If the key to the cure lies in the diagnosis, then a solution to the euro zone crisis may be close at hand.
This week – thanks to research by the hedge fund manager Boaz Weinstein – an uncanny correlation has been established between the percentage of Greek men still at home with their parents and the price of five-year credit default swaps.
These swaps are derivative instruments that insure the holder against a nasty credit event such as being chucked out of the euro zone in the aftermath of an irretrievable breakdown in political negotiations.
As you can see from the accompanying chart, the percentage of men between the age of 25 and 34 living at home with their parents is also high in Portugal, Italy and Spain. In fact, it more or less mirrors the economic plight of each nation: the more men still living with their parents, the higher the risk of that country’s sovereign debt.
In the case of Greece, as almost 60 per cent of men in this age bracket still live with their parents, it follows that more than half the adult male population only have to fend for themselves for a few years until they get to retire at the age of 53.
The outlier in this chart is Ireland whose credit default swaps are more expensive than even Italy and Spain but where only 30 per cent of adult males still live at home. Perhaps they live at the pub down the road and only nip back home to do the laundry and raid the fridge.
The Byzantine complexity of Europe’s negotiations and the endless bursts of ”crisis now resolved” rhetoric belie the fact that a Greek exit is inevitable.
As the terms of this latest €130 billion ($162 billion) bailout trickle through, it is as plain as ever that the Greeks are being asked to surrender their sovereignty for fiscal and political servitude.
Apart from the punitive legal demands of this austerity-for-bailout deal, there is even talk that creditors may be able to seize the national gold reserves.
The logical outcome of all this remains an orderly default and return to the drachma at half the value of the euro. The debts halve in value. The banks who were silly enough to lend in the first place take a haircut.
Take it or leave it. Sales of Mercedes, BMW and French wine take a beating and Greece as a low-price tourist destination takes off. Next door, Turkey is doing just fine on its own.
Last week we told the story of Titanium Asset Management, a fund manager that touted dazzling investment returns of 130 per cent, returns that turned out to be ”hypothetical”.
The auditor of Titanium’s All-Weather fund, William Tomiczek, had been seeking for years to be expunged from the official records as he was not actually the auditor at all and had never met anybody from Titanium.
Today we can report that a closer examination of the returns published by All-Weather shows further discrepancies.
Comparing the asset manager’s marketing materials – newsletters with performance tables appended – the monthly portfolio returns of the Titanium All-Weather fund are highly irregular.
For example, the February 2010 returns in one document (from 2010) show a positive 0.06 per cent return, contradicting a return of a negative 2.06 per cent for the same period in another later document (last December). An analysis of three documents alone showed irregularities in five months of the year.
The stated returns on the Titanium Twitter feed also appear to contradict the numbers published elsewhere.
How could a fund with an external auditor, custodian and even an external back office provider report so inconsistently?
Mark Schiliro, the auditor, said his firm did not audit the newsletters. ”MNSA Pty Ltd (an authorised audit company, which I am a director of) audits the accounts for the year ended June 30, and not performance numbers attached,” Mr Schiliro said.
Peter Roberts, a director of White Outsourcing, which does back office work, confirmed that White did produce the unit prices but was not responsible for any marketing documents. ”Valuation of investments is independently performed by us and all investments held are reconciled to an independent third party who holds custody of the physical securities of the fund. We do not prepare or review the monthly newsletters,” he said.
It appears then that funds can still trumpet any old returns they like, without getting busted by the press for a couple of years.
As it turns out, an explanation was forthcoming from a Titanium spokesman, who said this week that when the irregularities were discovered the group moved swiftly to restructure the business.
”The asset management division is in the process of being changed to a brand new entity and the previous investment manager is transferring to a consultative position,” the spokesman said. The manager in question has been suffering serious health issues, he said.
”At the end of 2010 we noticed some erratic behaviour,” he said. ”So we then looked at putting in another analyst. We didn’t actively promote the fund in 2011. We are in the process of restructuring the business.”