The Sweet-Tasting Success of Irish Austerity

Written by Nicholas Vardy, CFA.

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Ireland-based food giant Kerry Group Plc (KRYAF) is well known for its ingredient and flavors business.

This week, the company celebrates the opening of a €100 million global technology and innovation center near the town of Naas, just outside of the iconic Irish capital of Dublin.

The opening of Kerry Group's new facility represents one of the biggest investments made by an Irish company in Ireland in several years. It is also a sweet-tasting example of the success of Ireland's policy of fiscal austerity, which is much maligned by the followers of mainstream Keynesian economics.

Back when the Kerry Group announced its big investment in the new facility in 2012, the Irish economy was still wading through a recessionary bog that was the worst in the island's recent history.


The fallout of the global crisis in 2008 had infected Ireland acutely. Indeed, the malady burst the Emerald Isle's soaring property bubble. In a familiar pattern, the Irish banking sector collapsed, putting the entire Irish economic patient in critical condition.

Renewed Confidence in Irish Companies

The Kerry Group's new facility is a sign of the return of confidence in both the Irish corporate sector and Ireland's broader economy.

According to the Financial Times, the Irish economy is seeing levels of activity not observed since the boom days of the "Celtic Tiger."

The Financial Times also reported that unemployment has dropped from 15 percent at its peak to 9.5 percent. Mergers and acquisitions have surged recently, driven by both Irish companies and an increase in foreign investment.


Three (Relatively) Bullish Views on the U.S. Stock Market

Written by Nicholas Vardy, CFA.

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After experiencing its first technical correction of 10% since 2011, the U.S. stock market has bounced back from the lows it reached on Aug. 24. Since then, volatility has eased and the S&P 500 has recovered almost 7%.

I already have given my own "30,000 foot" view of the financial markets in a recent issue of The Global Guru entitled "Why This May Be the Best Week of the Year to Pile into Stocks" — published the day after the U.S. market bottomed.

Still, the market remains choppy and investors are still unsettled by Mr. Market's moodswings.

That's why it's worth reviewing the perspectives of some of the major investment gurus, who, as a group, remain surprisingly relaxed about the recent market turmoil.

1. Warren Buffett

The greatest investor of all time has not been immune from the effects of the recent pullback in the markets.

Warren Buffett's Berkshire Hathaway (BRK-B) is down 7.08% over the past three months, and it is trading where it was back in August of 2014.

Still, Buffett has a generally optimistic view of the American economy and remains unconcerned about the global economic picture and the meltdown of the stock market in China. More important than his short-term outlook is that Buffett is genuinely indifferent to the market gyrations that keep many investors up at night. As Buffett recently noted, he has never based an investment decision on whether the Fed was going to raise or drop interest rates.

In fact, Buffett says he is very pleased that prices on some of Berkshire's core holdings have dropped. After all, it offers him the opportunity to add to his holdings — which he is doing at the rate of about $500 million per week — even more cheaply, thereby augmenting Berkshire's long-term returns. Specifically, Buffett has said that he expects to put $32 billion to work — a big chunk of his current cash pile — over the next few months.

Some of that cash pile may be used to buy back Berkshire's own stock. It is worth recalling that Berkshire has committed to repurchase its own stock if it ever drops to 120% book value. It has done so in the recent past. In late 2012, Buffett spent $1.3 billion to buy back Berkshire shares when they were trading at less than that benchmark level.

With Berkshire's book value at $100.33 per share for the quarter that ended June 30, 2015, this would put the floor of Berkshire's price at just about $121 per share. This is within striking distance of Berkshire's current price of around $130.

I do find it interesting that Buffett never recommends investors buy Berkshire stock itself, instead suggesting that average investors should just buy and hold a cheap S&P 500 index fund.

That doesn't seem like a bad idea. After all, a quick look at Berkshire's performance shows that it is up 9.53% annually over the past five years, while the S&P 500 ETF (SPY) is up 13.80% over the same period.

2. Nouriel Roubini

Nouriel Roubini made his reputation as one of the many market gurus who predicted the global financial crisis on 2008. In September 2006, Roubini famously told an International Monetary Fund meeting that the United States was in for a "once-in-a lifetime housing bust and a deep recession." He predicted that mortgage-backed securities would crash worldwide, bringing the global financial system to a shuddering halt. The accuracy of that prediction earned him the nickname "Dr. Doom."

Yet, Roubini seems surprisingly unconcerned about the recent pullback in global markets, calling the recent collapse of the Chinese stock market "excessive, unreasonable and irrational." Roubini points out that the stock market in China has little impact on the "real" economy. And the Chinese government standing behind the state-owned banks will help avert any serious financial collapse in the Middle Kingdom. This may cost the government trillions. But if push comes to shove, the banks will be bailed out, just as they were back in the late 1990s.

Roubini believes that China's slowdown is not "hard" or "soft" — just "bumpy." Ignoring the widespread criticism of the validity of Chinese economic statistics, Roubini believes Chinese growth won't slow to below 6.5% this year and 6% in 2016. Nor does Roubini believe China's devaluation of the yuan will mark the beginning of a currency war that could spread deflation across the world.

Roubini's biggest concern is the slowing global economy and the prospect of liquidity in certain assets drying up when asset prices start to fall.

I've always found it fascinating that Roubini has said that he never invests on the back of his own insights. Instead, he puts his money in cheap index funds, just as Warren Buffett recommends.

The irony is that in doing so, Roubini has probably outperformed most of his clients who instead actually acted on his advice since 2008.


The 2015 Hale Index of the Top 500 Global Economic Entities

Written by Nicholas Vardy, CFA.

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By Patric Hale

This week's Global Guru guest columnist is my friend Patric Hale, who has put together a compelling and original list of economic entities from across the world as a measure of global economic power and influence. I believe it offers some fascinating and unexpected results.

In my book, "It's the Economy! (Stupid)" (2008), I introduced a new index, immodestly called "The Hale Index of Top 500 Global Economic Entities." Its purpose is to give an entirely new and different perspective on the global economy moving into the 21st century. You will see below a summary of the overall economic power based just on nation-states' gross domestic product (GDP) along with the Top 30 Global Economic Entities.

The Index is meant to present a comparison of one thing: Economic Power! It balances countries by GDP, compared to the largest companies and organizations, based on their economic power. Obviously, economic power is not always comparable in a direct way, but all are "entities" that are organized for economic activities for gains or losses. For instance, a country's GDP is roughly comparable to its annual "revenue," much like a company, and, indeed, in this Index you will see how countries and companies rank side-by-side on this basis to give them comparative perspective.

But, of course, current income is only one way to measure and compare economic power. The other major yardstick is what I call "gross accumulated institutional savings." These comprise the "assets under management" (AUM) of global money managers and the assets on the balance sheets of the major banks in the world. These gross institutional savings are now being accumulated on a truly global basis and — more importantly — allocated in pursuit of the best and/or safest returns anywhere in the world, too.

Consequently, the Index combines the top entities from four basic lists:

  • The largest countries in the world ranked by GDP, as determined by the IMF/World Bank's "World Economic Outlook," April 2015;
  • The P&I/Towers Watson list of the Top 500 Global Money Managers ranked by assets under management (AUM);
  • The Fortune Global 500© list of the top public companies in the world, ranked by revenues of the companies (2015);
  • And the Top 100 Global Banks ranked by assets by

So here is the top-line summary of this list: The top 20 countries alone account for over 80% of the global GDP. Consequently, as they go, so goes the rest of the planet — like it or not! Below is the top line of the structure of the global economy based only on nation-states:


The Global Stock Market Washout

Written by Nicholas Vardy, CFA.

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Last week, I discussed how BRIC investing went bust.

Well, as it turns out, I may have unfairly picked on the BRICs.

After all, investors everywhere on the planet are having a rough time.

In the past, it has been true that "there is always a bull market somewhere."

But in today's interconnected world where both information and lousy market sentiment pass at light speed, there has been no place to hide.

The Global State of Play

I follow 47 global stock markets that U.S investors can invest in on a daily basis at my firm, Global Guru Capital. NOTE: Global Guru Capital is a Securities and Exchange Commission-registered investment adviser and is not affiliated with Eagle Financial Publications.

And the news is pretty grim...

Not a single stock market has gained over the last month. Only a single market is up during the last three months. And that's the iShares MSCI Ireland Capped (EIRL) by a hairsbreadth.

Zooming further out, nine markets out of 47 are up in 2015, with Ireland and iShares MSCI Denmark Capped (EDEN) leading the way with gains of 15.75% and 15.01%, respectively. iShares MSCI Israel Capped (EIS), iShares MSCI Italy Capped (EWI) and Market Vectors Russia ETF (RSX) round out the top five with gains of 8.97%, 7.15 and 5.17%.

Perhaps most surprisingly, there are only four markets out of 47 that have generated positive returns over the past 12 months.

I cannot recall ever seeing such a sea of red since the financial crisis of 2008.

At the top of that heap stands the much-reviled domestic Chinese A-Shares through the Deutsche X-trackers Harvest CSI300 CHN A (ASHR), up 17.4%. It is followed by Ireland, Denmark and Israel — none of which are likely to make up core positions in your portfolio.

Now, of course, these markets could turn on a dime. It doesn't take much shift in sentiment to see these markets rally 10% or more between now and the end of the year. But even that would leave 26 markets out of this group of 47 underwater for 2015.

Where the Smart Money is Going

And don't think the smart-money investors are immune from the downturn.

Warren Buffett's Berkshire Hathaway (BRK-B) is down 6.02% over the past year. Activist investor Carl Icahn's Icahn Enterprises, L.P. (IEP) – he likes to boast he has a much better track record than Buffett — is down 31.78% over the same period

At the same time, extremes are where money is made. So it's worth looking at what the smart money is doing at times like this.

I. Commodities

Low commodity prices are good news for the construction and manufacturing sectors. The plummeting price of oil may mean that a gallon of gasoline may slip below $2.00. That's the equivalent of 33 cents a gallon in 1970.



Written by Nicholas Vardy, CFA.

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August 2015

The "Ivy Plus" Investment Program lost 6.03% for the month.
The "Global Gains" Investment Program declined 6.24% for the month.
The "Double Your Dividends" Investment Program dipped 2.33% for the month.
The "American Alpha" Investment Program fell 6.43% for the month.
The “Masters of the Universe” Investment Program lost 9.51% for the month.


The "Ivy Plus" Investment Program lost 6.03% for the month. The program is down 4.04% year-to-date, through August 31. Six out of 26 positions have posted gains for the year.

Virtually all asset classes were caught up in the August sell-off. The sole exception was Business Development companies (BDCs), which eked out a 0.36% gain.

Emerging markets were hit the hardest, tumbling 9.86%, thank in part to a large weighting in China. Hedge funds were also hit surprisingly hard tumbling 8.13%

After the dust settled, the strongest performer in the Program in 2015 has been Developed Market Small Caps which are up 6.24% this year. These are followed closely by Private Equity, which thanks to generous dividends, is up 5.58% in 2015. U.S. IPOs have also still eked out a 3.22% gain.

The “Ivy Plus” investment program positions performed as follows:


Monthly Gain

YTD Gain







US Large Cap



US Mid Cap



US Small Cap



Developed Large Cap



Developed Small Cap



Emerging Markets



Emerging Markets Small Cap



Emerging Markets – Low Volatility



Private Equity



Business Development Companies (BDCs)



S&P 500 Equal Weight



S&P 500 Dividend Payers



Initial Public Offerings (IPOs)



Corporate Spin-offs






Fixed Income






US Treasuries



Foreign Bonds



Inflation Protected



High Yield Bonds






Real Assets






US Real Estate



International Real Estate












Hedge Funds






Global Macro



Hedge Fund Long/Short



Managed Futures



Hedge Fund Managers




The "Global Gains" Investment Program declined 6.24% for the month. The program is down 3.46% year-to-date, through August 31. Four out of 10 positions have posted gains for the year.

Global emerging markets suffered a steep sell-off in August, dropping 9.23%. Emerging Markets Low Volatility wasn’t far behind with a loss of 8.31%.

Frontier markets and Developed market small caps held up the best, falling only 3.39% and 4.18%, respectively.  Developed market small caps are also the top performer of the year so far, eking out a gain of 2.12%.

Global Value- investing in the cheapest markets of the world- also held up fairly well, pulling backonly 5.15%

 The “Global Gains” investment program positions performed as follows: