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Ryan Darwish
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Ryan Darwish, MBA, CFP®, CLU, ChFC, is a Fee-Only Registered Investment Advisor. Independence and objectivity are the cornerstones of his practice. He has been professionally engaged as an investment manager and financial planner for over 20 years. A more complete biographical, and practice... More
My company:
Darwish Capital Management
My blog:
Global Strategist
My book:
The Emperor's Clothes: A Look at the Megatrends Affecting Your Financial and Investment Decisions.
  • Critique of Roger Altman's Financial Times Commentary
    Roger Altman, founder and chairman of Evercore Partners and former US deputy Treasury secretary under President Bill Clinton offered commentary in the Financial Times suggesting America and Europe are on the verge of a disastrous recession. While he may be correct, I see several problems in his analysis.

    Roger Altman’s analysis and proposed resolution to the unfolding European financial debacle leaves much to be desired. Interspersed with a review the ongoing events are a great many hypothetical conjectures followed by conclusions presented as some sort of deterministic inevitability. Moreover, his proposed resolution, when compared to an existing model of what he proposes, does not appear to conclusively lead to a better result.

    For example, he asks “How do we know that another recession is approaching?”. A more accurate statement would be “it is probable that another recession is approaching”. The simple fact is that none of us has a perfect crystal ball, and from what I can see there is no deterministic cause and effect mechanism that provides a conclusive outcome. Altman may be right, and then again, he may not be. To assert anything more than a probabilistic conjecture is at best an error of judgment and at worse hyperbole directed at serving some sort of agenda.

    Altman follows by asserting that “there is no other credible explanation for the relentless fall in interest rates”. I suspect that there are readers who could provide other explanations. Whether they were credible may be more in the mind of the beholder. This is but one more example of the “in-the-box thinking” that keeps potentially great minds bouncing of the walls of the conceptual framework of worn out economic models. A failure to explore other potential outcomes and ways to reach them is more an indication of intellectual impoverishment than a deterministic economic conclusion.

    Altman’s proposed resolution is “A single currency representing 17 separate nations inevitably requires a unified balance sheet behind it and, following that, a form of fiscal union. The time for denying the latter is over.” However, we already have an operating model of many separate governments with a unified balance sheet and some sort of fiscal union; that would be the United States. Clearly the observable evidence shouts out that this remedy is more than a little problematic as well.
    Sep 21 1:39 PM | Link | Comment!
  • Pending Global Economic Crisis
    The situation in Europe is very serious. From my research and analysis, my conclusion is that a Greek default is already “baked in”. If this situation were limited to a Greek insolvency, it would probably be manageable by the EU. Unfortunately, there are a number of other European countries that
    represent a much larger potential problem because of the size of their economies and banking system, Spain and Italy being among them. I have even heard reports that there are some German and French banks that may have some capital adequacy issues. Fundamentally, the real problem is the potential contagion effect that arises. A number of factors are at work here. One is that bond investors start to demand higher interest rates because of the greater risks they perceive in the markets. This only makes the problem worse because it increases the cost of borrowing specifically for countries like Greece. This in turn, makes their financial situation even more challenging. More generally, it would be reasonable to expect borrowing costs to increase because of greater
    demand for scarce capital. So far governing bodies in the European Union such as the European Financial Stability Fund, the International Monetary Fund, etc, have been trying to make capital available, or restructure existing debt. While these efforts have taken a potentially explosive situation and put it on a slower burn, they have not been effective in resolving the issues. As in the
    United States, even if a theoretically economic effective solution were possible, political differences interfere with the implementation. In my opinion, there will be sovereign defaults. However, even if we are “only” talking about write downs of loan balances, the question arises of the impact on the banking system’s in the individual countries, and globally. Here we have another aspect of the potential contagion effects because banks and insurance companies throughout the world, including the United States, hold these impaired assets as part of their own investments. Moreover, a major risk factor which is very opaque, is what “derivative” exposure these various institutions hold. Derivatives are complex artificially constructed investments that may magnify greatly the risk on the books of these major financial institutions.

    So far, one response of investors has been more what I would call a conditioned reactive response, rather than a response that reflects economic fundamentals. That response has been to migrate toward what are perceived to be “safer” assets. These have included US government bonds and
    precious metals. This has helped hold down interest rates of US debt. In my opinion, while some position may be warranted in US Government bonds, the US financial system is on the precipice of a disaster waiting to happen. It should be kept in mind that one of the largest; if not the largest holder of US debt is China. They are increasingly expressing misgivings about the US financial situation. We are also seeing an increasing migration of capital into assets like gold. This would be capital that presumably would have been available for additional debt purchases. Both from the governmental side as well as the banking and financial institution sides have capital adequacy issues.

    At this point I do not see much that gives me encouragement of a constructive resolution to these issues. In my opinion, at least for the near to medium term future, we are looking at increasing financial and social turbulence. The historical evidence suggests that the way in which policy makers will focus their efforts will be to try to inflate their way out of extreme over indebtedness by creating more and more money. Ultimately this will probably not work, and if I were to have to speculate, I don’t think it out of the question that within three years there will at least be serious discussions among global policy makers about the creation of new currency regimes.

    Since we are in uncharted territory on a global scale, this is a time a great uncertainty in which events could move more or less rapidly depending on what the precipitating factors are. For example, the effects of a major natural disaster, a terrorist act, or who knows what else, are impossible to determine in an already fragile global financial system.

    In my opinion, and reflective of the strategy we are currently being guided by, the best defense will be diversification which is targeted toward addressing the realities of the geopolitical and economic environment for the foreseeable future. This doesn’t mean there won’t be some volatility, but the objective is to be better able to weather the storm, retain value, and take advantage of the opportunities that will arise in what appears to be an oncoming global financial crisis.

    Sep 06 3:41 PM | Link | Comment!
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