German wealth managers are now openly promoting the country as tax haven for Swiss residents: The website of this German wealth manager basically says:

“Tax Oasis Germany: The German finance minister wants to stop tax havens worldwide. But he has overlooked one - Germany. Because Germany offers non-residents tax advantages - especially Swiss residents….”

Now, shouldn’t the OECD jump on this case and call for an emergency meeting of the G20?

…It will always be about your money” . Private bank Hyposwiss is running an advertisement making fun of the UBS claim “You and Us” . Unfortunately, UBS has just changed the ad claim to “We Will Not Rest” making the Hyposwiss joke look a bit yesterday…

The guys from Passive Investing in Geneva have just published a short but on-the-spot new DIY-guide to passive investing. It’s worth the read if you are toying with the idea to get into passive investing or if you would like to review your investment approach. Make also sure to read the MyPrivateBanking-Guide on ETF Risks. If you follow the advise of these two papers, your investment performance will probably beat 95% of conventional wealth managers…

Here we go again, the markets will soon crash with a big kawooooooommmm and a fireball. Who says so? It’s the Hindenburg Omen, a complicated technical stock market indicator, that predicts living hell on earth for stock investors and was named after the Zeppelin Hindenburg which went up in flames and cost 35 lives. Analysts are readily jumping on the bandwagon predicting that “A savage equity downturn is imminent”. The Hindenburg Omen even made it today into the financial section of the venerable NZZ (German speaking quality paper, Zurich daily).

Now, how do the statistics look for the Hindenburg Omen? Allegedly, the Omen predicted over the last 25 years with a probability of 24% a market crash (loss of more than 15%), with a probability of 36% a panic (loss of more than 10%), with a probability of 52% a loss of more than 8% and with a probability of 76% a loss of 5% on the New York Stock Exchange. WOW! So, in 76% of cases there will be a loss of 5% within….hhhmmmmm…wait a minute. Nobody tells us wihtin which timeframe that prediction will turn into reality. The only information I can find is that for half the predictions the downturn happened latest after 41 days. So the bottomline is: May be you will lose 5% within 41 days or later. With a much smaller probability you will lose 10% or more. Sounds to me like there could be some rain tomorrow, or next week, may be also snow before Christmas. This is just another example of data mining, i.e. looking ex post for statistical correlations which - at the end of the day - turn out to be mere chance events. And, it is a bad example on top of it - given the low probabilities.

James Altucher is one of the least arogant and most knowledgeable hedge fund managers I have come across. He is a great investor but has also started some great businesses like stockpickr.com. In addition, James has written several books on investing. The Kirk Report has just run a long interview with James:

“The only three things that are important are discipline, persistence, and psychology. Without those three things there isn’t a strategy in the world that will work for you. With those three things, just about any strategy will work.(…)No human or strategy can consistently beat the market. The best traders I know are some of the most humble guys out there and have no arrogance on their market opinions at all. They are able to switch opinions and strategies very quickly. I would say that over the years any arrogance I had about any strategy has probably disappeared and now I’m appreciative of just about any strategy out there as long as it comes with persistence, discipline, and positive psychology.”

Very  wise words, indeed.

Once upon a time, quant funds were THE investment vehicle every sophisticated investor had to be in. For instance, in 2006 Kiplinger, one of the big personal finance platforms, argued that quant funds were a revolution in active investing, taking the emotion out of investment decisions:

“Human emotion and behavior are too often the enemy of sound investment hygiene. You probably should be buying when the herd is selling and selling when the herd is buying. Many investors fall deeply in love with the stocks they own. Fund managers and Wall Street security analysts often behave like cheerleaders for the companies they’re supposed to be dispassionately analyzing. All this emotion partly explains the growing interest in so-called quantitative funds, mutual funds largely managed by soulless computers that crunch the numbers.”

So far, so good. But what happened to the quant funds of all those math whizzes? Morningstar just published an analysis of quant funds and the results are devastating:

“The carnage has been widespread. For example, seven of Bridgeway’s eight actively managed funds that rely exclusively on quant models land in the bottom third of their Morningstar categories over three years through July 28, 2010. The same is true of six of Goldman Sachs’ eight quant funds with three-year records. JP Morgan has a lineup of eight Intrepid brand quant funds, and each has lagged its typical category peer over the past three years. Vanguard’s quant group has struggled, as has AXA Rosenberg–its four Laudus funds will soon be liquidated.”

How come? Basically, quant funds use many different and complex variables to predict stock market success that showed good performance in the past. Yet, history never repeats itself exactly. The crash began in the summer of 2007. Most quant funds lost substantially and, after changing their strategies over the course of the crisis, they were then not able to profit from the upswing since 2009.

Not surprising and another confirmation that active investing will not be able to beat the market over extended times. Tragically, investors have often paid exorbitant fees to the quant funds as many of them used hedge-fund-style compensation models.

It seems that over at Credit Suisse they are panicking about the tax probes lead by the Germans and other  European governments against offshore clients and also bank advisers. We have been contacted by former Credit Suisse clients, some of them long standing clients, who have been rudely kicked out as clients. We have credible information that even clients who legalized their holdings in Switzerland have seen their accounts canceled. Only few weeks ago Credit Suisse sent a letter to foreign clients with less than 1 Mio. Euro that they have to pay additional fees if they want to keep an account in Switzerland. MyPrivateBanking has copies of this letter.  We will follow up with this story next week and hope to get some comments from the CS management.

I am pondering one sentence I stumbled upon today:

“It is ironic that the markets are now at their most democratic at time when returns are at their nadir.”

This is from the blog abnormal returns, a great source of financial debate. Basically, indivividual investors today have all the tools and vehicles to free themselves from unhealthy advice and make their own decisions:

“The ironic thing is that at a time of poor returns, the information and tools available for investors have improved dramatically. This is largely a function of the rise of Internet. Abundant data, cheap trades and an explosion in investment vehicles, i.e. ETFs, have made it ever more possible for individuals to manage their portfolios how the largest institutions did just a few years prior.”

I still think that this investor heaven is a far cry from what most private investors do today. Most individuals are still entrusting their wealth to a bank or a wealth adviser who is not free of conflict of interest when picking investment products for their clients. Most private investors still believe their advisers when they tell them how to time the markets or pick individual stocks or bonds. And on top of everything, most investors still pay way too much money to their wealth managers. It will be a long time until the majority of private investors really takes investing in their own hands. But, in any case, the revolution has begun and it offers too many advantages to individual investors to be stopped. Particularly in times of low returns the weaknesses of trading-oriented and active stratgies of most wealth managers become very clear to investors.

Deutsche Bank set another prime example on how to push dubious investment products in their client portfolios without taking on any risk, but charging absurd commissions.  In 2006 Deutsche Bank promoted a fund in Ferris Wheels called Global View. However, so far not ferris wheel has been built, but nevertheless the fund spend up €208 million for property purchases, banking fees and dubious project development costs. So it looks like the average  investors will incur huge losses, but how about the sponsor and sales arm of the fund Deutsche Bank ?

“For Deutsche Bank, though, the Ferris wheel project turned out to be very good business. The Frankfurt-based bank earned €19.2 million through Global View thanks to its client advisors, who drew in €160 million from the bank’s customers within the space of 10 weeks, primarily from German small investors like Schmidt. The bank itself, however, never invested in the fund. Global View used the bank Delbrück Bethmann Maffei (DBM) instead. Deutsche Bank preferred not to invest its own money in the project, for example through loans. Even when that money was badly needed, the bank declined on the basis of a “market risk” that couldn’t “be assessed and covered by the bank. [...]

The letters and e-mails raise suspicions that Deutsche Bank not only insisted on unusually high commission rates that were meant to be concealed from investors, but even doubted the project’s chance of success. From the beginning, the bank calculated using an “equity commission of 12 percent. The sales brochure was only supposed to show 10 percent, which called for a creative solution. One Deutsche Bank employee suggested in writing that the excess commission simply “no longer be shown in the brochure”.

To me that looks less like a creative but more like a criminal solution !