PGM Capital – Blog

Are we approaching the end of free money?

By Eric Panneflek

Dear PGM Capital Blog readers,

On Thursday, October 6, ECB president Mario Draghi said to build a Taper consensus as QE Decision nears and had pointed out that it is considering ways to scale down its support to the European bond markets as follows:

  • Slowing QE by 10 billion euros a month when the current QE program ends in March 2017.
  • Make the start of the tapering program dependable on economic outlook of the Euro zone.

The European Central Bank, quantitative easing program, has started on 9 March 2015 is due to run until March 2017.

ECB chairman Mr. Mario Draghi, has repeatedly said that the QE program will run until the end of March 2017 or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim.

He also said:

"Ultimately, the decision will be driven by the outlook for inflation.

Below chart shows the ECB asset purchasing program, since it start in March 2015, up to September 2016.

The report caught the market somewhat off guard, and in response, Eurozone government yields have risen across curves and countries.

Based on the news, the benchmark for the Euro-zone bond, the German 10-year note, seems to have left the days of negative yields behind it, and is currently hovering around 0.05% testing levels barely seen since Brexit earlier this year.

Below chart shows a map of bond yield shows that beside, Norway, across the board Europe and the EU based on the ECB asset purchasing program, they currently living in a world of negative interest rates.

Map of government bond yields

Later in 2017, the ECB could think about tapering, and try to wind down the program in March 2018, but these are hypothetical exit strategies, not something the ECB will likely implement for a while.

What might be easily forgotten, perhaps blurred by the super-easing of the Draghi era, is that this is in fact not the first time the ECB has been contemplating tightening.

What is different this time around, is that in the US, the Federal Reserve has already moved to hike interest rates once, and is widely expected to hike once more at its coming December meeting.

If this happen, it will be for the first time since the global financial crisis, of 2008, that two of the world's most significant central banks -- the US Federal Reserve and the European Central Bank -- could be tightening their monetary policies at the same time, in what might be the beginning of the end of a remarkable long-stretched run of virtually free money and financing.

The big question now is whether the policies have in fact fixed the underlying problems, or merely masked them by propping up their economies and not allowing malinvestments and markets to correct with a flood of easy money and exaggerated financial valuations.

Now that the tide is about to withdraw, how will everything look?

The turmoil and volatility we have seen in the financial markets lately, can be interpreted as a sign that they are concerned and are fearing the consequences of FED rate hikes.

Rising Interest Rates Are Bad News For Bondholders
The market price of an individual bond will fluctuate in the opposite direction of interest rates, which means that, when interest rates -- which recently hovered at their lowest levels in 40 years -- rises, the prices of bonds you own now will generally drop as yields and interest rates go up.

For example, if you purchase a U$10,000 bond at par value (or face value) with a coupon (yield) of 4%, your annual income is $400. If interest rates rise and a newly issued bond with an identical rating pays 4.5%, the market value of your bond declines to US$8,889.

The fact that bond prices and yields move in opposite directions is often confusing to new investors.

Bond prices and yields are like a seesaw: when bond yields go up, prices go down, and when bond yields go down, prices go up, below illustrative chart shows this relationship.

In other words, a move in the 10-year Treasury yield from 2.2% to 2.6% indicates negative market conditions, while a move from 2.6% to 2.2% indicates positive market performance.

The above means that, if higher interest rates are on the horizon, it may be time to sell some of your bond holdings (if you have any) and rotate the money into other investments – like dividend-paying or high-growth stocks.

However, the short-term pain might be favorable for bond investors, which may have to endure short-term price losses in order to enjoy higher coupons in the long run, especially if the alternative is to only kick the can further down the road by allowing the bubble in government debt to inflate further, which could very well end with a much more painful forced correction at a later point in time.

Last but not least, before following any investing advice, always consider your investment horizon, risk tolerance and financial situation and be aware that markets can remain longer irrational than that you can remain solvent.

Until next week.

Yours sincerely,

Suriname Times foto

Eric Panneflek


What are Investment Gurus’ Portfolio telling us

By Eric Panneflek


Dear PGM Capital Blog readers,

In this weekend's blog edition we want to discuss the investments and investments strategies of some important gurus in this current volatile environment.

Guru (Sanskrit: guru) is a Sanskrit term that connotes someone who is a "teacher, guide, expert, or master" of certain knowledge or field.

In pan-Indian traditions, guru is someone more than a teacher, traditionally a reverential figure to the student, with the guru serving as a "counselor, who helps mold values, shares experiential knowledge as much as literal knowledge, an exemplar in life, an inspirational source and who helps in the spiritual evolution of a student."

The term also refers to someone who primarily is one's spiritual guide, who helps one to discover the same potentialities that the guru has already realized.

Using the above as a guideline we can define an Investment Guru as follows:

A person who is an expert, or master in the field of capital markets and has developed overtime a strategy of investing or trading with higher returns at lower risk.

Below we will discuss the investment strategy of some successful investment gurus.


Warren Buffett is the most respected and successful investor in history.

Buffett has been called "The Oracle of Omaha" for his impressive investing prowess.

As of September 2007, he was the third richest person in the world. Buffett studied under the legendary Benjamin Graham at Columbia University. Graham had a major impact on Buffett's life and investment strategies. Buffett is Chairman of the miraculous Berkshire Hathaway, which he built from a textile company into a major corporation with a market cap in excess of US$200 billion.

Under Buffett's leadership, Berkshire shares averaged a 21.4% compounded annual gain in per-share book value from 1965-2006.

Below table shows the top 10 Holdings of Warren Buffett at the end of the second quarter of 2016.

Company Ticker Value On
No of Shares % of portfolio
KRAFT HEINZ CO KHC  28,812,169,000 325,634,818 22.21%
WELLS FARGO & CO NEW WFC   22,704,405,000 479,704,270 17.50%
COCA COLA CO KO   18,132,000,000 400,000,000 13.97%
INTERNATIONAL BUSINESS MACHS IBM 12,329,439,000 81,232,303 9.50%
AMERICAN EXPRESS CO AXP 9,211,866,000 151,610,700 7.10%
PHILLIPS 66 PSX 6,250,563,000 78,782,000 4.81%
US BANCORP DEL USB 3,430,598,000 85,063,167 2.64%
DAVITA HEALTHCARE PARTNERS I DVA 2,981,889,000 38,565,570 2.29%
WAL MART STORES INC WMT 2,937,332,000 40,226,402 2.26%
MOODYS CORP MCO 2,311,805,000 24,669,778 1.78%

Below image shows a breakdown of Warren Buffett portfolio by sector, on June 30, 2016.



George Soros is known for the unmatched success of his Quantum Fund. A hedge fund guru, he is recognized for having the best performance record of any investment fund in the world over its 26-year history.

A mere US$1000 invested in 1969 when Soros established the Quantum Fund would have been worth US$4 million by the year 2000. During that time he achieved a cumulative 32% annual return.

Below table shows the top 10 Holdings of George Soros at the end of the second quarter of 2016.

Company Ticker Value On
No of Shares % of portfolio
SPDR S&P 500 ETF TR SPY  845,432,000 4,034,900 18.08%


 533,523,000 8,892,050 11.41%
JDS UNIPHASE CORP    (DBCV 0.625% 8/1)  245,610,000 250,782,000 5.25%
ISHARES TR    (RUSSELL 2000 ETF) IWM  208,441,000 1,813,000 4.45%
CIENA CORP    (NOTE 0.875% 6/1)  203,729,000 205,139,000 4.35%
NUANCE COMMUNICATIONS INC    (NOTE 2.750%11/0)  187,621,000 185,534,000 4.01%
FIREEYE INC    (NOTE 1.000% 6/0) 166,237,000 182,302,000 3.55%
ADECOAGRO S A AGRO 130,731,000 11,917,157 2.79%
INVENSENSE INC    (NOTE 1.750%11/0) 104,265,000 111,290,000 2.22%
ROVI CORP    (NOTE 0.500% 3/0) 93,632,000 98,560,000 2.00%

Below image shows a breakdown of George Soros portfolio by sector, on June 30, 2016.



Carl Icahn is an activist investor. He takes minority stakes in public companies and typically pushes for change. He invests with three investment vehicles: the 7 billion hedge fund, Icahn Partners, American Real Estate Partners (AREP), a public traded private equity firm, and ICAHN MANAGEMENT LP, a US$2 billion hedge fund. GuruFocus tracks the third portfolio, which covers all the stocks owned by Icahn Partners. Mr. Icahn has a personal wealth of US$17 billion.

Below table shows the top 10 Holdings of Carl Icahn at the end of the second quarter of 2016.

Company Ticker Value On
No of Shares % of portfolio
ICAHN ENTERPRISES LP IEP  6,671,801,000 123,551,872 32.9%
AMERICAN INTERNATIONAL GROUP AIG   2,414,214,000 45,644,982 11.9%
PAYPAL HOLDINGS INC PYPL   1,237,585,000 33,897,153 6.1%
CHENERIE ENERGY INC LNG 1,227,153,000 32,680,490 6.1%
FREEPORT MCMORAN INC FCX 1,158,560,000 104,000,000 5.7%
FEDERAL MOGUL HOLDING FDML 1,151,684,000 138,590,141 5.7%
CVR ENERGY INC CVI 1,103,580,000 71,198,718 5.4%
HERBALIFE LTD HLF 995,010,000 17,000,000 4.9%
XEROX CORPORATION XRX 939,795,000 99,030,026 4.6%
ALLERGEN PLC AGN 785,706,000 3,400,00 3.9%

Below image shows a breakdown of Carl Icahn portfolio by sector, on June 30, 2016.



John Paulson is the President and Portfolio Manager of Paulson & Co. Inc. Paulson was ranked by Absolute Return Magazine as the 3rd largest hedge fund in the world managing approximately US$29billion in merger, event and distressed strategies. Mr. Paulson received his Masters of Business Administration with high distinction, as a Baker Scholar, from Harvard Business School in 1980.

He graduated summa cum laude in Finance from New York University's College of Business and Public Administration in 1978.

In 1994 he started his own hedge fund, focusing on M&A. Starting with $2 million, he built it to $500 million by 2002 through a combination of its returns and new money from investors.

John Paulson had pulled off the greatest trade in financial history, earning more than $15 billion for his firm by shorting subprime mortgages during real-estate bubble in 2007.

Paulson is now having to sooth jittery investors after his Paulson Advantage ended 2012 down more than 14%, its second straight year in the red.

Below table shows the top 10 Holdings of John Paulson at the end of the second quarter of 2016.

Company Ticker Value On
No of Shares % of portfolio
MYLAN N V MYL  997,047,000 23,058,461 10.13%
SHIRE PLC    (SPONSORED ADR) SHPGY  972,421,000 5,282,600 9.88%
ALLERGAN PLC AGN  962,063,000 4,163,151 9.77%
TEVA PHARMACEUTICAL INDS LTD    (ADR) TEVA  842,548,000 16,773,800 8.56%
EXTENDED STAY AMER INC    (UNIT 99/99/9999B) STAY  637,791,000 42,661,591 6.48%
SPDR GOLD TRUST GLD  603,896,000 4,775,012 6.13%
MALLINCKRODT PUB LTD CO MNK  508,794,000 8,371,080 5.17%
AMERICAN INTL GROUP INC AIG  479,189,000 9,060,100 4.87%
VALEANT PHARMACEUTICALS INTL VRX  384,110,000 19,072,000 3.90%
STARWOOD HOTELS&RESORTS WRLD HOT  332,514,000 4,496,476 3.38%

Below image shows a breakdown of John Paulson portfolio by sector, on June 30, 2016.


The world of investing can be a complicated place to navigate. Where do you start? For beginners, the sheer volume of information available to them on the internet has only served to make the process more complex and increase confusion.

Moreover, it appears that most investment strategies are now called value strategies, even though they have little in common with the traditional value strategies laid out by the likes of Benjamin Graham and Walter Schloss.

Investment Gurus they are mostly a value investor, contrarian and insider.

The above implicates that by analyzing the core holdings of Guru, that replicating the investment ideas of famous investors or investment managers, might lead to similar portfolio results as the one of the Gurus.

When analyzing the top 10 holdings of the gurus mentioned in this article we've noticed the following:

  • A great portion of their portfolio is in energy, basic material and Gold, which means, that they might foreseeing a rebound of these sectors.
  • They are heavily invested in Healthcare, consumer and insurance stocks, which means that they are highly defensive right now.

Like any other strategy, copycat investing has its share of risks, such as the following:

  • Success is not guaranteed
  • Stock may have already moved
  • Too many copycats
  • Differing investment horizon/objectives, than the one of the Guru or Money Manager

While copycat investing has its risks, common-sense measures – such as following successful investors, exercising patience, looking for accumulation, diversifying with different sectors and conducting your own due diligence – can help you become a (near) perfect copycat and improve your chances of investment success.

Last but not least, before following any investing advice, always consider your investment horizon, risk tolerance and financial situation and be aware that markets can remain longer irrational than that you can remain solvent.

Until next week.

Yours sincerely,

Suriname Times foto

Eric Panneflek


Highlights of the Week of October 3, 2016.

By Eric Panneflek

Dear PGM Capital Blog readers,

In this weekend's blog edition we want to discuss some of the most important events that happened in the global capital markets, the world economy and the world of money in the week of October 3, 2016:

  • USA Federal Debt increased with 1.4 Trillion USD in FY-2016.
  • British Pound plummet to 31-year low.
  • USA Jobs report of October 7, 2016.

On Monday, October 3rd, data released from the USA Treasury revealed that the county's federal debt in FY-2016, -- that ended on Friday September 30 -- increased with US$1,422,827,047,452.46.

By the close of business on Sept. 30, 2016, the last day of fiscal 2016, it had climbed to US$19,573,444,713,936.79 as can be seen from below chart.

According to the Census Bureau’s latest estimate, there were 118,215,000 households in the United States as of June. That means that the one-year increase in the federal debt of US$1,422,827,047,452.46 in fiscal 2016 equaled about US$12,036 per household.

The total federal debt of US$19,573,444,713,936.79 now equals about US$165,575 per household.

On Friday, October 7, in early trading in the morning in Hong Kong, the British pound tumbled dramatically in chaotic trading that included a flash drop in early Asian hours and sustained falls in London as can be seen from below chart.

Late morning in Britain, it was down 3% against the U.S. dollar.

The sharp drop in Asia came amid worries about the U.K.’s exit from the European Union that were accelerated by computerized trades, market watchers said.

The pound fell more than 6% just after 7 a.m. Hong Kong time on Friday to as low as US$1.1819 from just above US$1.26, before recovering above US$1.24, according to Thomson Reuters data. But it took another dive in London hours and was down well below US$1.23.

On Friday, October 7, at 8:30 am EST, the USA Bureau of Labor Statistic, reported that the total non-farm payroll employment in the country increased by 156,000 in September, and the unemployment rate, which has been stuck at 4.9 percent since the spring, ticked up slightly to 5 percent.


  • Professional and business services employment rose by 67,000 in September and has risen by 582,000 over the year.
  • Health care added 33,000 jobs in September. Ambulatory health care services added 24,000 jobs over the month, and employment rose by 7,000 in hospitals. Over the past 12 months, health care has added 445,000 jobs.
  • Employment in food services and drinking places continued to trend up in September (+30,000) and has increased by 300,000 over the year.
  • Retail trade employment continued to trend up over the month (+22,000). Within the industry, job gains occurred in clothing and clothing accessories stores (+14,000) and in gasoline stations (+8,000). Over the year, employment in retail trade has risen by 317,000.
  • Labor force participation rate, at 62.9 percent, and the employment-population ratio, at 59.8 percent, changed little.


USA Federal Debt:
With an estimated nominal GDP for 2016, for the USA of 18.5 Trillion US-Dollars, the on balance sheet Federal Dept to GDP of the country was at the end of FY-2016 106% of its GDP.

However the debt growth of 1.42 Trillion US-Dollars in FY-2016, amounts to roughly 7.5% of the entire US economy as can be seen on below chart.

By comparison, the Marshall Plan, which completely rebuilt Western Europe after World World II, cost $12 billion back in 1948, or roughly 4.3% of US GDP at the time.

Above chart shows also that this increase in absolute terms is the THIRD largest increase in government debt in US history. The only two previous times in which the debt increased more than the 2016 fiscal year were during the financial crisis.

The British Pound in Free-fall:
Traders and strategists cited several reasons for what they believed caused the 6 percent crash of the GBP on Friday morning in Asia.

  • The comments by French President François Hollande in Paris, calling for tough exit negotiations. These remarks, though, were several hours before the crash.
  • Comments from senior European lawmakers that suggested EU leaders would make it hard for the U.K. to continue having access to the internal free market.
  • As the pound’s descent worsened, it broke technical levels that probably triggered automatic sell orders or selling from trading strategies based on algorithms.

The wave of selling Friday follows a rough patch for the currency, which has now slumped more than 16% since the U.K. voted to leave the European Union on June 23 as be seen from below chart.

USA September Jobs Report:
The U.S. employment growth eased for the third straight month in September and the jobless rate rose ticked up a tenth of a percentage point to 5.0 percent as more Americans rejoined the labor force.

Below point shows that America’s job engine might be running out of gas:

  • The U.S. economy created only 156,000 jobs in September, which missed forecasts for 172,000.
  • It was also down from 167,000 in August and 252,000 in July.
  • Continued job losses in manufacturing and a decline in government jobs hurt the numbers, as did a slowdown in growth in the leisure and hospitality sector.
  • The average hourly earnings growth came in at 0.2%, which  was less than the 0.3% gain economists were expecting.
  • The unemployment rose to 5%, rather than held steady at 4.9% as expected. One reason is that more Americans re-joined the labor force, however they would only do so if they thought looking for a job would actually result in finding one.

Below chart shows a breakdown of jobs added in September in comparison with August.

Above chart shows that the slowdown in the labor market in the USA of last month was spread widely, manufacturing jobs declined by 13 K, transportation and warehousing shedding 9,000 jobs and the healthcare and social assistance sector adding only 21,800 jobs, down from 45,300 a month earlier.

U.S. stocks fell, while prices for U.S. government debt were largely unchanged. The dollar weakened against a basket of currencies, suggesting traders had scaled back bets on a rate increase next month.

This employment report will be the last before the Fed's next policy meeting on November 1-2, based on this investors see almost no chance of a rate increase at that meeting given how close it is to the election.

Until next week.

Yours sincerely,

Suriname Times foto

Eric Panneflek