponsor to comply with the private placement exemption rules may subject the investment to unnecessary legal exposure, which could impact the viability of the investment. The sponsor could be subject to substantial civil and criminal penalties for the sale of unlicensed Securities. Regulatory agencies or other creditors could force liquidation at a disadvantageous time, or the sponsor could spend investor funds defending charges or paying fines.
Furthermore, a sponsor that neglects to comply with the law may be less likely to comply with the provisions contained in their offering documents or may not understand their fiduciary obligations to their investors.

A syndicator that fails to follow Securities Laws puts the entire investment at risk.

If you are an investor contemplating investing your private funds or self directed IRA funds in an investment opportunity that you believe is a Security, conduct your own due diligence and ask questions of the sponsor to determine whether the sponsor is following the rules of any applicable exemption, and whether they have hired a Securities attorney to assist them with preparation of their offering documents and compliance with the myriad of Securities laws.
If you are a sponsor thinking of pooling investor funds, you should seek the advice of a competent Securities attorney to help you structure your transaction to either: a) avoid creation of a Security, b) qualify for an exemption, or c) register it as a public offering.

For a free 30-minute consultation call (858) 349-8953 or email Kim@SyndicationLawyers.com.
Kim Lisa Taylor is a California licensed Attorney with Trowbridge & Taylor LLP, whose practice areas are Real Estate Investment and Securities Law, Private Placement Offerings, Entity Formation, Partnership Agreements, and Public Speaking for Real Estate Investment/Education events.
© 2009, 2010 Kim Lisa Taylor

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